RBI Deputy Governor: Customer protection is at the crux of microfinance regulation

M Rajeshwar Rao

Customer protection, according to the central bank’s Deputy Governor M Rajeshwar Rao, is at the heart of microfinance regulation, and it has been the RBI‘s guiding light in reforming the regulatory system for the microfinance sector.

“We have attempted to move from a rule-based approach to a principle-based approach thus creating an enabling environment for more financial institutions to serve the excluded while protecting their interests through competition and transparency,” Rao said in his address.

Rao said by expressing hope that the regulatory reforms will provide the necessary momentum for the lengthy but highly rewarding road toward an inclusive and responsible microfinance sector.

Throughout the decade, MFIN has been instrumental in numerous measures to enhance the industry and develop the microfinance ecosystem, he said.

Microfinance Institutions Network is a group in India that represents the microfinance sector. Its member organisations are the country’s leading microfinance institutions.

In his address, Rao said, “Microfinance has emerged as one of most important tools to foster financial inclusion. It enables the poor and low-income households to come out of poverty, helps women to become owners of assets, have an increased say in decision-making and lead dignified lives embodying the concept of a collective good. Indeed, microfinance plays a critical role in promoting inclusive growth by way of making credit available at the last mile and therefore, acts as a safety net for those at the bottom of the pyramid.”

“I believe that the holistic impact of microfinance goes much beyond the impact created by any other credit facility. Borrowers often utilize the loans for health and education apart from income-generating activities and it helps them deal with everyday emergencies that they encounter,” Rao added.

As of 30 June 2022, the overall microfinance loan portfolio is at 2.93 lakh crore, with banks accounting for 38 per cent of the total, closely followed by NBFC-MFIs accounting for 35 per cent. SFBs, other NBFCs, and other entities account for 27 per cent of the total.

When the loan portfolio under SHG-bank linkage is added, the total size of the microfinance loan portfolio is roughly 4.82 lakh crore.

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To put the enormity of the microfinance business into perspective, the aggregate credit of all NBFCs (excluding HFCs) amounted at 28.5 lakh crore in March 2022. In aggregate, the microfinance loan portfolio across all lenders accounts for around 15 per cent of total NBFC lending.

When it comes to the reach of the microfinance sector, 28 states and 9 union territories are covered (UTs). In terms of regional distribution, the eastern and north-eastern parts of the country have the highest percentage at 37 per cent, followed by the south at 27 per cent and the west at 15 per cent.

He further stated that, while microfinance is present in practically every nook and cranny of the country, in terms of geographical distribution, 82 per cent of the loan portfolio is concentrated in ten states.

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