RBI to come out with paper on regulatory framework for lenders in MFI space

The Reserve Bank of India (RBI) on Friday said it would come out with a consultative document “harmonising the regulatory frameworks for various regulated lenders in the microfinance space” in March 2021.

In its statement on Developmental and Regulatory Policies, the central bank said there is a need to review the regulatory framework for Non-Banking Financial Company - Micro Finance Institutions (NBFC-MFIs) given the constantly evolving milieu in the financial sector.

The RBI had recently released a discussion paper on revised Regulatory Framework for NBFCs – A Scale Based Approach.

“There is a case for a framework that is uniformly applicable to all regulated lenders in the microfinance space, including scheduled commercial banks, small finance banks and NBFC-Investment and Credit Companies, rather than prescribing these guidelines for NBFC-MFIs alone. Accordingly, the RBI will come out with a consultative document harmonising the regulatory frameworks for various regulated lenders in the microfinance space in March 2021,” it said.

Welcoming the proposed move by RBI, MFIN, the association for microfinance entities and the self-regulatory organisation for NBFC-MFIs, said this would help bring sustainable growth for the sector.

“This is indeed a welcome step for the sector. Considering the diversity of players in microfinance today, it is the need of the hour and MFIN has been pro-actively working on this through its Code of Responsible Lending (CRL) and also requesting RBI on the need for asset class-based regulation. This is a very important move as it will augur well for the sector as a whole and further safeguard the interests of customers. MFIN looks forward to working closely with the RBI on this important initiative,” Alok Misra, CEO & Director MFIN said in a statement.

MFIN had developed the CRL to bring differently regulated entities, including NBFC-MFIs, banks, SFBs, NBFCs and non-profit/Section 8 MFIs to agree and adopt a uniform common code for customer conduct and ensure a level-playing field. The CRL has as many as 113 signatories, representing 70 per cent of the market.

“As of now, the sector across various entities provides loans to six crore women, impacting 30 crore individuals in households. Despite this impressive coverage, there is still a huge unmet demand and such uniform regulation across entities will help in sustainable growth of microfinance in India,” MFIN said.

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