Microfinance lenders shouldn’t abandon caution for higher asset growth: RBI DG Rao
The Deputy Governor of the Reserve Bank of India, Mr. Rajeshwar Rao, said on Wednesday that while the central bank will promote the growth of the microfinance sector (MFI), lenders in the space should not be cautious to obtain asset growth and higher returns.
Speaking at a conference hosted by Sa-Dhan, a self-regulatory organization for the MFI sector, Rao said microfinance lenders should not try to emulate traditional finance strategies because those who serve microfinance borrowers have a greater need to balance social goals with their lending operations.
While seeking growth and higher asset returns, lenders (MFIs) should not be cautious. Any mistake due to adverse action by MFIs can undo the tremendous progress made over decades and the industry cannot afford to do so, Rao said.
The roots and origins of microfinance should not be forgotten, he added.
On the regulatory side, he said the RBI “would seek to foster industry growth, guided by the ultimate goal of financial inclusion and customer protection, while providing a level playing field.”
The deputy governor said MFIs should focus first on understanding clients’ needs and providing them with an adequate level of support through appropriate financial products.
He said that clients of MFIs with low level of financial awareness and are too desperate to refuse any source of credit, they should be treated with care and empathy and should not be viewed as mere data points for presentations to clients. investors.
Rao said that strong corporate governance among microfinance lenders could play a critical role in balancing the seemingly exclusive but potentially complementary goals of growth and social well-being from a long-term perspective.
He said microfinance has matured in India and has become an important mechanism for delivering financial services. In particular, it has helped women become asset owners, have a greater say in decision-making and lead a life of dignity.