Is RBI More Pro-customer?

RBI has done more for customers than Sebi and IRDA but it has also often argued that it will not interfere when it comes to products that already have an independent regulator. This is unfair to customers who repose enormous trust in banks

The true measure of a financial regulator’s success ought to be what it does to win the trust of its largest stakeholders—the consumers of financial services. What do these stakeholders usually want? Well, safety of transactions, appropriate regulation and supervision, swift action against wrongdoers and refund of their money through disgorgement of ill-gotten profits. How do our financial regulators measure up to this standard? In our assessment, the Reserve Bank of India (RBI) is a relatively more receptive regulator in the financial sector. And, while we may want it to act faster and to do a lot more, it moves in the right direction most of the time. Consider this:

    On 3rd September, RBI issued a circular to end the pernicious 80:20 loans provided by banks to builders. This had allowed builders to obtain financing for projects under the guise of loans sanctioned to individual purchaser. We know that builders have been paying hefty commissions to brokers to obtain such bookings and many investors were mere fronts. This dubious funding, in collusion with banks, ensured that property prices remained artificially high, because there was no pressure on builders to lower prices. Moreover, the risk of bad loans was entirely that of the banks and investors. Ending these loans has also led to signs that artificially high property prices are likely to crack.

    On 17th September, RBI put an end to the practice of duping customers through zero-interest loans, especially during the festive season. Banks negotiate and retain hefty discounts from manufacturers, while customers are offered zero-interest loans split into equated monthly instalments (EMIs). Similarly, banks did not pass on to the customers the benefit of moratorium on payment for certain products. A determined RBI stood firm even when banks got consumer durables companies to plead their case through the retailers’ lobby.

    In the same 17th September circular, RBI has categorically told banks that merchant establishments cannot levy a fee on debit card transactions. This is a dubious practice, since, unlike credit cards, debit card payments are instantly deducted from customers’ accounts and ought to be transmitted to merchant establishments immediately. RBI has said that banks must ensure that they terminate the relationship with entities that charge fees.

•  RBI has also made it clear to banks that, in cases of electronic and online transactions, the onus of proving that the customer has been negligent has to be on the bank. At a recent meeting with nodal officers of all banks, Dr KC Chakrabarty, deputy governor RBI, was emphatic that banks must treat this as an institutional risk and get themselves insurance cover, if necessary, for possible losses. They cannot penalise the customer without proof of deliberate and wilful negligence. Some bankers responded with the claim that no insurer is offering such a cover; Dr Chakrabarty retorted: “Well, in that case, nobody is compelling you to offer Internet banking.” As a further check, all electronic transactions systems are supposed to allow customers to protect themselves by manually creating their own limits for such transactions.

    The same was the case with ATM transactions. Already, RBI requires complaints to be resolved within seven days and the money credited back to the account, failing which the customer is entitled to a compensation of Rs100 per day of delay. Banks often benefit from the fact that customers are unaware of the rules. Here, again, RBI told banks that it was up to them to reduce their risks by placing limits on each withdrawal.

    Dr Chakrabarty also had some words of wisdom for banks on the interest rate front. He observed that no bank was offering higher interest on savings accounts even though interest on term deposits had shot up to 9%. “You will not be able to stand the scrutiny when interest rates change,” he warned. Clearly, he anticipates that when interest rates finally drop, banks will be in a hurry to cut interest rates on all deposits, as they did in 2003. Banks probably expect to get away with this because the consumer movement in India is weak and there isn’t enough pressure on banks to be fair to consumers.

    The Indian consumer is fortunate that some central bank officials stand up to the finance ministry as well. The latest example is P Chidambaram’s strange idea of providing more capital to banks to enable them to “lend to borrowers in selected sectors such as two-wheelers, consumer durables, etc, at lower rates in order to stimulate demand.” RBI has been quick to point out that this would only create bad loans if interest rates go up further.  

