With SKS Microfinance challenging Andhra Pradesh’s controversial microfinance law in the Supreme Court, India might soon have an answer to the question: who should regulate microfinance institutions (MFIs), the Centre or the states? This is a question that needs an immediate answer. As non-banking finance companies (NBFCs), MFIs are regulated by the RBI. Being financial corporations – as per the Seventh Schedule of the Constitution – they come under the Centre. See them as moneylenders and the same Seventh Schedule makes them a state subject. This ambiguity in law is one reason why, despite MFIs getting desperate, neither the RBI nor the finance ministry can get the Andhra Pradesh government to abandon the Act.
Slowly, the regulatory regime for the MFIs takes shape. The thing I am marvelling about, though, is this. The new regulatory regime looks like it will be the amalgam of the steps taken by assorted institutions trying to fix the problems they see — the AP Ordinance plus the Malegam committee recommendations plus the Microfinance Bill plus the Supreme Court verdict. As opposed to, say, a unified policy response to the crisis in/by the sector.
Which is roughly what I had also seen while studying the drafting of the Forest Rights Act in 2009. Law making, unlike what Akhileshwar Pathak writes in Laws, Strategies and Ideologies, can actually be the sum of disparate parts being strung together. (I should upload that paper soon. Soon, once I, sigh, finish its damn conclusion)
Also, this is my third story on how the regulatory regime has been evolving. The first one, written last June, looked at why complexity was nobbling the government’s attempts to fathom how to regulate the sector. The second, written a month later, looked at other regulatory alternatives before the government.