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Reserve Bank of India (RBI) Deputy Governor M Rajeshwar Rao has said that while the central bank will foster growth in the microfinance (MFI) sector, the lenders in the space should not throw caution to the wind to chase higher asset growth and returns. He said MFIs should not try to mimic the strategies of mainstream finance, as those serving the microfinance borrowers have a greater need to balance the social objectives with their lending operations.

The Deputy Governor said any slip-up through adverse action of MFIs may undo the tremendous progress achieved over the decades and the sector can ill-afford to do that. He stated that the roots and origins of microfinance should not be forgotten and sacrificed at the altar of bottom-line growth. He added that there is no denying the fact that self-sufficiency and financial sustainability are the objectives that the lenders need to pursue. However, he said prioritization of profitability at the expense of social and welfare goals of micro finance may not be an optimal outcome.

Rao further said lenders need to remain cognizant of the fact that the balance sheet growth should not be built by compromising on prudent conduct. From the regulatory side, RBI would ‘look to foster growth of the sector, guided by the ultimate objective of financial inclusion and customer protection, while providing a level playing field’. He emphasized that MFIs should focus on understanding the needs of customers first and offer them an adequate level of support through appropriate financial products.