The Reserve Bank of India (RBI), India’s central banking authority, recently released a report titled, “Trend and Progress of Banking in India 2010-11,” expressing concern over state governments enacting local legislation to regulate microfinance institutions (MFIs). The report states that, “If other States also come out with legislation similar to the [Andhra Pradesh] Government, it will raise concerns not only about multiple regulations but also about client protection, as borrowers would then be subject to different regulations” [1]. The report indicates that the multiple regulations would allow institutions operating in a given state to take undue advantage by choosing which rules to follow. Alternatively institutions operating in multiple states as well as regulators would find their business overly complicated. The report is published at http://rbidocs.rbi.org.in/rdocs/Publications/PDFs/0TPBI121111_FULL.pdf
By Cameron Milani, Research Associate
About the Reserve Bank of India: Established in 1935, the Reserve Bank of India (RBI) undertakes consolidated supervision of the financial sector comprising commercial banks, financial institutions and non-banking finance companies (NFBCs). The current focus of RBI is to supervise financial institutions, consolidate accounting standards, resolve legal issues in cases of banking fraud, monitor non-performing assets and supervise the rating model for the banking sector. In 1979, the National Bank for Agriculture and Rural Development (NABARD) was formed at the behest of RBI to provide regulatory oversight to regional rural banks (RRBs) and to promote the development of agricultural lenders: tasks that had been the responsibility of RBI. While all microfinance institutions (MFIs) and non-banking financial companies still operate under RBI regulations, the responsibility for inspecting nonprofit MFIs, agricultural lenders, RRBs, state cooperative banks, district central cooperative banks and state cooperative agricultural and rural development banks was transferred to NABARD. RBI maintains these responsibilities for for-profit MFIs. Although RBI was originally the parent organization of NABARD and until October 2010 held a 72.5 percent stake in the outfit, RBI owns a one-percent stake in NABARD as of 2011.
Sources and Additional Resources:
BusinessLine, “RBI Voices Concern Over State Govts Regulating Microfinance Institutions,” http://www.thehindubusinessline.com/industry-and-economy/banking/article…
MicroCapital Article, May 19, 2011: “MICROCAPITAL BRIEF: Confusion Continues Over Regulation of Microfinance Institutions (MFIs) in India, State of Andhra Pradesh May Adjust Law to Reconcile With Federal Rules,” https://www.microcapital.org/microcapital-brief-confusion-continues-over-…
MicroCapital Universe, Reserve Bank of India: https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Res…
Browse the MicroCapital Universe and add your entry to the wiki at https://www.microcapital.org/microfinanceuniverse/
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