All these examples raise an obvious question: If RBI is so willing to bat for the consumer, why do we still have so many customer complaints? This happens for two reasons. Like other regulators, RBI also has no direct interaction with consumers. It only reacts when the number of consumer complaints to the banking ombudsmen, or through media reports, is large enough to draw the attention of its top brass. Moneylife Foundation, our not-for-profit initiative, has, however, found that when consumers’ voice is conveyed through a detailed memorandum, it is often heard and acted upon—albeit slowly.

Two important issues continue to be work-in-progress. First, the absence of a clear grip on technology costs and the robustness of technology systems. Customers are discovering, to their horror, that even the banking ombudsman fails to understand the implications of tiny errors in the calculation of interest rates or deductions or system-induced mistakes in email identities, registration of nominations, etc. All these will have more serious implications when bank accounts are only based on UID numbers which are often flawed.  

The second serious issue is the brazen mis-selling of mutual funds, insurance and wealth advisory services through banks. RBI has often argued that it will not interfere when it comes to products that already have an independent regulator. We believe this is unfair to customers who repose enormous trust in banks and there is, thus, a serious breach of fiduciary responsibility. Strangely, although RBI was considered the first-among-equals at the high-level coordination committee of regulators, it refused to show appropriate leadership with regard to consumer issues. The finance ministry is too focused on defending itself and the government on a series of bad decisions and scam charges (coal, telecom, steel mining, gas pricing, aviation purchases, among others) to worry about individual investors being cheated. Consequently, the insurance regulator and the capital market watchdog are accountable to nobody and turn a blind eye even to outrageous cases of cheating. Moneylife Foundation has helped 25 victims of AB Capital, a corporate agent of Reliance Insurance, to recover nearly Rs14 lakh collected as premium on the promise that they would get a zero-interest loan that was 10 times the insurance premium. AB Capital probably has thousands of victims and it agents continue to dupe people even today. The regulator has made no effort to stop this. After all, the problems of a few million middle-class Indians is not a priority for the government or the parliament and, therefore, that of the regulators.

Sucheta Dalal is the managing editor of Moneylife. She was awarded the Padma Shri in 2006 for her outstanding contribution to journalism. She can be reached at [email protected]

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    MG Warrier

    6 years ago

    When the finance ministry’s willingness to give public sector banks more capital, provided they used this to lend more in certain areas and at lower interest rates was reported with an elucidation that ‘ If the finance ministry gives banks Rs100 of additional capital, banks can lend up to Rs1,000 given the current capital adequacy norms.’ I had observed that GOI was using its ‘ownership rights’ on public sector banks even beyond the level IMF used to do through conditionalities while extending ‘aid’ to poor nations decades ago.
    Traditional priority sector which has not lost relevance in the development context is being ignored and finance ministry is asking public sector banks to lend at lower interest rates for consumption and luxury. As regards capital adequacy norms and infusion of additional capital, perhaps a relook at SLR norms (which provide captive sources at lower than market rate funds to government), accumulation of bad loans because of GOI policies and need for a level playing field for PSBs may be necessary to assess costs and benefits for the institutions.
    Expectations from RBI are getting multiplied now, perhaps because the responses from the central bank have been much faster during the last few months after Dr Raghuram Rajan became Governor. Results of RBI initiatives will depend on how much support Dr Rajan is able to muster from a government which has other priorities.

    Economy & Nation   Exclusive
    Why should RBI immediately disband newly appointed Committee on Financial Inclusion?

    Many of the past crisis situations can be linked to lax and laissez-faire regulatory and supervisory frameworks that had either been developed by industry insiders with commercial interests and/or been created with significant input from such insiders - both with a view to benefit the overall industry concerned!

    Conflict of interest is an area of significant importance to regulatory ethics and this is something that the Reserve Bank of India (RBI) needs to note with urgency because there are significant conflicts of interest in the both the recently appointed financial inclusion committee as well as the banking selection advisory paneli. If not eliminated, they could spell disaster for the larger Indian financial sector. And this article is a means to record the above warning publicly!


