What Should Regulation do in the Field of Micro-finance?

Recent events in India have brought a fresh focus on the appropriate regulatory stance towards micro-finance. In this paper, facts and recent experience about Indian microfinance is reviewed. The puzzles of financial regulation in this field from first principles are analyzed, and argued that the mainstream mechanisms of consumer protection and micro-prudential regulation need to be modified owing to joint-liability groups. From this perspective, regulatory strategies are suggested that need to be adopted for dealing with micro-credit and financial distribution that focuses on the poor. This analysis and conceptual framework also helps analyze the two policy responses till date, the Malegam report and the draft Microfinance Bill, 2011. [WP-2012-012]. URL:[http://www.igidr.ac.in/pdf/publication/WP-2012-012.pdf].