Financial Systems Design

The IFMR Finance Foundation is committed to work towards its vision of a well-functioning financial system for India that is built on three fundamental pillars: High Quality Origination, Orderly Risk Transmission and Robust Risk Aggregation, such that there is full financial inclusion and financial deepening in a manner that enhances systemic stability. A well-functioning and resilient financial system needs a good mix of institutions that collectively meet the financial intermediation needs of the country, be it individuals, households, businesses, sectors and local governments, while simultaneously enhancing the stability of the system as a whole.

India is a very large and diverse country and therefore no one strategy, however well designed, can be uniformly effective in serving the entire country. There is therefore a need to move away from a limited focus on any one model as being the solution, to an approach where multiple models and partnerships are allowed to emerge – between national full-service banks, regional banks of various types, non-banking finance companies (NBFCs), and financial markets, as well as a whole range of new functionally differentiated participants that can be envisaged to be created to fill existing gaps. The financial architecture must seek to encourage the emergence of specialists and enable greater partnerships between specialists. We envisage for the Indian financial system, a policy framework that allows multiple strategies and institutions, new and old, to co-exist with each other, enjoying the freedom to thrive based on their inherent strengths and weaknesses.

Some of our work in Financial Systems Design pertain to identifying costs inherent in various channels for credit delivery within the pillar of high quality origination, and laying out our recommendations on improving the competitiveness of the banking system, and of the debt capital markets that provide the funds needed to run well-oiled financial intermediaries.

Since 2008, when IFMR Finance Foundation was founded, it has made several contributions to the Indian financial system. IFMR Finance Foundation has participated in several policy-making platforms such as the Reserve Bank of India’s Committee on Comprehensive Financial Services for Small Businesses and Low-Income Households (CCFS), serving as the technical secretariat to the committee. IFMR Finance Foundation has also worked with the Government of India’s High Power Expert Committee on Urban Infrastructure and Services, and the Committee to Review Implementation of Informal Sector Pension. IFMR Finance Foundation has been closely involved in the evolution of the pension product for informal sector workers (NPS-Swavalamban) and advises the Pension Fund Regulatory and Development Authority of India (PFRDA) on the same.

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