Should microfinance institutions be allowed to set up banks?

     Print Edition: Nov 14, 2010

Most respondents believe that microfinance institutions (MFIs) should not be allowed to set up banks.

It does seem, though, that the Reserve Bank of India (RBI) may soon allow MFIs to acquire banking licences and accept deposits. The RBI in the past has expressed concern over the high interest rates charged by the MFIs. But if a large number of MFIs become banks, it would actually open up the possibility of 25 million micro borrowers becoming depositors. This would mean cheaper access to capital for MFIs, giving them the resources to offer cheaper credit and also extend their reach in underserved regions.

It is time for the RBI to push ahead with the initiative.

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