Abstract:
Recent events in India have brought a fresh focus on the appropriate regulatory stance
towards micro-finance. In this paper, we review facts and recent experience about
Indian microfinance. We analyse the puzzles of financial regulation in this field from
first principles, and argue that the mainstream mechanisms of consumer protection
and micro-prudential regulation need to be modified owing to joint-liability groups.
From this perspective, we suggest regulatory strategies that need to be adopted for
dealing with micro-credit and financial distribution that focuses on the poor. This
analysis and conceptual framework also helps analyse the two policy responses till
date, the Malegam report and the draft Microfinance Bill, 2011.
