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As India looks like it’s heading toward national regulation of the microfinance industry, microlending institutions are also saying they need to plug loopholes in the crucial sector that aims to benefit the poor.

Sa-Dhan
The two-day National Microfinance Conference began in New Delhi on Tuesday.

Sanjay Sinha, managing director of Micro-Credit Ratings International Ltd., a leading microfinance rating agency in Haryana said there was a lot that could be fixed.
“The high growth led to multiple lending and to over-indebtedness. Everybody needs to learn lessons from it,” he told a national conference on microfinance that got underway in New Delhi on Tuesday.
It’s the first major gathering of microfinance institutions since a crisis in the industry that saw Andhra Pradesh impose severe legislation last year on the lending groups after debtors in the state reported being harassed by them.
Mr. Sinha also said it was important to understand the limits of what credit could do.
“Microfinance alone cannot alleviate poverty–it needs to be mixed with activities that provide skills. We need to put more effort into developing relationships,” he said.
Mr. Sinha emphasized on the need for regulation to protect borrowers and enable microfinance organizations to function in a systematic manner.
Jayashree Vyas, of Sa-dhan, the industry association that sponsored the conference, also underlined the need to get “closer to the clients and ensure ethical lending and recovery practices.”
Many microlenders said it was vital to have national-level regulation.
In a report released in January, India’s Reserve Bank proposed certain measures that could form the basis of such regulation, including capping interest rates for loans to save borrowers from exploitation.
The Economic Survey that was released last month also directed the government to take steps to ensure that borrowers understand the terms of contract when they borrow from microfinance institutions.
Shashikant Sharma, a senior bureaucrat in India’s finance ministry, promised that microfinance was high on government’s agenda for financial inclusion.
“The sudden and rapid growth of microfinance institutions has given rise to lending malpractices. A strong and effective regulation of the sector is therefore imperative to put the sector on the path of providing inclusive growth,” he said.

AFP/Getty Images
Activists protest against microfinance institutions in Hyderabad last October.

Last   October, the government in Andhra Pradesh cracked down heavily on private microfinance institutions, banning many of their activities following a string of suicides by borrowers who were unable to pay their debts.
R. Subramanyam, a spokesman of the Andhra Pradesh government, said at the conference that the microfinance industry “needs to rediscover itself” and remember its focus on helping the poor.
“The prosperity of clients and regulation of institutions are important for sustainable growth of the sector,” he said.

Fuente: India Real Time