A Study of the Regulatory Environment and Its Implications for Choice of Legal Form by Microfinance Institutions in India

Publication Date: 2006
Published by: Sa-Dhan
Document Type: Paper (Microsoft Word)

View this Document (933 KB)   Email this Document

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

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

• 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;
• The delivery of microfinance through a variety of legal forms.

The document reviews the legal text and framework of various institutional forms. It examines societies, trusts, not-for-profit companies, non-banking finance companies (NBFCs), Nidhi companies, cooperatives, mutually aided cooperative societies and producer companies in these areas:

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

The document explains 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:

• Statutory requirements of various kinds of MFIs;
• Techno-managerial capacity requirements;
• Management information systems.

The document draws upon international experiences to discuss the effect of the regulatory framework on the type of legal form.