The Reserve Bank of India (RBI) wants banks to get directly engaged in micro-finance lending activities to bring down the cost of funds for the small borrowers. | |
| By lending through existing branch outlets, banks will be able to make fuller utilisation of their existing capacity and their overhead costs would get used up without increasing costs, RBI deputy governor, Usha Thorat, today said. |
| |
| Transaction costs for smaller loans are higher as overhead costs are higher and as a result the interest rates charged are very high. The interest rates charged are as high as 30 per cent. |
| |
| Thorat said in financial penetration and inclusion, the role of banking is quite high. Financial inclusion does not only mean credit delivery but also ensuring creation of forward and backward linkages but if micro finance institutions have to do it, then the cost will rise further. |
| |
| There is a huge business potential in direct lending and banks have the ability to reduce cost of transaction with the volume they handle, she said. |
| |
| She said as opposed to the branches, engagement of correspondents by banks throws up the risk of banks' reputation getting tarred. |
| |
| Banks need to make a study of their programmes of linkages with SHGs and also to take care that wealth is properly earmarked among members of the SHG. There is a need for certain audit of accounts. |
| |
| Thorat also pointed out that a law for regulation of micro-finance institutions is being drafted by the ministry of finance. |
| |
|
| |
