A Policy response to the Indian micro- nance crisis

Abstract

Recent events in India have brought a fresh focus upon the problem of regulation in the eld of micro- nance. This paper delineates the three distinct aspects where government needs to play a role. The rst is to protect the rights of the micro-borrower, the consumer of micro- nancial services. The second is that of prudential oversight of risk-taking by rms operating in micro- nance, since this could have systemic implications. The third is a developmental role, emphasising scale-up of the micro- nance industry where the key issues are diversi cation of access to funds, innovations in distribution and product structure, and the use of new technologies such as credit bureaus and the UID. Each of these roles need to be placed in an existing or a new regulatory agency. There is a case for creating a new regulatory agency which uni es the consumer protection function across all nancial products.