Regulator for microfinance may not be needed: RBI

The Reserve Bank of India (RBI) today said there may not be a need for separate and exclusive regulatory framework for microfinance institutions (MFIs).

The major players undertaking microfinance activities are well-regulated entities such as banks and non-banking finance companies (NBFCs), said the report of the internal group on rural credit and micro finance.

The models of business facilitators/ correspondents suggested by the group would forge stronger linkage between the non-government organisations ""MFIs and the banks under a framework of due diligence and rating, it added.

Most part of micro finance port-folio will remain under the banks and the NBFCs, which come under the regulatory framework of RBI. Hence, a separate and exclusive regulatory framework for MFIs may not be required for the present, said the report.

To widen the scope of financial services provided by banks to the under-serviced areas and the rural poor, the group has suggested two models "" the business facilitator model and the business correspondent model.

This model will facilitate towards providing non-financial support services and financial services as "pass through" agents by leveraging MFIs/NGOs, Civil Society Organisations and other external entities, said the report.

The group has also made recommendations relating to promotion, development and rating of MFIs. It has also recommended widespread use of Information and Communication Technology (ICT) for expansion of banking outreach in a convenient, secured and cost effective manner.

The working group was formed after the Finance Minister in his Union Budget 2005-06 suggested that the RBI examine the appointment of MFIs as banking correspondent to enhance flow of credit to the rural areas.