Even though the micro-finance sector in India has witnessed a stupendous growth in the last few years, it still needs overhauling many aspects, including the following:

1. Corporate Structure: some of the biggest 20 MFIs in India contribute to 85% of the sector’s outreach and almost all of them are NBFCs. However, NBFCs are not been encouraged to raise deposits. There are also challenges with respect to converting into banks. Yet mobilisation of savings could overcome high cost of funds borrowed from outside. The Government should try to enable NBFCs and MFIs to raise deposits, but it should be very tightly regulated.

2. Micro insurance: has tremendous opportunity for business growth and also helps in mitigating the risk of unforeseen liabilities of the economically disadvantaged. Insurance should be the next big product to be offered by the microfinance sector.

3. Mutual Fund Investments: the poor usually are constrained to invest in mutual funds or traditional investment because contributions in cash are not permitted. Permitting cash collections in such investments might have immense positive ramifications to the overall economy.

4. Mobile Banking: could help bring in those who are yet out of the formal financial system. The country needs to develop a national roadmap for mobile banking and branchless banking.

5. Management of MFIs: better corporate governance norms are needed for MFIs, especially the smaller ones. The level of participation by independent Directors should be increased. Also regulatory audits should be increased. The MFIs should also focus on training its staff well.

6. Affordable Housing Finance: Longer term funding at sustainable costs should be actively made available to MFIs, which would significantly expand the Indian affordable housing space and provide a much-needed impetus to core infrastructural development in the country.

7. Capital Adequacy: Stricter capital adequacy requirements for MFIs vis-à-vis banks or NBFCs, given that microfinance portfolios are typically entirely unsecured and subject to relatively faster deterioration in case not managed well or when under stress.