RBI Deputy Governor Rao Says Small Lenders Should Follow Fair Practices


Microfinance lenders should focus on social bonds, says RBI vice governor Rajeshwar Rao

Microfinance lenders should align their social obligations and goals with their operations and should not emulate strategies adopted by traditional financial institutions, said Reserve Bank of India (RBI) Deputy Governor Rajeshwar Rao.

Addressing a conference, Mr. Rao said lenders in the microfinance space should not forget the basics of the industry and avoid prioritizing profitability over social goals. and well-being.

“There is no denying that self-sufficiency and financial sustainability are the goals lenders must pursue. However, prioritizing profitability at the expense of social and welfare goals of microfinance may not be an optimal outcome, ”Mr. Rao stressed in his inaugural address at the Sa-Dhan national conference.

He warned that lenders should never forget the fact that balance sheet growth should not be built by compromising on prudent driving.

Referring to the negative impact of over-indebtedness, harsh collection practices and negative results from client harassment, Mr. Rao said these will have a negative impact on the microfinance industry.

“From the point of view of society, there are economic and social implications. While seeking asset growth and higher returns, lenders should not lose sight of caution. Any mistake due to adverse actions by microfinance institutions can undo the tremendous progress made over decades, and the sector can hardly afford to do so, ”he said.

Referring to the age-old criticism of microfinance lenders – that they lead borrowers into a debt trap, charge high interest rates, and engage in harsh collection methods – the RBI Deputy Governor tells them asked to do some soul searching and resolve these issues.


For More News Go To DailyNewsCatch and Follow on Our Twitter Page DailyNewsCatch

Leave a Reply