This refers to the editorial “Responsible finance” (November 22). After over 60 years of Independence, governments have not been able to do anything substantial in financial inclusion. Except nationalising banks and coining politically correct phrases like “financial inclusion” and “equitable growth”, no serious thought has been mooted or effort initiated by the regulator (RBI) or the government towards reaching the poor who do not have access to formal banking and collaterals.
Strangulating the microfinance (MFI) industry will only drive the unbanked population to village moneylenders who often charge usurious interest rates and adopt coercive tactics. Many poor people use MFI loans to pay off moneylenders. An MFI loan at 30 per cent to pay off a moneylender’s loan at 100 per cent is a blessing.
Capping microfinance lending rates is not a solution since it will make the MFI operations unviable and, subsequently, kill the industry. Let us not forget that MFIs lend without insisting upon collateral and the repayment is secured through group pressure, which means any default by a group member makes the entire group ineligible for loans.
The government is advised to formulate an appropriate regulatory framework, conducive to the growth of the microfinance industry. This will foster competition among MFIs, thereby lowering the rates charged and improving the services delivered.
K D Singh, New Delhi
