laws – Vinod Kothari Consultants

An attempt to regulate the unorganised microfinance market

– Team Finserv – Aditya Iyer | Manager (finserv@vinodkothari.com)

Background

As has been evident from numerous reports, the microfinance sector in India is facing mounting pressure. Rising borrower distress and overindebtedness have led to criticism of microlenders for their aggressive loan sanctions without adequate checks on the borrower’s ability to pay and harsh recovery practices. Concerns broadly pertain to: Vulnerability of borrowers, cross-selling and opacity of terms, unjustified/usurious rates of interest, multiple loan facilities and coercive methods of recovery etc.

While RBI registered entities are subjected to various regulations such as sector-specific RBI directions on microfinance, MFIN guardrails, NBFC Directions etc. there is not much to regulate the unorganised sector. In an attempt to address these concerns, and curb the challenges faced by local borrowers, the Karnataka Government promulgated ‘The Karnataka Micro Loan And Small Loan (Prevention Of Coercive Actions) Ordinance, 2025’, hereafter referred to as “Ordinance”. Other states too have attempted to regulate microfinance lending in the past. For instance, the aftermath of the 2010 Andhra Pradesh microfinance crisis, resulted in the Andhra Pradesh Microfinance Institutions (Regulations of Money Lending) Act (2011). Similarly, Assam has also promulgated the Assam Microfinance Institutions (Regulations of Money Lending) Act (2021). The Karnataka ordinance emerges particularly in light of the spate of reported borrower suicides in the region, and reports of usurious recovery practices by lenders.

– Ajay Kumar KV, Manager & Himanshu Dubey, Executive

[corplaw@vinodothari.com]

From a little-known word and a preserve of a select few finance professionals, the term Special Purpose Acquisition Companies (SPACs) is today a buzzword. The regulators across the globe are taking necessary actions to enable SPACs to raise money from investors – jurisdictions like the US, UK and Malaysia lead from the front. Having a sound regulatory framework is important because if investors are keen towards SPACs, and the regulators do not enable it, it is quite likely that the country will not be a friendly destination for SPACs. Hence, India’s securities regulator SEBI has recently constituted an Expert Group for examining the feasibility of SPACs in India, and the International Financial Services Center Authority (IFSCA) has issued IFSCA (Issuance and Listing of Securities) Regulations, 2021^[1] which provides a regulatory framework for listing of SPACs within its jurisdiction.

In this write up, the authors take a look at the global legislative measures, and also outline the various changes in the regulations that may be needed in India to enable to make India a SPAC-friendly jurisdiction.

Contents

Introduction. 2

Important regulatory concerns. 3