The Reserve Bank of India or RBI’s decision to observe a uniform regulatory framework for all the microfinance lenders. It has been discussed for more than five years now and has been brought into focus by a bill by the Assam government that focused on regulating microlenders in the state, according to experts.
Officials said that uniformity in such rules has been sought ever since Bandhan Financial Services turned into a bank in 2015 and many other micro lenders converted into small finance banks. According to P. Satish who is the executive director of Sa-Dhan, an industry body with 225 microfinance institutions in India, said that there have been many representations from microfinance bodies in the past which sought out uniformity in regulations.
Satish also said that the RBI’s decision to bring in regulation for all microfinance associations would successfully disincentivize all the states from creating and implementing their own laws on the subject according to Satish.
RBI also announced on the 5th of February that there is a case for a framework that will be uniformly applicable to all the regulated lenders in time. The micro-lending sector has also scheduled small fiance banks, commercial banks, non-banking investment, and credit companies, but the regulatory focus has been on the registered NBFC-MFIs.
The central bank said that the RBI will issue a consultative document that will harmonize the regulatory framework for many lenders in the microfinance space by March 2021.
Apart from acting as a safety net against future legislations, the RBI’s decision was also lauded by the industry due to its promise of a level playing field. The RBI deputy governor M Rajeshwar Rao gave a speech on 6th November 2020 which had hinted at the possibility of bringing regulatory uniformity to the sector. Rao had also said that the share of NBFC-microfinance institutions currently has declined to a little over 30% of the total microloan segment.