The Malegam Committee has released its report on the microfinance sector. More formally, it is the ‘Report of the Sub-Committee of the Central Board of Directors of Reserve Bank of India to Study Issues and Concerns in the MFI Sector’.
Mr. Vijay Mahajan has made a foreful critique of the Committee’s recommendations here.
My problem with the Committee’s recommendations go beyond the specifics. The mindset of Indian regulators has to change from coming up with rules, regulations and guidelines that focus on catching 10% or 20% wrong-doers rather than faciliating the economic activity of the other 80% – 90% who are doing good work.
How, on earth, should or Microfinance Institutions can verify that the income of the household is less than Rs. 50,000 per annum and that the bulk of the loans are used for income-generating activities rather than for consumption activities?
Even if households use it for consumption smoothing, so what? Will a major medical bill be considered consumption activity? If so, should they not borrow for that purpose? Do they have health insurance coverage?
See this column by Mr. Ashok Desai reproduced in IFMR blog.
Unfortunately, the attitude among regulators still is that we tighten the regulatory screws until the machine breaks down completely.
(Disclosure: I am on the Board of Bharatiya Samruddhi Finance Limited (BSFL), a NBFC-MFI. Mr. Vijay Mahajan is the Chairman of the Board of BSFL)