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MFIs should not throw caution to wind for higher asset growth: RBI DG Rao

The Deputy Governor said MFIs should focus on understanding the needs of customers first and offer them adequate level of support through appropriate financial products.

Reserve Bank of India | Microfinance | microfinance industry

Press Trust of India  |  Mumbai 

RBI, Reserve Bank of India
Photo: Shutterstock

Deputy Governor M Rajeshwar Rao on Wednesday said while the central bank will foster growth in the (MFI) sector, the lenders in the space should not throw caution to the wind to achieve higher asset growth and returns.

Speaking at a conference organised by Sa-Dhan, a self-regulatory organisation for MFI sector, Rao said lenders should not try to mimic the strategies of mainstream finance, as those serving the borrowers have a greater need to balance the social objectives with their lending operations.

While chasing higher asset growth and returns, (MFI) lenders should not throw caution to the wind. Any slip-up through adverse action of MFIs may undo the tremendous progress achieved over the decades and the sector can ill afford to do that, Rao said.

The roots and origins of microfinance should not be forgotten, he added.

He said from the regulatory side, RBI would 'look to foster growth of the sector, guided by the ultimate objective of financial inclusion and customer protection, while providing a level playing field'.

The Deputy Governor said MFIs should focus on understanding the needs of customers first and offer them adequate level of support through appropriate financial products.

He said since the MFI customers had low levels of financial awareness and are too desperate to turn away any source of credit, they need to be treated with care and empathy and should not be considered as mere data points for investor presentations.

Rao said strong corporate governance at microfinance lenders could play a critical role in balancing seemingly exclusive but potentially complementary objectives of growth and social welfare from a long-term perspective.

He said microfinance has come of age in India and has developed into an important financial delivery mechanism. It has, particularly, helped women to become owners of assets, have an increased say in decision-making and leading dignified lives.

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

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First Published: Wed, October 27 2021. 13:54 IST