A self-regulatory organisation for microfinance institutions will play a complementary role to the Reserve Bank of India, according to a top industry official.

“The microfinance industry is highly distributed and has many small players. The RBI has limited presence on the ground,” said Alok Prasad, CEO, Microfinance Institutions Network (MFIN), an umbrella body of over 40 microfinance companies in the country.

A self-regulatory organisation (SRO) knows the industry best and in many ways has the understanding, knowledge and ability to recognise a problem before it becomes too big, he said.

An SRO comprises participants from the industry and the objective is to define a set of rules that all industry participants can play by.

Prasad, however, clarified an SRO will only assist the regulator.

A senior RBI official said earlier that the RBI will soon come out with a notification to recognise an SRO for the microfinance industry.

The notification to this effect can be expected in 30-45 days, Prasad said.

Currently, only some NBFC-MFIs report their data to MFINs. There is a need to bring even self-help groups under the SRO framework, Prasad said.

“SHG data is not with the credit bureau. So, this was discussed with the RBI. A large part of lending is also taking place through SHGs. There is, therefore, a need to ensure that SHG data is also put on the credit bureau,” he said.

At present, Prasad said MFIs can take lending decisions only on the basis of the data available with the credit bureau. So, if an SHG lends to the same person to whom an MFI has lent, then we do not have control over that.

It is important to enlist SHG data on the credit bureau from the financial stability standpoint, Prasad said.

Related Topics
comment COMMENT NOW