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Sa-Dhan FI Conference 2014 - Financial Inclusion & Self Regulatory Organization (SRO) - Fostering Growth with Enhanced Regulatory Compliance and Policy Constructs

Session Panelists

Mr. N.S. Vishwanathan, Chief Manager-in-Charge, DNBS, RBI
Mr. Mohan V. Tanksale. Chief Executive, Indian Banks' Association (IBA)
Mr. Rajaram Dasgupta, Professor (Retd.), NIBM
Mr. Samit Ghosh, MD and Director, Ujjivan Financial Services Pvt. Ltd. 
Mr. Joslin Thambi, CEO, BWDA

Moderator - Mr. Mathew Titus, Executive Director, Sa-Dhan

Lighting of the lamp at the Sa-Dhan FI Conference 2014 Opening Ceremony


Mathew Titus – We have this new agenda of becoming a self regulator. As Mr. tanksale said, we have to look at this in tandem with practitioners. 

N.S. Vishwanathan – After the crisis, the committee asked to put together a SRO. It is not possible however to regulate on a real time basis. There is a need for this process from within the sector. An SRO is a representative body of the sector, which is a whole or part of what the govt. regulator has to do.

First question – does RBI have a legal prvision for an SRO? No. So we said we’ll arrange one with a contractual obligation between the RBI ansd the SRO which discusses the information feedback and responsibilties. Had to make sure that the framework would ensure a migration from SRO to being a lobbying body does not happen. To have credibility and power, atleast 1/3rd membership should be given to practitioners.

As of now, RBI is only regulating the NBFCs among the MFIs. Therefore whatever we regulate would only relate to NBFCs. Cannot mandate someone to become a member. So how do you prevent the SRO from becoming a lobbying body?

It has to be able to be independent from bodies it is regulating. Excesive dependence on the players it is regulating could lead to problems.

Board of directors – 1/3rd of the directors should not be related to the MF sector. It has to function as a conduct committee as well. We have to recognize that there is a requirement for extra level of sensitivity required.

Mathew Titus -  How do you deal with membership?

Mohan V. Tanksale – IBA is partially an SRO and how it works is that membership is voluntary and not mandatory. As the organization represents a larger part of the sector and works in all their interest, it gains credibility in the sector. Tho SRO must be representative of the sector. Only when it can voice the concerns of the members, does it have any credibility.

Today, I only talk in the context of an SRO for the MFI sector. The questions are:

  1. How can you bring 1/3 of your players on the same platform?
  2. Profit is necessary but can it also be made along with ensuring independence?
  3. I've repeatedly asked for digitization of monetary transactions in the sector. We’ve recently seen a lot of criticism of PSUs. Somewhere in the sector someone goes off track. Whats important is the SRO catches this noise and brings these organizations within the fair practices.

Rajaram Dasgupta -  We have to keep in focus the people, the clients. Micro-credit should not be converted to micro-debt. The sector should be regulated and there should be a holistic approach with livlihoods, delivery mechanisms etc. incorporated. Referring to the Mor committee report, there should be a rise in the balance and transactions of BOP households.

SRO can be a member specific or non-member specific. The buck stops at the RBI. SRO vs. regulator, regulators give the licenses, sets financial  rules. SRO Funding should come from difference sources: RBI, state, members. Legal character of MFI – there shoud be no dual control of MFIs but registered under the MFI act under one umbrella. The future of the MFI – clients who grow beyond the MFI caps, can they graduate with the MFI. The impact of SRO – ethical growth of MFIS.

About graduating institutions, what should be the legal form for them?

Mr. Dasupta - all covered together

V. Tanksale - Different forms must be covered by different SROs, all reporting to the apex level…a tiered approach to SROs.

Mr. DasguptaAn additional discussion question I would like to add is what is the character of an MFI? And what is to be regulated? Beyond the six visions of the Mor committee report, I would add another vision, to ensure sufficient amount of transaction volume and balance in accounts of low income households.

Before I go into my opinioins on sadhans 5-6 questions. Sa-dhans SRO definition... Whatever is being done, central monitoring authority is what the onus falls on.

SRO and legal character of MFIs - There should be no dual control (RBI and SRO or SRO and State). All MFIs must be for profit.  No MFI should be part of the umbrella organization.

Should BC be pat of SRO? BC should be supervised by the SRO.

Anticipated impact of SRO? Steady and scrupulous growth of sector, competition to bring down the price, expansion to bottom end of the market.

V. Tanksale – When you look at the cooperative banks, what I must say is that all cannot come under one SRO (called IBA for example). I think whats needed is a federation for each area which comes to an apex level organization.

Samit Ghosh – If funding is coming from a membership fee then it is more likely to align itself to the member organizations perspective. With MFIN, Sa-Dhan so far all the regulation has been voluntary. When you have big players then you can get away with anything. But what the RBI has envisioned is completely different from these with a compliance officer who directly refers to the RBI. This is a very diferent organization. End of the day, SRO has to also be a redressal system which is not easy to regulate. A lot of training and awareness has to be put in place.

Joslin Thambi – In my miminmum experience, because of bi-regulation we have the credit bureau but this also is a big problem as only NBFCs are doing credit bureaus. So if RBIs giving regulation to some public sector banks. Even if you look at Yes bank, only after dong checks with highmark, only then do they issue onlending.

Because of RBI regulation we have a lot of controls which we follow such as rating input from CRISIl, - we are doing all those. Now they are thinking of creating another animal, the SRO!

If you take India, almost 80% if NGO MFI intutitons are doing livelihoods in some small way. If you take NBFCs in that face, they are doing only credit. Olnly NBFCs in that case are going to be able to meet SRO requirements.

N.S. Vishwanathan – There are a few things that need to be ensured. MFIs need to be lending to the people that need it. The SRO we are talking about is a very formal engagement. SRO is different from something that will be on a voluntary basis but it would be on a contractual basis. One more thing – I don’t see SRO to be a burden on the sector. I think you're actually going to reduce the supervision by the central bank which will bring down the cost of operations for you as well. Lastly, the issue of whether a non-NBFC MFI should be regulated – I would say that the relationship that the RBI would have with a recognized MFI would only be limited to what the RBI should regulate.

I also want to talk about the mention of advocacy vs lobby. We are not saying that – you're obviously going to be a group which represents the sector as Sa-dhan. As a regulator though, if youre looking from the perspective of the sector itself, that is going to be aporblem. We have actually avioded having more than one SRO. There should not be an unhealthy competitions between multiple SROs.

Mathew Titus – I think talking about overindebtedness, there is an issue of multiple sources of credit – from MFIs and banks (not reported to credit bureau)– all will lead to over-indebtedness.

V. Tanksale – Each and every loan disbusrsed by any bank is reported to credit burau. It is also necessary that the banks will pull the credit bureau. The moment you form an SRO, are you not gaining the benefits of coming together and looking at all your common issues together? Lending by banks is reported to the credit bureau. No bank would lend to a borrower who is already registered/serviced by MFIs. Credit ratings are a system of self-reflection of what are the areas of concern.  I don’t think that state govt. orgs., banks , etc. are pushing their lending their practices to meet targets. Most state agencies don’t get into direct lending but restrict to supplementary lending. So over-indebtedness should not be seen as the multiplicity of the agencies but the ability to repay and absorb from the loan. MFIs should measure growth by their membership, not by the income bracket that they operate in. For example,  I am impressed by the customer profiling done by IFMR's KGFS model.


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