Microfinance sector continues to suffer from vicious cycle of over-indebtedness, high interest rates and harsh recovery practices, says RBI Dy Guv Rao

RBI Deputy Governor M Rajeshwar Rao, while addressing HSBC's event for financial inclusion said that while microfinance has played an important role in financial inclusion, there are some issues which need attention. The sector continues to suffer from vicious cycle of over-indebtedness, high interest rates and harsh recovery practices. While some moderation in interest rates charged on microfinance loans has been observed in recent quarters, pockets of high interest rates and elevated margins continue to persist, he said. Even lenders having access to low-cost funds have been found to be charging margins significantly higher than the rest of the industry and which in several instances appear to be excessive. The lenders should look beyond the conventional 'high-yielding business' tag for the sector and approach it with an empathic and developmental perspective, recognising the socio-economic role that microfinance plays in empowering vulnerable communities.

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