Macro challenges of micro lenders

The freedom to fix interest rates has encouraged a few MFIs to jack up rates on Day One. It will take a while for borrowers to get the benefit as products, processes and digitisation evolve

In 2011, when the Reserve Bank of India (RBI) freed the savings bank interest rates, a few private banks rushed to raise the rate to woo customers.

Over a decade later, when India’s banking regulator freed the lending rates for micro loans last month, some micro lenders did the same, rushing to raise their loan rates on Day One.

In the first instance, the consumers got the benefit while the banks, over a period of time, grabbed a bigger pie of the savings deposits. In the second case, the consumers are at the receiving end as they have to pay more to