Indian Microfinance and Codes of Conduct Regulation: A Critical Examination

This chapter deals with an unusually large and critical sector as microfinance. The conduct of a large segment of the microfinance sector in India has been governed by the codes of conduct (CoC) and fair practices developed by the sector associations and the Reserve Bank of India (RBI), the central bank of the country. Many different tool kits have also been introduced by donors, investors and international financial agencies, apparently, to help microfinance entities adopt what has come to be known as ‘responsible microfinance practices’. Along with ensuring workable competition among microfinance institutions (MFIs), all the codes and other standards emphasise protection of client interests. CoC has assumed increased importance in microfinance regulation, given the reluctance of both the state and the central bank to come up with a definite statutory regulatory framework to supervise the functioning of MFIs. However, there is considerable ambiguity about the enforcement of the code and compliance by MFIs. The authors of the chapter take a critical look at the role of CoC in promoting responsible business practices and orderly growth among MFIs in India.