Microfinance and Credit Regulatory Authority: Recipe for disaster

The Microfinance and Credit Regulatory Authority Act, disconnected from people’s interests, fails before implementation.

The Authority exempts Licensed Finance Companies (LFCs) engaged in microfinance from its purview. Instead, it exclusively regulates the Community-Based Organisations (CBOs) providing small credit by prohibiting accepting savings and eliminating their autonomy in organising community credit.

Victims of the microfinance crisis demanded the cancellation of unpayable debt, alternative credit, and protection against financial violence. Denied a just hearing and snubbed by the politicians, victims have resorted to community-based practices of organising non-hierarchical and non-exploitative alternative credit to address their developmental needs. The proposed Authority forecloses these initiatives.

Involving the Police in investigating complaints will consolidate the power imbalance between borrowers and creditors, criminalising unpayable debt and persecuting debtors.

LFCs, unhindered by the new regulation, can conduct business as usual, submerge low-income women under piles of debt issued at usurious rates, and exploit the judiciary and law enforcement institutions to push coercive debt collection practices.

These flaws, vanquishing the purposes of regulation, arise from disregarding voices of victims and women-led CBOs. Neither the victims nor the CBOs were consulted during the last five years when the Act was in formation.

It reveals how ill-informed the policymakers are about the microfinance crisis. Oblivious to its origins, the policymakers bolster the culprits and failed policies at the roots of the crisis.

The commercialisation of microfinance primarily by the LFCs after the 2000s created a debt bubble among lowincome women nationwide. Like all the bubbles, the microfinance bubble exploded after 2017 in the form of suicides, dispossession and demonstrations led by women victims, cooperatives, and women’s organisations.

Policymakers have also ignored regional and global policy precedents. For example, an Act passed in Assam, India to regulate Microfinance in 2021, restricts multiple loans, sets an income-loan value floor, and specifies additional protections for people from vulnerable communities.

Furthermore, global precedents vis-à-vis financial crises highlight the importance of disciplining big finance while empowering alternatives.

Regulations are meant to protect the vulnerable and avoid disasters, not exacerbate them.