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Microfinance Sector and the Supportive Role of Regulator in its Transformation: A Case Study from India

In: Financial Inclusion in Emerging Markets

Author

Listed:
  • Jesu Raju Thomas

    (CHRIST (Deemed to be University))

  • Jyothi Kumar

    (CHRIST (Deemed to be University))

Abstract

Microfinance is a proven business model to deliver financial services to unbanked. In the beginning years of microfinance, Non-Governmental Organizations (NGOs) were engaged in microfinance initiative and used to raise capital through grants for their microfinance program, similar to other grant-based development initiatives. To become self-sustainable financial institutions, NGOs started to transform their microfinance initiatives to a for-profit legal entity. Microfinance experienced commercialization in the process of transformation which neglected the basics of microfinance, especially in protecting the interest of clients. Supportive role of regulator transformed the Indian microfinance sectors and formed sustainable financial institutions. The successful story of Reserve Bank of India’s (RBI) intervention in shaping Indian microfinance sector counters the argument of free market principle in fixing the interest rate and healthy regulation for microfinance institutions. Supportive role of Reserve Bank of India created win-win situation for both microfinance borrowers, microfinance institutions and other stakeholders for the long-term sustainability.

Suggested Citation

  • Jesu Raju Thomas & Jyothi Kumar, 2021. "Microfinance Sector and the Supportive Role of Regulator in its Transformation: A Case Study from India," Springer Books, in: Ananda S. & Dharmendra Singh (ed.), Financial Inclusion in Emerging Markets, pages 219-235, Springer.
    • Handle: RePEc:spr:sprchp:978-981-16-2652-4_11
    DOI: 10.1007/978-981-16-2652-4_11
    as

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