    First, let us look at what is meant by “conflict of interest”?


    Conflict of interest is a scenario where a person or firm has an incentive to serve one’s (own) interest at the expense of another’s interest. This might mean serving the interest of the firm (institution) over that of a client and/or serving the interest of one set of institutions/clients over other set of institutions/clients.


    Why attach so much importance to the same with regard to regulation in the financial sector? This is because if it is not entirely eliminated and/or at least properly reduced, the conflicts of interest can even threaten the entire financial system. At least, this is what past crises situations signifies. In fact, if there is a single most recurring theme in financial crises and scandals globally, it is the failure to manage conflicts of interest. And here are some examples:


    Let us look this with regard to the financial sector in the United States, which provides very useful learning with regard to conflicts of interest and their relationship to crisis situations. They hold very important lessons for the RBI which seems to be embarking on a very dangerous journey in its effort to turbo charge financial inclusion as well as give out banking licenses in a tearing hurry!


    As described by former SEC Chairman Arthur Levitt, “Bank involvement in the securities markets came under close scrutiny after the 1929 market crash. The Pecora hearings of 1933, which focused on the causes of the crash and the subsequent banking crisis, uncovered a wide range of abusive practices on the part of banks and bank affiliates. These included a variety of conflicts of interest; the underwriting of unsound securities in order to pay off bad bank loans; and "pool operations" to support the price of bank stocks.”


    In fact, as Levitt has further argued, it is the significant revelations of ‘uncontrolled conflicts of interest’ (please note this carefully) that provided the basis and rationale for the passing of many subsequent regulations - the Securities Act (1933), the Securities Exchange Act (1934), and the Glass-Steagall Banking Act (1933). In fact, it appears that conflicts of interest were also the major reason for the enactment of the Investment Company Act (1940) and the Investment Advisor Act (1940).


    Closer to the 1990s, when I lived in the United States for several years, I personally saw numerous examples of conflicts of interest leading to a crisis:

    • The insider trading scandals (such as, the Ivan Boesky and Dennis Levine scandals in the 1980s), the closure Drexel Burnham Lambert (the investment bank) and the associated (criminal) conviction of its famous employee (Michael Milken) are still fresh in my memory.
    • And then there were more financial scandals in the early 2000s – for example, the internet bubble in 2000/2001 exposed problems with dubious high flying research analysts (with very significant conflicts of interest) whose reports were in fact influenced by their own institutions’ investment banking interests. This, in fact, led to specific provisions in the Sarbanes-Oxley Act that dealt with conflicts of interest among research analysts.
    • And just about a decade ago, in 2003, SEC found that the use of brokerage commissions to facilitate the sales of fund shares [was] widespread among funds that relied on broker-dealers to sell fund shares. This led to the adoption of new rules to prohibit funds from this practiceii.


    And then, we had the mother of all financial crises in the recent times—the global financial crisis of 2008, which was again based on significant conflicts of interest in many areas such as the production and sale of mortgage-backed securities, rating of these instruments and so on.


    As noted in the 2007 report of the Financial Crisis Inquiry Commission (“FCIC”), conflicts of interest that existed among rating agencies in evaluating collateralized debt obligation (“CDO”) deals was investigated by the SEC which subsequently issued a report in June 2008 that stated that conflicts of interest at Moody’s was indeed a very, very major issue. And I quote from this report:


    “We introduce some of the most arcane subjects in our report: securitization, structured finance, and derivatives—words that entered the national vocabulary as the financial markets unravelled through 2007 and 2008. Put simply and most pertinently, structured finance was the mechanism by which subprime and other mortgages were turned into complex investments often accorded triple-A ratings by credit rating agencies whose own motives were conflicted. This entire market depended on finely honed computer models—which turned out to be divorced from reality—and on ever-rising housing prices. When that bubble burst, the complexity bubble also burst: the securities almost no one understood, backed by mortgages no lender would have signed 20 years earlier, were the first dominoes to fall in the financial sector.” (Page 28)


