End-to-end liquidity transmission a must to serve the vulnerable

This chapter emphasises the realities of the sector that create a feedback loop, where lenders are incentivised to over-lend and borrowers to over-borrow, until crisis intervenes as a necessary and often tragic correction

According to a report by Crif High Mark, microfinance loans overdue for up to 31-180 days increased from 2.1% in March 2024 to 2.7% in June 2024. While there could be several supply-side factors at play for the rise in defaults, in this blog we direct our attention to reviewing the household side of the story by assessing the changes in household balance sheets post the COVID-19 pandemic.

For two decades, India has doubled down on the policy prescription of providing financial ‘last-mile access’ to its rural and poor citizens. Has the effort succeeded? It depends on who you ask.

Business correspondent (BC) agents are crucial last-mile infrastructure that support India’s vision for efficient, population-scale delivery of financial and other government services using Digital Public Infrastructure (DPI). These agents primarily facilitate cash deposits, cash withdrawals (together known as cash-in cash-out or CICO), and optionally facilitate access to insurance, savings products, and various welfare schemes for rural and low-income India.

 Our response covers two themes: Leading from a customer protection perspective, our comments emphasise the need for the prospective SRO to have duties towards the customers, at par with responsibilities towards the regulator.

The microfinance industry has witnessed moves by the Reserve Bank of India (RBI) to revise the regulatory framework (March 2022) for it and also caution it against an exclusive focus on business growth (November 2022).