Microfinance in India: promotional policy or fragmented adhoc reactions

• Autores: Nimruji Jammulamadaka
• Localización: La economía social, pilar de un nuevo modelo de desarrollo económico sostenible / CIRIEC España (dir. congr.), 2011, ISBN 9788495003850
• Idioma: inglés
• Texto completo no disponible (Saber más ...)
• Resumen

  • India has also been part of this microfinance wave for over two decades. India today has the largest microcredit program in the world (Karmakar, 2008).

    Microfianance practice in India occurs within different institutional formats and it interfaces with a number of agencies- public and private, financial and developmental. Government has instituted policies relevant to microfinance time and again through these agencies. This paper examines these policies in the light of the evolution of microfinance in India. It examines their coherence, consistency and ability to promote long term growth of microfinance in the country.

    Microfinance in India developed in the hinterland villages as Self Help Groups in the early 1980s. NGOs working for rural development organized women as groups of 10-20 around thrift and then used them for other developmental activities. These initiatives were accompanied by action research and pilot projects of agencies like UNICEF and National Bank for Agriculture and Rural Development (NABARD). These self help groups (SHGs) of women were encouraged by linking them with the formal banking system and providing them micro loans through the joint-liability-group lending mechanism. NABARD’s early success together with difficulties in the individual loan format of DWCRA accompanied by an overall macro economic environment that favoured liberalization marked the beginning of what is presently understood as microfinance in India. In 1996, NABARD expanded the bank linkage scheme to the whole country after Reserve Bank of India’s approval. This was the first official policy maneuver in the domain of microfinance.

    Though NGOs initiated the SHG program, their legal status as charitable entities did not permit them to take up interest earning activities like microfinance. They existed in a legal quagmire which subjected them to constant scrutiny by Income Tax authorities and their charitable status was questioned. Given this difficulty, NGO form was institutionally unsuitable for scaling up and attaining financial sustainability of microfinance programs. Thus when their SHG programs grew in size and SHG federations were being formed, some NGOs registered them under the existing companies act as Non Banking Finance Companies (NBFC) or the newly incorporated Mutually Aided Cooperative Societies (MACS) Act so as to be able to pursue scaling up and financial sustainability. MACS law was enacted in response to growing demand from MFIs, SHG Federations and NGOs for a law that prevented government interference in co-operatives. During this period, microfinance remained an unregulated activity functioning on the good-will of the organizational leadership.

    In the second half of 1990s, there arose numerous instances of NBFCs duping the public of their investments, consequently, RBI began regulating NBFCs in general.

    In the process, it made special exceptions for NBFC-MFIs which were unregulated until then. RBI’s regulatory mechanism was focused on protecting depositors and ensuring financial sustainability. Credit co-operatives were governed under the MACS law however; their financial management was not a subject of regulation.

    NGO-MFIs meanwhile continued to be unregulated. Thus regulatory policy neither promoted the formation nor the sustainable growth of microfinance by NGOs.

    Financial sustainability though is not the only goal of microfinance. The reason for microfinance emerging as a major development intervention has been its ability to create and capitalize on social capital among the poor and deploy it in the creation of economic capital for them thus empowering them. This creation of social capital is a time-dependent and path-dependent process where the group members have to go through various group processes and mature to function as one collective.

    These processes have to be ably supported by outside interventionists so as to prevent pre-mature action and breakdown of the group. And among all the MFI forms, the NGO form is the most suitable for such intervention that enables 3 empowerment because of their focus on group process and capacity building as against the exclusive focus on financial sustainability among NBFCs, MACS and others. This is the rationale for government tying up all development schemes with SHGs.

    Government acknowledged this strength of the NGOs and promoted NGO participation in microfinance by involving SHGs and NGOs (who are the main implementing agents of government’s development schemes) in its development programs. Government also involved the formal banking system in this program.

    Regional Rural Banks and other commercial banks got the mandate to promote the formation of these SHGs. (Lending to SHGs became part of priority sector lending.) This process fast forwarded SHG formation and outreach started dominating group strengthening. In early 2000s government announced the creation of a Microfinance Development Fund to further expand the microfinance program. Thus development policy provided NGOs with great opportunity to pursue microfinance unlike regulatory policy.

    The phenomenal growth in microfinance has been accompanied by growing instances of malpractices and coercive money-lending practices in recent times in certain areas. This recently prompted one of the state government’s to come up with a legislation that regulated the lending practices of MFIs.

    The above account shows that regulatory policy and development policy do not work in tandem. While one of them discourages NGO-MFIs, the other encourages them. There exists no clear-cut policy and regulatory mechanism that enables an organization to simultaneously pursue both empowerment and financial sustainability. Further, the different MFIs are subject to different regulations, leading to a highly fragmented microfinance regulatory environment which imposes one set of expectations on MFIs like NBFCs and completely ignores the others. This creates the undesirable situation of having to choose between either financial sustainability or empowerment as goals. Various working groups were instituted for creating a suitable regulatory mechanism that enables scaling-up and financial sustainability of MFI. Consensus though has eluded these groups and an appropriate legal system has yet to be enacted. Based on an analysis of these developments, this paper concludes that, much of government policy response has been an immediate and adhoc reaction to the emerging crises and issues in the microfinance sector rather than well-thought policies aimed at promoting healthy microfinance in the long run.