Q.3) Examine the importance of microfinance in India. What were the regulatory challenges faced by the microfinance institutions and how a Consultative Document by the RBI help dealing with these challenges? (15 marks)

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“Mentor’s comment”
https://www.financialexpress.com/opinion/unfettering-microfinance-recent-rbi-consultative-document-frees-mfis-from-shackles-imposed-by-2011-regulations/2277925/
In the intro, mention the difference between a normal loan and microcredit.
In the body, discuss the importance of serving the small credit needs of those who lack steady income sources or assets to keep as a mortgage. In the next part, mention the regulatory issues with 2011 guidelines for the microfinance institutions. In the next part, mention that the recent Consultative Document seeks to remove the restrictions and providing a level playing field.
Conclude by mentioning that the RBI has performed well in regulation of the microfinance sector and the recent move would be one more step ahead in that direction.

Conclude suitably.

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18 responses to “Q.3) Examine the importance of microfinance in India. What were the regulatory challenges faced by the microfinance institutions and how a Consultative Document by the RBI help dealing with these challenges? (15 marks)”

June 28, 2021

Mradul sharma

ref id- #0000422539

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1. July 6, 2021
  
  Swatantra
  
  Mradul
  
  Very good attempt. Introduction and importance of MFIs are well articulated. Regulatory challenges part is also good. You can mention NBFC-Micro Finance Institutions (Reserve Bank) Directions, 2011.
  
  In resolution both points are okay, also mention steps taken such as – a common definition of microfinance loans, no pre-payment penalty, no collateral requirement, greater repayment frequency for all microfinance loans and greater transparency. You can also mention the significance of these regulations very briefly.
  
  Conclusion is good.
  
  Read some other answers. Keep writing. 🙂
June 29, 2021

Utkarsha Yadav

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1. July 6, 2021
  
  Swatantra
  
  Utkarsha
  
  Introduction is good. Importance of MFIs are fine too. In the graph, you can just remember the broad trend and draw it, otherwise it will be hard to remember specific figures in exam.
  
  Challenges mentioned are fine, also mention its impacts which resulted in the need of new regulations such as – decade-old rules and regulations; did not cover around 70 percent share in the microfinance portfolio; created a non-level playing field; issue of over-indebtedness and multiple lending etc
  
  In the consultative document part, mention some steps taken- a common definition of microfinance loans, board approved policy for household income assessment, no pre-payment penalty, no collateral requirement, greater repayment frequency for all microfinance loans and greater transparency( more market-based interest rate system).
  Now, the institutions in the microfinance sector can provide other types of loans also such as affordable housing loans, loans for renewable energy, sanitation requirements, etc.
  
  Briefly you can also mention the impact these new regulations will create. Conclusion is fine.
  
  Read some other answers. Keep writing. 🙂
June 29, 2021

Fauzyia Jafri

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1. July 6, 2021
  
  Swatantra
  
  Fauziya
  
  This is a 15 mark question, so you can write in a bit of detail. Write an introduction mentioning the difference between microcredit and normal loan. In importance you can mention the role of microfinance in women empowerment, poverty alleviation, financial inclusion, multiplier effect etc
  
  In challenges write some impacts of the 2011 regulations after the points you have mentioned- decade-old rules and regulations; created a non-level playing field between other banking institutions and MFIs ; issue of over-indebtedness and multiple lending etc
  
  Again you can mention the significance of the new regulations (how it will help part)- more market-based interest system and the transparent pricing mechanism will provide competition among the microfinance sector to bring down the interest rates, centrality of the borrower, can venture into other types of loans etc
  
  Bottlenecks and conclusion are fine. Facts in your answer fine, also try to mention how they create an impact to answer holistically.
  
  Read some other answers. Keep writing. 🙂
  
  7.5/15
June 29, 2021

SUMITA DOWERAH

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Sir , this question didn’t ask for suggestions on way forward. Should I include it even when it’s not asked ( where necessary) ?

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1. July 6, 2021
  
  Swatantra
  
  Sumita
  
  This question already contains 3 parts, so you should have enough content to write already. You can club some generic way forward points with conclusion, no need to write a separate one. But questions where specifically mentioned or where you are short on content, you must write one. Some aspirants start repeating points in one way or the other in some answers where they are short in content, in those cases far better to write a way forward. Also it is good to write in questions which are hot debate topics and there are both pros and cons.
  
  In this answer your introduction part and importance of MFIs are fine but you can make it concise. You have missed out on addressing the last part adequately. Challenges arising because of 2011 regulation are fine.
  
  Also mention some more proposals in the recent document such as board approved policy for household income assessment, no pre-payment penalty, no collateral requirement, greater repayment frequency for all microfinance loans.
  Context of the question is the recent document so you should mention how these steps will help- more market-based interest system and the transparent pricing mechanism will provide competition among the microfinance sector to bring down the interest rates, centrality of the borrower, can venture into other types of loans such as affordable housing loans, loans for renewable energy, sanitation requirements etc, promotes financial inclusion etc
  
  Conclusion is fine. Try to give equal attention to all parts of question , even if you write one part well it is tough to get good marks if other parts are missing.
  
  Read some other answers. Keep writing. 🙂
June 29, 2021

Saheli Sharma

Please review. Payment ID: HQ3P5UFSBXxM9V

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1. July 6, 2021
  
  Swatantra
  
  Saheli
  
  Nice attempt. Introduction and importance are well articulated.
  
  In the last part, mention some more proposals in the recent document such as board approved policy for household income assessment, no pre-payment penalty, no collateral requirement, greater repayment frequency for all microfinance loans.
  Context of the question is the recent document so you should mention how these steps will help- more market-based interest system and the transparent pricing mechanism will provide competition among the microfinance sector to bring down the interest rates, centrality of the borrower, MFIs can venture into other types of loans such as affordable housing loans, loans for renewable energy,sanitation requirements etc, promotes financial inclusion etc
  
  Read some other answers. Keep writing. 🙂
June 29, 2021

Janu Angel

Please review

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1. July 6, 2021
  
  Swatantra
  
  Janu
  
  In the introduction, first mention what is microfinance and then write the difference with normal loans.
  Importance part is fine, you can mention about financial inclusion, multiplier effect etc also.
  
  In impacts of the 2011 regulations after the points you can mention that the decade-old rules and regulations created a non-level playing field between other banking institutions and MFIs, also there was issue of over-indebtedness and multiple lending etc
  
  Points in last part are also good. You can add some more proposals in the recent document such as board approved policy for household income assessment, no pre-payment penalty, no collateral requirement, greater repayment frequency for all microfinance loans, increased transparency etc
  
  Read some other answers. Keep writing. 🙂
  
  8.5/15
June 29, 2021

Santosh kharat

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1. July 6, 2021
  
  Swatantra
  
  Santosh
  
  In the introduction define microfinance and mention how is it different from normal loans.
  In importance, no need to write about regulations, just mention the importance of MFIs to the society/economy. You can add things like financial inclusion, financial literacy, women empowerment, poverty alleviation etc
  
  Challenges mentioned are good. Steps taken in recent consultative document have also been written well. You can add some more proposals in the recent document such as no pre-payment penalty, no collateral requirement, greater repayment frequency for all microfinance loans, increased transparency etc
  
  Read some other answers. Keep writing. 🙂
  
  8.5/15
June 29, 2021

ankita thakur

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July 1, 2021

Deepali Rajan

kindly review @swatantra sir

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July 5, 2021

Kartikey Singh

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July 5, 2021

shivanshu pandey

pay_HH4AoVE2qPd386 please review @swatantra

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