There is a need for a regulatory framework for microfinance institutions in the country, Union minister Jairam Ramesh today said but cautioned that a heavy- handed model will have adverse impact on entrepreneurship.
"You need a regulatory framework, you don't need a heavy- handed regulatory framework, which is going to stifle entrepreneurship in this area," Ramesh said while speaking at the Hindustan Times Leadership Summit in a session on 'Microfinancing-Philanthropy or Loan Sharking?'
"There is a very rigorous debate on this over the last five years on what appropriate regulatory framework should be in microfinance institutions. There is a bill on this and the Standing Committee on Finance has sought opinions from various stakeholders and they are about the finalise that report," the Rural Development minister said.
He said that there have been some valid concerns raised about this sector.
"There are arguments for the regulatory framework as proposed by the Finance Ministry. There are some concerns that have been raised.
"One of these is are we going to allow these institutions to raise deposits from the public? Do we want to run the risk of making microfinance institutions chit fund institutions?" Ramesh asked.
He said microfinance 1.0 has failed largely due to five major reasons- push model of finance, recovery method being largely coercive, re-payment being weekly, income being a monthly, social capital formulation. Hence, microfinance 2.0 needs marrying the flexibility of microfinance schemes with self-help groups.