    Just as an aside, I would like to state there are huge problems with securitisation in the Indian micro-finance sector as well and hope the RBI takes note of the same. Getting back to the FCIC report, it cited several other conflicts underlying the crisis such as: a) underwriters assisting CDO managers in selecting collateral; and b) hedge fund managers selecting collateral from their funds to place in CDOs that they offered to other investors. The FCIC report notes in the above connection that:


    “The SEC investigated the rating agencies’ ratings of mortgage-backed securities and CDOs in 2007, reporting its findings to Moody’s in July 2008. The SEC criticized Moody’s for, among other things, failing to verify the accuracy of mortgage information, leaving that work to due diligence firms and other parties; failing to retain documentation about how most deals were rated; allowing ratings quality to be compromised by the complexity of CDO deals; not hiring sufficient staff to rate CDOs; pushing ratings out the door with insufficient review; failing to adequately disclose its rating process for mortgage-backed securities and CDOs; and allowing conflicts of interest to affect rating decisions.” (Page 212)


    Yet another conflict cited in the report was about Citigroup offering “liquidity puts” that gave it significant fees in the short term but placed significant financial risk on it in the long term. And I quote the following on Citigroup from the report –


    “There is a potential conflict of interest in pricing the liquidity put cheep [sic] so that more CDO equities can be sold and more structuring fee to be generated.” The result would be losses so severe that they would help bring the huge financial conglomerate to the brink of failure, as we will see.” (Page 139)


    Another high profile example of conflict of interest in the recent years is the settlement that the SEC reached with Goldman Sachs, in which that firm paid $550 million to settle charges filed by the Commission, and acknowledged that disclosures made in marketing a subprime mortgage product contained incomplete information as they did not disclose the role of a hedge fund client who was taking the opposite side of the trade in the selection of the CDO. And I quote


    “2. Goldman acknowledges that the marketing materials for the ABACUS 2007-ACI transaction contained incomplete information. In particular, it was a mistake for the Goldman marketing materials to state that the reference portfolio was "selected by" ACA Management LLC without disclosing the role of Paulson & Co. Inc. in the portfolio selection process and that Paulson's economic interests were adverse to CDO investors. Goldman regrets that the marketing materials did not contain that disclosure. ( , Page 2, point 3)”


    After the 2008 financial crisis, there are a couple of examples of problems that arose from poorly controlled conflicts of interest. One is the famous case of Barclays Bank, which acknowledged misconduct related to ‘possible collusion’ to artificially set LIBOR (the London Interbank Offered Rate). As all of us know, LIBOR is a very significant benchmark that is used to set short-term interest rates on different financial instruments including derivates.


    Second is the 2010 AP micro-finance crisis which is again a classic example of the conflict of interest problem! In the 2010 AP crisis, the lax regulation and laissez-faire supervision of the NBFC MFIs (done at the behest of the micro-finance industry at large and NBFCs in particular and RBI’s own misplaced trust in NBFC MFIs as Dr Y V Reddy, former Governor has admitted) led to the eventual crisis on the ground.


    Like all of the above, the conflicts of interests prevalent in the recently appointed RBI financial inclusion committee are indeed very serious (as shown in Table 1 below) as the committee has many members representing companies (institutions) that have significant commercial interest in the broad area of financial inclusion including micro-finance. Across the board, these members and the institutions will therefore stand to benefit from the recommendations, regulatory or otherwise made by this committee. This needs to be carefully noted!

