Abstract:
India’s microfinance sector has experienced high growth since its emergence in the 1980s. There are different models within the micro finance sector which offer different micro finance products and services. The microfinance institutions functioning as NBFIs for profit have been criticized for focusing too much on making profit and drifting away from their initial goal. The Andhra Pradesh (AP) crisis in the fall of 2010 has put more focus on this issue. The last years, microfinance has been subject of discussion in India with the main focus on how to combine good financial performance of the microfinance organizations with reducing poverty (Ayayi & Sene, 2010; Cull, Demirgüç-Kunts & Morduch, 2007; Puhazhendhi, 2013). With the follow up of AP crisis there were attempts by government and the Reserve Bank of India for a series of regulatory reforms to bring the for profit MFIs under control. The current version of the Microfinance Regulation Bill, 2012 which proposed high regulation of MFIs in terms of interest rates, recovery practices and regulation by the RBI as presented by the standing committee on finance (2013-14) of the 15th Lok Sabha was however, rejected by the parliamentary panel. The panel has also recommended for the revision of the bill and the setting up of a unified and independent regulator MFDRC for the entire microfinance sector. The current regulation of MFIs is therefore limited to certain conditions specified in the Malegam Committee report and remains quite incomplete at this moment until the new bill is drafted and passed in the parliament.
