Consumer Protection Regulation: Microfinance Needs and Initiatives in India

This paper identifies and discusses consumer protection issues in India prior to the 2010 Andhra Pradesh (AP) crisis. Through a survey of MFIs across India, it examines how the 2011 Reserve Bank of India (RBI) regulation addresses these issues, and analyzes the effectiveness of these solutions.

The paper also analyzes consumer protection components of the Micro Finance Institutions (Development and Regulation) Bill 2011. It examines global best practices in this area and concludes with recommendations on client protection. Conclusions include:

• Collection practices, high interest rates, and over-indebtedness are the most prominent customer protection issues for microfinance clients in India;
• Micro Finance Institutions (Development and Regulation) Bill 2011 gives regulators power to make institutions submit their information to credit reference services providers and to create a grievance redressal procedure for microfinance clients;
• RBI regulation has addressed consumer protection issues, but some aspects of this regulation may be difficult to implement, and might not represent global best practice.