Microfinance Bill: The Good and the Bad – A comment by Samit Ghosh

By Samit Ghosh, Founder  – Ujjivan Financial Services Pvt Ltd

India’s microfinance bill is a very positive development for the microfinance sector as it brings the sector into the ambit of organized financial services. It continues the process initiated by the Malegam Committee Report earlier this year, followed by the first set of Reserve Bank of India (RBI) regulations on May 3, 2011.

samit ghosh ujjivan microfinance

Samit Ghosh - Founder of Ujjivan Financial Services Pvt Ltd

Previously, MFI’s were loosely regulated and operated in the twilight zone, vulnerable to ordinances or legislations like those in Andhra Pradesh last year which suffocated the entire sector in the state

Here’s what is welcome and what is not so welcome in the bill


  1. Unlike the Malegam Committee recommendation this bill focuses on customer protection through establishment of an ombudsman.
  2. Like banks and other financial institutions, MFIs registered with the RBI will be outside the ambit of state money lenders acts.
  3. The bill prescribes an inclusive process where all the stakeholders, Central and State Governments, will be involved, while the RBI will be the overall regulator for the sector.
  4. It reverses the retrograde development by the Malegam Committee of only focusing on loans, and instead introduces the whole range of financial services needed by the poor and to be offered by MFIs – especially thrift (small savings).
  5. It reverses the Malegam Committee’s recommendation of higher capital requirement and forcing the industry to consolidate, which in the long run would have been anti-competitive.
  6. It forces systemically important MFIs (those with more than Rs.100 crores or $22.4 million loan book) who are currently trusts or societies to convert into more transparent organization like an NBFC-MFI or Section 25 Company.


  1. Retains some of the negative developments of the Malegam Committee recommendations in terms of micromanagement: specifying financial product specifications, margins and interest rate caps.
  2. Retains the possibility that RBI may delegate the responsibility of supervision of smaller MFIs to organizations like NABARD, which could create conflict of interest.
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