Should NABARD Be Microfinance Regulator?

Regulating India’s microfinance sector
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This article is a commentary on the provision of the Micro Financial Sector (Development and Regulation) Bill, 2007 designating the National Bank for Agricultural and Rural Development (NABARD) as the single regulator for depository and non-depository microfinance organizations.

CGAP’s microfinance guidelines recommend a clear distinction be made between depository and non-depository MFIs for supervision. It suggests that regulation should focus on the type of transaction, and not the institution undertaking it.

The article highlights the need for clarity regarding the scope and provisions of the Micro Financial Sector Bill. It raises concerns on the provision to designate NABARD as the single regulator of microfinance. These include:

  • According to CGAP guidelines, RBI should regulate depository MFIs since it already regulates banks and NBFCs;
  • Combining NABARD’'s role in microfinance as service provider, which will be strengthened by the developmental role envisaged by the Bill, with regulatory responsibilities is against good governance;
  • NABARD lacks expertise to regulate MFIs in the urban sector;
  • The Bill does not address regulation of insurance and pension services.

About this Publication

By Asher, M. & Shankar, S.