India may create legislation to start microcredit banks

Muhammad Yunus says he has talked to the Indian Prime Minister Manmohan Singh and the result may be that India may enact a legislation allowing creation of microcredit banks and a regulatory body that can regulate this sector.

He said if necessary India would have to create an independent regulatory body to monitor the micro-finance sector and "it will also perhaps bring in legislation for formation of a microcredit bank."

As of now, a microcredit organization can at best create a Non-banking Finance Corporation (called NBFC). The legislation governing banks are very different and benefits available to banks are not available for NBFCs. In fact, around the world, there aren't many that are in micro finance and notified as a bank. Grameen Bank in Bangladesh and a Chicago based small bank are probably the only ones, if I am not mistaken.

We must thank Muhammad Yunus for bringing this rather simple idea to Manmohan Singh's notice. One would have thought an accomplished economist such as Singh would have realised this all by himself by now.

There are laws passed in Indian Parliament in a hurry when it comes to saving their seats by the Indian lawmakers ("The Office of Profit bill") but they won't normally press the pedal on for things like micro credit. But since this is the Nobel year of micro credit, we may still see a draft bill presented over the next 12 months or so, and if we are lucky, the bill may get passed over the next three years or so. That is, if someone in RBI does not come up with strong opposition to such a move.

As to EU type economic union in SAARC countries, we are far away from it. Sri Lanka has a crumbling economy, Pakistan does not have a robust economy and a common market may not necessarly offer much to Nepal or Bangladesh in the medium term. First step will have to be heightened bilateral trade relationship and preferred investment opportunities within member countries.