MFIs should balance social goals with growth: RBI Deputy Governor M Rajeshwar Rao

Mumbai: Reserve Bank of India deputy governor M. Rajeshwar Rao on Wednesday said lenders in the microfinance sector while chasing higher loan growth and returns, should refrain from adverse actions such as over-indebtedness, harsh recovery practices and harassment of customers, which would undo the tremendous progress achieved by the sector in financial inclusion over the decades.

“The roots and origin of micro finance should not be forgotten and sacrificed at the altar of bottom-line growth,” Rao said while delivering the inaugural address at a Sa-Dhan conference.

“While chasing higher asset growth and returns, lenders should not throw caution to the winds. Any slip-up through adverse actions of the MFIs may undo the tremendous progress achieved over the decades and the sector can ill-afford to do that.”

He said that self-sufficiency and financial sustainability are the objectives that the lenders need to pursue. “However, prioritisation of profitability at the expense of social and welfare goals of micro finance may not be an optimal outcome. Lenders need to remain cognizant of the fact that the balance sheet growth should not be built by compromising on prudent conduct.”