Regulations key to orderly growth of microfinance

The RBI's CD defines microfinance clients based on the current household income limit applicable for NBFC-MFIs

Microfinance started in India three decades ago as a small-scale endeavour by non-profit entities. At the start, two parallel approaches existed — the self-help group-bank linkage programme (SBLP), and the Grameen-style microfinance institutions (MFIs). While SBLP and its new avatar, the National Rural Livelihood Mission, form an important part of microfinance, it is the MFI model which requires regulatory tweaks for sustainable growth.

From 2004-05, the model evolved to specialisation and scale, for-profit, commercial and regulated companies dominated the market. This brought private capital, growth and scale. Growth, alongside SBLP, also brought customer protection issues — most notably manifested in