RBI Deputy Governor Highlights Microfinance Challenges Amid Financial Inclusion Efforts

RBI Deputy Governor M Rajeshwar Rao addresses key issues in microfinance, stressing the vicious cycle of over-indebtedness, high interest rates, and harsh recovery practices. He calls for a shift towards an empathetic approach that recognizes the socio-economic role of microfinance and warns against coercive recovery and mis-selling practices.

In a recent address at HSBC's event for financial inclusion, RBI Deputy Governor M Rajeshwar Rao highlighted ongoing challenges in the microfinance sector. He noted persistent issues of over-indebtedness, high interest rates, and harsh recovery practices despite its critical role in financial inclusion.

Rao pointed out that although some moderation in interest rates has been observed, pockets of high rates and elevated margins remain. He urged lenders to adopt an empathetic approach, recognizing the socio-economic impact of microfinance on vulnerable communities.

Emphasizing responsible financial services, Rao warned against coercive recovery and mis-selling practices. He suggested enhancing credit appraisal frameworks and hinted at potential guidelines from the Reserve Bank to address these concerns.