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Rajan reiterates Lima warning about pushing financial inclusion too hard

"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," said Rajan.

By: Express News Service | Aizawl |
October 15, 2015 8:43:08 pm
RBI Governor Raghuram Rajan during the bi-monthly monetary policy review, in RBI head quarter on Tuesday. (Source: Express photo by Prashant Nadkar) RBI Governor Raghuram Rajan during the bi-monthly monetary policy review, in RBI headquarter on Tuesday. (Source: Express photo by Prashant Nadkar)

Reserve Bank of India Governor Raghuram Rajan reiterated 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 when asked about the issue at a press conference in Aizawl, 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.

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“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.

He however added, “This is a problem in some areas of the country and in other areas they dont get any access, and there the problem is getting them access in the first place. So we need to deal with both problems at the same time.”

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