Global microscope on the microfinance business environment 2012

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with regard to non-interest costs and fees, annual
effective rates, or to distinguish between fl at and
declining rates. However, generally MFIs regulated
by the CBRC are transparent about their loans and
fees.
Key changes and impacts since last year:
l The government is encouraging wider provision
of rural lending, through the wider establishment
of regulated entities. There is a drive to boost the
number of VTBs in rural areas, although these do
not necessarily make microloans.
l The number of MCCs rose dramatically in 2011,
but the increase in the number of institutions does
not necessarily translate into increased
microlending—the majority of these are involved in
small-business lending, not rural microfi nance in
the traditional sense.
l Some local government fi nancial offi ces, which
supervise MCCs, have been increasing their
capacity through linking together to share
information between institutions in different
cities. This remains contained at the provincial
level.
■ India
Key characteristics of the microfi nance business
environment:
l The Reserve Bank of India (RBI, the central
bank) regulates two types of institutions that
engage in microfi nance activities: banks and NBFC-
MFIs. Following the crisis in Andhra Pradesh (AP),
the RBI has put in place regulatory changes that
have temporarily stabilised the sector. The RBI
recognises that its role is not only to regulate but
also to develop microfi nance and the political
support of microfi nance by the national
government.
l The proposed Microfi nance Bill has been
pending in parliament since 2007. Among other
things, the Microfi nance Institutions (Development
and Regulation) Bill could open up deposit-taking
restrictions on NGO-MFIs, but any liberalisation is
likely to be limited and closely supervised.
© The Economist Intelligence Unit Limited 2012
<strong>Global</strong> <strong>microscope</strong> on the microfi nance business environment 2012
l The fi nancing of Indian microfi nance is
dominated by commercial debt. MFIs have been
paying for this heavy reliance on commercial bank
funds. Their share of total funds raised fell to 69.2%
in 2011, compared with a peak of 80% in 2008.
l Under proposed amendments to the
Microfi nance Bill, the RBI would become solely
responsible for regulating, registering, and
overseeing the microfi nance activity of NGO-MFIs
and informal Self-Help Groups (SHGs) with more
than 20 members. That said, the RBI will have to
delegate supervision because it has too few people
on the ground.
l Credit bureaus have started to make a difference
in spotting clients with multiple loans. They are
still an ineffective tool in tackling the problem of
over-indebtedness as there are many informal
sources of fi nance that are not covered by the
credit bureaus.
l The regulatory framework does not provide for a
dispute resolution system in the microfi nance
sector. However, the AP crisis has triggered calls
for improving client protection measures. The
Malegam Committee, a blueprint for future RBI
regulation of the microfi nance sector, recommends
the appointment of an ombudsman to whom
aggrieved borrowers could turn. Some MFIs have
appointed an ombudsman, but there is no
comprehensive and binding system to which all
consumers can turn.
Key changes and impacts since last year:
l A year after its formal launch, the Indian
government has begun to roll out a mammoth new
poverty reduction scheme—the National Rural
Livelihoods Mission (NRLM). The programme is
widely believed to increase unfair competition
from subsidised public programmes in a market
that has so far relied on a market-based
arrangement. The plan’s large mandate is to reach
out to 70m households living below the poverty
line in 600 districts covering 250,000 gram
panchayats (local level self-government) by March
2018. Sector participants expect the NRLM
programme to have a profound impact on the
private provision of microfi nance.