Regulating Microfinance: A Suggested Framework

Economic and Political Weekly, Vol. 45, No. 1

Lee Kuan Yew School of Public Policy Research Paper No. LKYSPP10-003

5 Pages Posted: 14 May 2010

See all articles by Savita Shankar

Savita Shankar

National University of Singapore (NUS) - Lee Kuan Yew School of Public Policy

Mukul G. Asher

National University of Singapore - Lee Kuan Yew School of Public Policy

Date Written: January 2, 2010

Abstract

With growth of the microfinance sector in India, there is a need to regulate it, so as to provide an environment in which all stakeholders can participate with confidence.

Both prudential and non prudential regulation is required. Prudential regulation is required to enable some micro finance institutions to provide savings services and affordable remittance services, significant missing links at present. Non prudential regulation encouraging transparent disclosure of interest rates, offering appropriate financial products, fair selling practices and methods for collecting loans is also important.

This paper proposes the creation of MFI banks which may be permitted to offer savings as well as mobile payment services, to be regulated by the country’s central bank, the Reserve Bank of India (RBI). In addition, for non prudential supervision for the sector as a whole, an independent oversight board with representation from participants in the sector, the Government and consumer forums, reporting to the RBI is suggested.

Keywords: Microfinance, Regulation, India, Financial Inclusion

Suggested Citation

Shankar, Savita and Asher, Mukul G., Regulating Microfinance: A Suggested Framework (January 2, 2010). Economic and Political Weekly, Vol. 45, No. 1, Lee Kuan Yew School of Public Policy Research Paper No. LKYSPP10-003, Available at SSRN: https://ssrn.com/abstract=1607704

Savita Shankar

National University of Singapore (NUS) - Lee Kuan Yew School of Public Policy ( email )

Singapore 117591
Singapore

HOME PAGE: http://www.spp.nus.edu.sg/PhD_Savita_Shankar.aspx

Mukul G. Asher (Contact Author)

National University of Singapore - Lee Kuan Yew School of Public Policy ( email )

Singapore 117591
Singapore
(65) 6778 1020 (Fax)

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