A few years back, the now Clemson University Professor Bruce Yandle, wrote a famous paper that provided a crude theory of the demand for and supply of social policy regulation by invoking the parable of Bootleggers and Baptists.
Fervently supported by Baptists, early last century, some American states promulgated laws to ban Sunday sales of alcoholic beverages at legal outlets. Surprisingly, the biggest supporters of this legislation were the Bootleggers, who benefitted from the reduced availability and the opportunities to black market. In simple terms, Baptists demand prohibition to make alcohol illegal, while the criminal Bootlegger wants it to stay illegal so he can stay in business! And what's more, the Bootleggers even came to rely on the Baptists to monitor enforcement of the restrictions that benefit them!
Much the same framework can be used to analyse the current strident demand for strong regulation of the micro-finance institutions (MFIs) in India. Instead of alcohol, MFIs are the target of regulation. The Government has suddenly emerged as the moralizing Baptist in support of the exploited borrowers.
Who are the Bootleggers? In so far as the direct competitors of MFIs are the moneylenders, they stand to gain the most from any action that curtails the activities of MFIs. I cannot but avoid the feeling that the good old Shylocks are laughing all the way to the bank!