Let’s stop kicking the can down the road: Highlighting important and unaddressed gaps in microcredit regulations
By Bhusan Jatania, IFMR Finance Foundation
The Reserve Bank of India (RBI) released the Master Directions on Issuance and Operation of Pre-paid Payment Instruments (PPIs) in India (Draft Circular) on 20 March 2017. The IFMR Finance Foundation’s Future of Finance Initiative has provided its response to the Draft Circular.
While the Draft Circular builds upon a series of PPI related circulars issued by the RBI, it proposes significant changes such as:
- increasing a PPI issuer’s net-worth requirement to Rs. 25 crores (from the existing Rs. 1 crore),
- allowing PPI issuers to access payment systems in the future (without providing details),
- requiring comprehensive system audit of PPI issuers on an annual basis (and before granting licenses to new applicants), and
- compulsory conversion of existing PPIs (which hold minimum information about the user) to full KYC PPIs (this has to be achieved within 60 days of the Draft Circular coming into force).
In our comments to RBI we have recommended that the Draft Circular:
- provide a higher standard of customer data protection,
- create a more level-playing field for bank-led and non-bank led PPI issuers, and
- clarify customer liability for unauthorised / fraudulent transactions involving PPIs.
In our response we have also compared the Draft Circular to the recent draft rules for security of prepaid payment instruments released by the Ministry of Electronics & Information Technology on 8 March 2017 (to which we also provided a response, available here).
We believe that the proposed regulatory revamp of wallet providers is driven by the principle that emergence of dominance should lead to greater supervision. The RBI appears to have taken a view that the digital payments sector, characterised by significant user expansion, has emerging customer abuse, data security and systemic risk considerations. And while the industry has raised some concerns of regulatory extravagance around the Draft Circular, it should largely be seen as a step in the right direction.
Our response to RBI’s public consultation is available here.
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About the Future of Finance Initiative:
The Future of Finance Initiative (FFI) is housed within IFMR Finance Foundation and aims to promote policy and regulatory strategies that protect citizens accessing finance given the sweeping changes that are reshaping retail financial services in India – including those driven by Indiastack, Payments Banks, mobile usage and the growing P2P market.
