India

There is a wide array of institutions and classifications that overlap in the India microfinance sector, making analysis difficult and identification of appropriate regulators confusing. Furthermore, the scope and reach of microfinance in India is hard to capture because direct bank lending is usually not included in microfinance analysis. Commercial banks in India are required to make a certain percentage of loans to designated "priority sectors." Microfinance is one of the priority sectors banks may choose from, and loans are made to institutions as well as individuals in order to fulfill the requirement. As of April 2011, microfinance loans must meet certain prudential requirements in order to qualify for priority sector status. The majority of microfinance is provided by commercial banks, regional rural banks (RRBs), self-help groups (SHGs) (with special linkage programs to banks), cooperative societies, and microfinance institutions (MFIs) that take a variety of forms, including NGOs (registered as societies, trusts or Section 25 companies) and non-bank financial companies (NBFCs).

 
Banks and NBFCs are regulated by the Reserve Bank of India (RBI) with the National Bank for Agriculture and Rural Development (NABARD) supervising and inspecting RRBs; SHGs are regulated by NABARD; cooperative societies are regulated by the state-appointed Registrar of Cooperative Societies (RCS) and state government (with NABARD conducting supervision and inspections); and cooperative banks are regulated by RBI and RCS. Because not all register as NBFCs, most MFIs fall outside of the regulatory gambit though hundreds have joined umbrella self-regulatory organizations including Sa-Dhan and Micro Finance India Network (MFIN). Under pressure from RBI, MFIN has created a code of conduct in order to prevent over-lending to individual borrowers and plans to form ombudsmen offices to address grievances, while Sa-Dhan is developing a code of conduct as well. NBFC MFIs have also come together to form Alpha Micro Finance Consultants P Ltd, in order to provide credit bureau services to MFIs in India.
 
The widely-debated Micro Financial Sector (Development and Regulation) Bill was introduced in 2007, proposing important changes to the microfinance industry, but was never passed. In 2010, the Andhra Pradesh government issued the Microfinance Institutions Ordinance (later, the Andhra Pradesh Micro Finance Institutions (Regulation of Money Lending) Act), which requires all MFIs to register as well as adhere to other rules set forth in the ordinance. In response, RBI formed the Malegam Sub-Committee to make recommendations on how RBI ought to regulate the microfinance industry. In response to the Malegam Committee report, RBI issued a May 2011 circular implementing some of the Malegam recommendations through prudential requirements for microfinance loans to qualify for priority sector status. RBI subsequently created a new category of NBFC-MFIs in December 2011 and issued directions aimed at addressing responsible pricing, transparency and over-indebtedness.
 
Additionally, in late June 2011, a revised Micro Finance Institutions (Development and Regulation) Bill was introduced before Parliament, most notably proposing RBI as the sole microfinance regulator in the country.

Publications

24 March 2014
To develop a deeper and organizational level of understanding customers, a cross-functional team at Janalakshmi, a microfinance institution in India serving over a million customers in urban areas, applied a design thinking process facilitated by innovation consultants.This brochure describes the process and the tool used to create customer profiles.
Countries: 
Download PDF: 
English (943.26 KB)
15 May 2012

This paper explores the KGFS model as it is applied in various parts of India.

Countries: 
Download PDF: 
English (646.79 KB) | Spanish (1.06 MB)
Mobile Formats
iBook (1.69 MB) | Kindle (1.54 MB)

From Our Blog

23 July 2014
4 comments
The new Government of India has made financial inclusion one of the cornerstones of its policies and has set the target of every adult having a financial account by August 2015.
Countries: 
08 July 2014
5 comments
Financial inclusion in India has the mandate at the highest level of policy making, but the market has yet to respond positively to regulations that allow both public and private actors to pursue digitized payment services. Understanding demand for financial services is key to design services that reach scale.
Countries: