… questions Nabards role as regulator

The Malegam panel has questioned the suitability of Nabard as the regulator for the micro-finance segment (excluding banks,co-operative banks and NBFCs). The central government has drafted a Micro Finance (Development and Regulation) Act 2010 under which Nabard will be the regulator for the entities covered by the Act. Nabard currently is not only the agency responsible for the development of the micro-finance sector but is also a participant,in that it finances the sector. There may be a perceived conflict of interest if Nabard is also a regulator. If therefore,Nabard is to act as a regulator,it may be required not to participate in the financing of the sector,” the panel said.

If Nabard is to remain the regulator as provided in the proposed Act,then it is necessary that there should be close co-ordination between the RBI and Nabard in the formulation of the regulations issued by each regulator. This is necessary to ensure against the risk of entities taking advantage of regulatory arbitrage,the panel said. The panel said,The problems get multiplied several-fold when we consider that the example of the AP government could be followed by other states. If there are separate regulations governing NBFC-MFIs in individual states,the task of regulation by the RBI of MFIs operating in more than one state will become well-nigh impossible.