The World Bank does not recognize the role of non - profit in the micro finance industry as ‘legal’, i.e. as per law only banks or non - financial institutions have a right to actually engage in micro finance activities. Thus, technically speaking, organizations and institutions registered as any other legal entity, such as a society or a sec 25 company or foundation are not legally authorized to get into the business of banking.

Consequently, NGOs and other organizations have come up with roundabout routes to overcome the legalities of this business - such as forming of federations registered with nationalized bank, or all individuals coming together in a credit society and opening a group account in the name of one or two elected individuals.

In this environment many more organizations that were not set up primarily to work on microfinance and credit want to get into the sector because they look at it this way to source funds internally and move towards self sustainability.

At this point some questions strike my mind…

  • Is it really fair to be so critical of the process?
  • The question of the right’s perspective : a few Fellows felt that it was missing from the whole model, which seemed totally focused on profit making
  • What are the existing legal frameworks for these organizations to work in ? Why are they considered not legal?
  • Are the banks an financial institutions wanting to link with the non-profits and on what terms?