Microfinance institutions must refrain from reckless lending: DFS secretary

Microfinance institutions (MFIs) have played a crucial role in fostering financial inclusion but they should refrain from any reckless lending, Financial Services Secretary M Nagaraju said on Wednesday.

"We should all be careful on this. Any reckless or poor underwriting norms regarding lending to Self Help Groups (SHGs) or Joint Liability Groups (JLGs) will only harm the sector," he said at an event organised by Sa-Dhan here.

Anything that will impact their capacity to repay back will actually harm MFIs, he said.

"So, we should be very careful in what we lend, when we lend and how we lend because their financial literacy is limitedtheir exposure to the outside world is limited. We should not capitalize on that. We should actually try to empower them, provide the needed finance and also ensure hand holding so that they flourish," he said.

Nagaraju said under the SHG-Bank Linkage Programme, there are more than 7.7 million groups with Rs 2.6 trillion outstanding loans benefitting about 10 crore poor households.

JLGs are also playing an important role with an outstanding loan amount of Rs 4.4 trillion benefiting about 8 crore poor households, he said.

The government is also implementing the Lakhpati Didi Yojana aimed at women empowerment, he said, adding, the scheme aims at transforming SHG members into women entrepreneurs enabling them to establish and grow their businesses.