Back in Delhi after a country-wide jaunt with my parents. And while India's Parliament recently got its hands on the Microfinance Bill, I spent Sunday trying to grasp the Taj Mahal. For me it lived up to its reputation - definitely the most beautiful thing I've seen so far on my travels through India.
The microfinance bill I mentioned back in January, which has been in circulation in draft form for the last few months, was passed by the Indian Cabinet today, and looks likely to be approved by Parliament in its current format during the next session.
No significant changes from what was predicted back in January so far, except that the capital requirements for NGOs and societies have been reduced significantly causing some societies and NGOs who are already doing microfinance to complain that the small capital requirement for getting incorporated as a microfinance NGO (the proposed reduces it to ~US $2,000) will reduce the quality and credibility of the groups trying to do the activity, as untested and start-up NGOs with no background in finance hop that easy hurdle and begin to enter the MF space.
Most important though, the bill still leaves out Non-banking Finance Companies (NBFC), the kind of for-profit microfinance companies which funds like mine (Lok Capital) look to invest in. It's a bit nonsensical to exclude them, considering that as of today these NBFCs are already responsible for somewhere between a third and a half of all the microfinance business happening in India. But this comes more as a disappointment than a surprise, as the NBFCs have been excluded from the "official" channels created in this bill since its inception. This leaves NBFCs unable to take customer deposits (...think access to cheaper funds) like the trusts, NGOs and societies will be able to do.
It's also beginning to look like this bill may leave almost all parties unsatisfied as it reduces the threshold for legitimacy in the non-profit / society microfinance space while also favoring the NGO microfinance groups over the commercially oriented ones when it comes to deposit-taking.
It took 20,000 workers 22 years to build the Taj Mahal. Hopefully India's government and the industry players here will be able to build a decent financial services sector for the poor here in less time than that.
I just think there needs to be a better, fairer set of regulations to do it.
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