    Table 1 : Conflict of Interest Origins in The 13 Member RBI Financial Inclusion Committee

    Conflict of Interest Origins in 13 Member RBI Financial Inclusion Committee

    (Based on Facts Available with Writer and Best Available Judgement of the Writer)

    Number of Members of the RBI Financial Inclusion Committee Who have This Conflict of Interest

    Number of Members in RBI Financial Inclusion Committee with Specific Conflict of Interest as a proportion of Total Committee Members

    1. Commercial Interest in Financial Inclusion/Micro-Finance area



    1. Members Whose Institutions Could Benefit from Recommendation of Committee



    1. Banking License Applicants



    1. Related to Banking License Applicant (Excluding the two Banking license applicants themselves)



    1. Direct/Indirect Relationship of Committee Member with Major Institutions That were Involved in the 2010 MF Crisis



    1. On-Going Relationship with RBI/Related Institutions as part of Other Responsibilities (One member has six separate such relationships with RBI as on date. So, total members adjusted to reflect this) 



    1. Lender/lending institutions/equivalent



    1. Close Working Relationship Between Members



    1. Members Who Could Gain from Suitable Regulatory Recommendation or Favourable Regulatory Framework



    Note: Conflict of interest in points 3 and 4 arise because the chair of the RBI financial inclusion committee is also a member of the RBI banking selection advisory panel, which is to meet roughly at the same time.


    What needs to be emphasized here is the fact that the ‘broad industry of financial inclusion’ which needs to be regulated surely cannot decide on its own regulation. In fact, many of the past crisis situations given earlier, can be linked to lax and laissez-faire regulatory/supervisory frameworks that had either been developed by industry insiders with commercial interests and/or been created with significant input from such insiders - both with a view to benefit the overall industry concerned!


    Thus, the financial inclusion committee under Dr Nachiket Mor needs to be disbanded forthwith and immediately. Also because the MFIDR Bill (2013) is under the consideration of the Parliamentary Standing Committee of Finance (PSCF), it would be advisable for the RBI to wait for the recommendations of PSCF before taking any steps towards the development of regulatory architecture in the area of financial inclusion/micro-finance! This is especially necessary because in the past, the RBI has had lots of committees comprising of micro-finance industry insiders who decided on how to regulate and supervise themselves and the results are there for all of us to see – the Krishna district AP 2006 micro-finance crisis, the Kolar 2009 localised micro-finance crisis and the state wide 2010 AP micro-finance crisis to name a few


    Protecting independent committees that are looking into regulation/supervision in the financial sector - from the influence of the companies (institutions) operating in the same financial markets - is a strong prerequisite to ensure effectiveness of the regulatory architecture being developed. Otherwise, the threat arises that, instead of being guided by public and larger client interests, such committees (like the RBI financial inclusion committee) will promote the interests of the companies and institutions whose activities are supposed to be regulated and supervised. And the RBI can ignore this important fact concerning its own financial inclusion committee at its own peril!

    i The conflicts of interest in the banking selection advisory panel are similarly analysed in a separate article

    ii Please see - Prohibition on the Use of Brokerage Commissions to Finance Distribution, Investment Company Act Release 26591 (Sept. 2, 2004), 69 Fed. Register 54728, 54728 (Sept. 9, 2004).


    (Ramesh S Arunachalam has over two decades of strong grass-roots and institutional experience in rural finance, MSME development, agriculture and rural livelihood systems, rural and urban development and urban poverty alleviation across Asia, Africa, North America and Europe. He has worked with national and state governments and multilateral agencies. His book—Indian Microfinance, The Way Forward—is the first authentic compendium on the history of microfinance in India and its possible future.)


