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

Are MFIs in India constrained by lack of sound regulatory framework?
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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.

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