The Reserve Bank of India (RBI) has confirmed its decision to grant self-regulatory status to associations of non-banking financial firms that deal in microfinance.

Announcing the decision, the RBI said that the move would ensure effective monitoring of non-banking financial companies and microfinance institutions (NBFC-MFIs), and their compliance with set of laws and code of conduct.

The central bank added that the membership of NBFC-MFIs in the self-regulatory organisations (SRO) would be seen as a mark of confidence.

The apex lender said in a statement, "The membership of NBFC-MFIs in the SRO will be seen by the trade, borrowers and lenders as a mark of confidence and removal from membership will be seen as having an adverse impact on the reputation of such removed NBFC-MFIs."

The move is based on a suggestion made by RBI-appointed sub-committee of its central board of directors, which was headed by Y H Malegam, to study issues in the sector of microfinance. The sub-committee had recommended that the central bank should take steps to ensure microfinance companies' compliance with regulations.

For getting a SRO in this space, a minimum of a third of the NBFC-MFIs will have to get registered as its members at the time of recognition. In addition to that, it must have sufficient capital so that it could discharge its functions without any need to depend on subscription from members.