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    Ramesh S Arunachalam

    6 years ago

    Please see this associated article

    jaideep shirali

    6 years ago

    Ironically, the government keeps on showing the "conflict of interest" flag to citizens, but when it comes to its own activities, this does not apply. A noteworthy example is Pay Commissions, where babus involve almost no common citizens and decide their own salaries & perks. This, when the citizen pays the bill. A similar case is the Railways recruitment policies, which have attracted criticism. The point is, somehow conflict of interest does not apply to netas & babus, just to the citizen. This article reinforces the point.

    samir k barua

    6 years ago

    Well argued article. Even if one has confidence in the professionalism and integrity of individuls concerned, good governance is all about eliminating the possibility where there could be even a hint of doubt that self interest may dictate the dcisions or recommendations. Samir K Barua


    Ramesh S Arunachalam

    In Reply to samir k barua 6 years ago

    Thanks sir. You have put it so well. Conflict of interest is not an accusation - it is a situation that often erodes trust and should be avoided preferably. Thanks again sir!

    Microfinance Bill-Part II: Consumer protection issues for the Parliamentary Committee

    Allowing MFIs, that use informal broker agents, to operate is bound to be disastrous, as can be seen from the 2010 AP microfinance crisis. This is one of the most pressing issues in customer protection in Indian microfinance space that needs to be addressed with urgency by the Parliamentary Committee in the MFIDR Bill (2012)

    Even as policymakers are trying to solve the Indian microfinance regulatory puzzle through the Micro-finance Institution Development and Regulation Bill (MFIDRB), 2012 (MFIDR Bill 2012), let us look at a specific field-level problem that led to the 2010 Andhra Pradesh (AP) microfinance crisis and ask the question as to whether and how the MFIDR Bill (2012) will prevent the use of the notorious broker agents in Indian micro-finance in the future.

    In fact, many people have brought up the aspect of broker agents driving Indian microfinance but their (loud) voices seem to have fallen on deaf years. Several stakeholders including regulators have not even acknowledged this serious (agent) phenomenon. And those who accepted the fact that agents did exist, described it more as an aberration. However, to the best of my knowledge, agents appeared to be more of the norm in Indian microfinance—at least in the years preceding and succeeding the 2010 AP crisis.

    The e-mails in circulation among MFIs clearly demonstrated that the use of agents in Indian microfinance was significant in the years before and after the 2010 AP crisis. Likewise, the code of conduct assessment reports sponsored by SIDBI also acknowledged the use of agents by some of the fastest growing NBFC MFIs. Some stakeholders have concurred with my view that it is the widespread use of agents—to turbo-charge growth, create efficiencies, increase profits and the like as per the dictates of the commercial micro-finance model—that led to the 2010 AP crisis in the first place. In fact, State of the Sector Report, 2010, (page no.37) and knowledge portals such as Microfinance Focus (MF) have made a strong mention of these (broker) agents.


    Why is the agent phenomenon so important to tackle? In my opinion, there are several aspects that make it mandatory for the MFIDR Bill to have safeguards against broker agents:


    (i) These broker agents very dangerous and extremely powerful in that they not only can get new clients for the MFIs; they can also make these clients disappear (quickly) from an MFI’s horizon;

    (ii) They can shift clients from one MFI to another seamlessly and thereby cause irreparable damage to the MFI’s overall portfolio, growth strategy and reputation;

    (iii) They are capable of (suddenly) stopping client repayments, just at the flick of a finger;

    (iv) They can physically intimidate clients as they often have the backing thugs and criminals (locally).


    In fact, these agents have been the real secret behind the burgeoning growth of (much of) Indian microfinance prior to the 2010 AP crisis. Once created by the MFIs in search of fast growth and greater efficiency, these agents have also proved to be the bane of Indian microfinance, as was evident during the 2010 AP micro-finance crisis!


    Basically, there are two types of agents that I have seen: centre leaders and local political honchos. Each has a distinct background and they possess different characteristics. The roles performed by them (as micro-finance agent) are also very different. And of course, each of these agent types brought their own share of the problems to the Indian micro-finance industry. Therefore, given the above, it is imperative that the Parliamentary Standing Committee on Finance (PSCF), which is looking at the MFIDR Bill, ensures that there are necessary mechanisms to deal effectively with broker agents and their operations as otherwise, crisis situations (similar to the 2010 AP microfinance crisis) could easily recur.


