The Hindu Business Line : MFIs require clear policy framework to expand areas: RBI

THE Reserve Bank of India Governor, Dr Y.V. Reddy, said the increasing size and growth of micro-finance institutions (MFIs) across the country warrant a clear policy framework to cover operations in financial services in addition to credit.

Explaining that it is possible to allow MFIs to deliver non-credit financial services such as insurance and mutual funds, Dr Reddy, however, said as a pre-condition, a clear framework is required for the approach of different regulators to MFIs' non-bank financial services.

The RBI Governor stressed on the need to address several issues pertaining to the regulation and development of MFIs. He was addressing the conference on micro-finance here on Saturday, organised by the Centre for Analytical Finance of the Indian School of Business.

According to him, the approach of RBI has been to focus on the informality of micro-finance and developmental aspects. It could be appropriate for the RBI to evolve regulatory dispensation to enable enhanced credit flow from banks through MFIs.

On the suggestion to bring the micro-finance entities under a system of regulation through a separate legislation, Dr Reddy said the banking regulator felt that the micro-finance movement across the country involving common people has benefited immensely through informality and flexibility.

Hence, MFIs' organisation, structure and methods of working should be simple and any regulation would be inconsistent with the core-spirit of the movement. He said it was earlier felt that Nabard or banks should devise appropriate safeguards locally, taking into account the different institutional forms of such organisations.

However, the banking regulator has now decided to revisit the whole issue comprehensively after observing a new shift towards micro-finance from micro-credit.

Accordingly, the apex bank has arranged consultations with several representatives of micro-finance institutions in select centres. A technical paper on policies relating to the development, regulation and supervision of micro-finance services was prepared on the basis of consultations. These recommendations are now being considered in consultation with the Government.

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