Financial inclusion beyond a point is bad, says RBI chief

People at the bottom of pyramid do not have capacity to absorb credit, cautions Rajan at a seminar of IMF and World Bank meetings

GN Bureau | October 9, 2015


#Financial inclusion   #RBI governor   #World Bank   #Raghuram Rajan  

As India pushes for big time financial inclusion of the marginalized with schemes like Jan dhan yojana, RBI governor Raghuram Rajan has said financial inclusion should not be pressed beyond a point because beneficiaries may not have the capacity to make use of funds being made available to them.

Rajan made these comments on yesterday while participating in a seminar on 'Financial inclusion: Can it meet multiple macroeconomic goals?' on the sidelines of IMF-World Bank meetings in Lima, Peru.

He felt that pushing financial inclusion beyond a point can have negative impact because people at the bottom of pyramid do not have capacity to absorb credit.

"In my sense, beyond a certain point... (financial inclusion) becomes actually negative," he said, adding that everyone should not be pushed to borrow.

The Indian cabinet has okayed a two-phase financial inclusion scheme under which bank accounts will be opened for 15 crore poor people with an overdraft facility of Rs 5,000 and accident insurance of Rs 1 lakh.

RBI governor also made a case for strengthening the payment mechanism to improve traditional method for delivery of credit.

He further said technology and e-model could be used for improving businesses at remote centres. Giving an example, he said a carpet weaver in Kashmir can benefit immensely by selling his products electronically.

At the same time, Rajan made a strong case for developing capacities to deal with the misuse of technology by criminal elements.

Some unscrupulous elements have been misusing technology to fleece people by sending fake mails in the name of RBI, he said, adding sometimes people do fall into trap and pay the upfront process fee demanded by such persons.

"We have to deal with such problems at RBI... technology has the ability to do harm... we have to worry about that," Rajan added.

Video of the seminar: click here

IMF paper on financial inclusion: click here

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