The Transformation of Microfinance in India: Experiences, Options and Future

This paper discusses the growth and transformation of microfinance organizations (MFO) in India, after examining the global experiences in transformation. It discusses the following issues that trigger transformation.

• Size;
• Diversity;
• Sustainability;
• Focus and taxation.

The paper states that transformation experiences in India are few, and when non-governmental organizations (NGOs) want to move to the mainstream, they have to choose from three popular forms of organizations:

• Non Banking Finance Companies (NBFCs);
• Banks;
• Co-operatives.

After examining the experiences of Indian MFOs, the paper concludes that there is no ideal path for spin off. However, the authors make the following arguments concerning regulatory changes to facilitate evolution of MFOs:

• Allowing MFOs to graduate to other legal forms as they grow organically;
• Permitting NGOs to invest in the equity of MFOs, as is the case in Bolivia and Africa.

The authors do not subscribe to the argument that norms should be eased for setting up MFOs under current legal forms and state that regulations should ensure that they encourage genuine MFOs and not others masquerading as MFOs.