Existing Legal and Regulatory Framework for the Microfinance Institutions in India: Challenges and Implications

This document discusses how the regulatory framework for MFIs in India influences the choice of their legal form. It discusses:

• The structural evolution of MFIs in India;
• The vacuum in financial services for the poor;
• The formation of the non-government organization (NGO) MFI sector;
• This delivery of microfinance through a variety of legal forms.

The document then presents a review of the legal text and framework for various institutional forms. It discusses societies, trusts, not-for-profit companies, non-banking finance companies (NBFCs), Nidhi companies, cooperatives, mutually aided cooperative societies and producer companies under the titles:

• Purpose;
• Registration;
• Accounts and audits;
• Taxation;
• Compatibility with insurance regulation;
• Receipt of foreign contribution;
• Dissolution;
• Advantages and disadvantages.

It finds that:

• There are regulatory limitations to the legal framework for the microfinance sector in India that limit the efficacy of innovative initiatives;
• MFIs have several objectives in providing low income clients with access to financial services;
• ICICI Bank has partnered with MFIs to provide poor clients with financial services.

The document goes on to discuss:

• The statutory requirements of various kinds of MFIs;
• Their techno-managerial capacity requirements;
• Their management information systems.

The document concludes by discussing international experience of the effect of the regulatory framework on the choice of legal form.