SEARCH

Business » Economy

Updated: August 29, 2012 22:34 IST

Microfinance institutions must be responsible lenders: Rangarajan

PTI
Comment   ·   print   ·   T  T  
C. Rangarajan. File Photo: P.V. Sivakumar
C. Rangarajan. File Photo: P.V. Sivakumar

Faulting microfinance institutions (MFIs) for adopting strong-arm tactics, Prime Minister’s Economic Advisory Council Chairman C. Rangarajan, on Wednesday, said MFIs must modify their business models and become responsible lenders.

Business models

“Microfinance institutions which were becoming an effective alternative to money lenders can recapture that position only if they modify their business models and become responsible lenders,” Dr. Rangarajan said at the Dainik Bhaskar Financial Inclusion Conclave.

Critical of the working of the MFI sector, he said “strong-arm tactics adopted in recovering loan repayments have evoked much resentment. Equally, the business models adopted by many of the large MFIs were wrong. Multiple loans to borrowers for non-productive activities are a self-defeating exercise.” The overall cost to borrowers must be maintained at a level that was consistent with the repaying capacity of the borrowers, he said, adding “loans must also be reoriented towards income earning activities”.

Limit on interest rates

The regulatory framework for the MFI sector, he said should prescribe a reasonable limit on interest rates and restrict multiple borrowing. “... A network of strong microfinance institutions can play significant role in achieving financial inclusion.”

Dr. Rangarajan also made a case for introduction of new products and simplified procedures by banks to meet the needs of customers in rural areas.

RELATED NEWS

MFIs seek dialogue with State to end logjam August 22, 2012

A two-pronged approachJuly 19, 2012

More In: Economy | Business
This article is closed for comments.
Please Email the Editor
The Hindu presents the all-new Young World

Economic Survey

More Economic Survey »

O
P
E
N

close

Recent Article in Economy

FPIs pump in Rs 1.22 lakh crore in securities

Foreign Portfolio Investors (FPIs) have pumped in over Rs 1.22 lakh crore in Indian stock markets during the first six months of 2014.»