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Banking policy tends to be crafted with the public sector banks in mind, creating a strange mix of incentives for other types of providers.
Most importantly, although large MFIs were allowed to convert from non-profits to commercial institutions, they were not licensed to take deposits, in part because they would have become competitors to the public sector banks.
Deposit-taking, properly supervised, would have allowed the MFIs to raise funds locally, both from clients and others in their neighborhoods.
It would have created a balanced portfolio of products and revenue sources, rather than exclusive reliance on the micro-loan mono-product.
Instead, authorities accepted a romantic notion that client ownership would create grassroots accountability, but this actually created a governance void.
SKS, for example, established a client trust that gave clients a monetary stake in the company but left the voting rights to the founder/managers.
The NGOs kept the focus on the mission, while the international social investors contributed a commercial orientation, also tempered by social mission.
In Indian microfinance, NGOs are prohibited from becoming shareholders.
In fact, the environment in which MFIs have grown up could almost have been expressly designed to promote over-lending.
At the same time, foreign investment rules have made it hard for international social investors to participate in ownership and governance.