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What should regulation do in the field of micro-finance?

Author

Listed:
  • Renuka Sane

    (Indira Gandhi Institute of Development Research)

  • Susan Thomas

    () (Indira Gandhi Institute of Development ResearchInstitute of Economic Growth)

Abstract

Recent events in India have brought a fresh focus on the appropriate regulatory stance towards micro-finance. In this paper, we review facts and recent experience about Indian microfinance. We analyse the puzzles of financial regulation in this field from first principles, and argue that the mainstream mechanisms of consumer protection and micro-prudential regulation need to be modified owing to joint-liability groups. From this perspective, we suggest regulatory strategies that need to be adopted for dealing with micro-credit and financial distribution that focuses on the poor. This analysis and conceptual framework also helps analyse the two policy responses till date, the Malegam report and the draft Microfinance Bill, 2011.

Suggested Citation

  • Renuka Sane & Susan Thomas, 2012. "What should regulation do in the field of micro-finance?," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2012-012, Indira Gandhi Institute of Development Research, Mumbai, India.
  • Handle: RePEc:ind:igiwpp:2012-012
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    File URL: http://www.igidr.ac.in/pdf/publication/WP-2012-012.pdf
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    References listed on IDEAS

    as
    1. Ghatak, Maitreesh, 1999. "Group lending, local information and peer selection," Journal of Development Economics, Elsevier, vol. 60(1), pages 27-50, October.
    2. John Y. Campbell & Howell E. Jackson & Brigitte C. Madrian & Peter Tufano, 2011. "Consumer Financial Protection," Journal of Economic Perspectives, American Economic Association, vol. 25(1), pages 91-114, Winter.
    3. Bhole, Bharat & Ogden, Sean, 2010. "Group lending and individual lending with strategic default," Journal of Development Economics, Elsevier, vol. 91(2), pages 348-363, March.
    4. Xavier Gabaix & David Laibson, 2006. "Shrouded Attributes, Consumer Myopia, and Information Suppression in Competitive Markets," The Quarterly Journal of Economics, Oxford University Press, vol. 121(2), pages 505-540.
    5. M. Sahoo & Renuka Sane, 2011. "A Regulatory approach to financial product advice and distribution," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2011-029, Indira Gandhi Institute of Development Research, Mumbai, India.
    6. Shubho Roy & Renuka Sane & Susan Thomas, 2011. "An Economic policy and legal analysis of the Micro Finance Institutions (Development & Regulation) Bill, 2011," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2011-025, Indira Gandhi Institute of Development Research, Mumbai, India.
    7. Shubhashis Gangopadhyay & Maitreesh Ghatak & Robert Lensink, 2005. "Joint Liability Lending and the Peer Selection Effect," Economic Journal, Royal Economic Society, vol. 115(506), pages 1005-1015, October.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Micro-finance; micro-credit; joint-liability-groups; India; consumer protection; regulation;

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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