Reserve Bank of India (RBI) governor Raghuram Rajan reiterated on Thursday that financial inclusion might be pushed to such an extent that it may in the long term be harmful.
“That’s a leading question, right?” Rajan joked, before adding, “That is something that we have been trying to worry about especially in the micro-finance sector.”
The RBI governor sounded a similar note of caution in Lima, Peru, a week ago on the sidelines of an IMF-World Bank meet.
“As you know there was a problem in Andhra Pradesh of multiple lenders to the same entity. And that is why there is a requirement that when any entity lends it should register that loan to the credit-information bureau so that there shouldn’t be more than two lenders to any borrower and there is also a cap in terms of how much the borrower can borrow,” Rajan said.
“So yes, there is a potential problem of perhaps giving people too much more than they can handle which then leads to a debt cycle which can be problematic,” he said.