    While, without any doubt, agents caused problems on the ground, there is also no escaping the fact that these problems were (in fact) exacerbated by a weak internal audit department in many MFIs. Such departments often reported to senior and/or line management, who had very little incentive to hear about systemic flaws in operations that they managed and oversaw—this is the classic conflict of interest problem. Rarely have I seen internal audit departments report to the board (as they should) and this conflict of interest in reporting to the CEO or COO has often prevented their effective functioning. I know of an internal auditor who quit a growing MFI (it is one of the largest MFIs in India today) when he came to know that the very agents that he had uncovered in the field had (in fact) been appointed with the concurrence of his senior managers. This is a real incident that happened in 2005–2006 in AP during the Krishna crisis.


    Therefore, with very little internal audits (in real time), many of the MFIs took a more withdrawn approach to grassroots functioning in their quest for growth and greater efficiencies — this can be seen from the fact that case loads for MFI loan officers increased very significantly from the 200/300 clients range per loan officer to sometimes even as high as 600/900 clients. In other words, the centre leader and other types of agents took the decentralized model to its extreme resulting in really high case loads, and this led to several problems including increasing frauds, multiple, over and ghost lending, coercive repayments, diversion of funds, and the like.


    In fact, on the basis of my interaction with various types of agents, I think I have now understood the evolutionary process that (first) led to the use of agents in Indian microfinance. The aspects of “needing to build scale quickly,” the “pressure to reduce interest rates,” and the “desire to maximize profits and share values” look like the major reasons that pushed the Indian microfinance industry to using agents (through a decentralized model) in a big way.


    To summaries, without question, there has been increasing (widespread) evidence with regard to the use of agents in Indian microfinance. However, the industry and key stakeholders continued to be in denial mode, often pretending that there was nothing wrong – until, of course, the 2010 AP microfinance crisis erupted and the cat was finally out of the bag.


    I hope that the PSCF looking into the MFIDR Bill takes these ground realities into consideration and ensures that the MFIDR Bill has adequate and clear legal mechanisms to unequivocally ban all MFIs that use broker agents (as described above) and similar intermediaries. Allowing such MFIs, that use informal broker agents, to operate is bound to be disastrous, as can be seen from the 2010 AP microfinance crisis. This is one of the most pressing issues in customer protection (in Indian microfinance) that needs to be addressed with urgency by the PSCF in the MFIDR Bill (2012).

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    Simon John

    6 years ago

    Micro-financing if not regulated well can be a disaster. In a nation like India where the customer demographic for MFIs is large it is imperative that the regulatory authority puts in place a formal guideline for their operations.

    Africa is another region where there are a very large number of MFIs and central banks of many countries in the region have put in very structured operating procedures that enable proper monitoring and regulation of the MFI and their Agents. Kenya being one of them, here we have MFIs that team up with Banks at times to ensure that the Agents and the Customers are well protected. Currently there has been a trend of MFIs applying for a banking license and becoming a Deposit Taking Microfinance or DTM.

    India should study countries likes these and try and incorporate some of their operating procedures into their existing system.

    Dayananda Kamath k

    6 years ago

    microfinanceing is nothing but organised money lending supported by public money and govt and regulators and absolve them from usurious interest act.why they have to be developed when you have banks. financing should be made availble to those who have a viable project. then only there will be true growth and development. working for statistics will not bring growth and development.

    Rajan Alexander

    6 years ago

    Ramesh: Enlightening as ever. Warm rgds


    Ramesh S Arunachalam

    In Reply to Rajan Alexander 6 years ago

    Thanks Rajan. In fact, many MFIs have admitted publicly that using informal broker agents is a bad phenomenon. So, we have a good consensus here and let us make sure that the law uses that consensus and officially bans all MFIs that dare to use broker agents, who have been the bane of Indian micro-finance and were primarily responsible for the 2010 AP crisis.

    We are listening!

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