India - Lack of access to bank credit cause of moneylending problems

The Reserve Bank of India has moved to limit the reliance of the rural poor on high cost moneylenders which arises because only 19% of the population are able to get access to mainstream bank finance.

In proposals issued this month, the Reserve Bank is supporting calls for all moneylenders to be registered with local states and for those states to introduce interest rate caps. Rate caps will not apply to the microfinance agencies in India which have argued against caps for some time on the basis that this will provide a
disincentive to market entry.

The proposal for interest rate caps for moneylenders will allow individual states to set their own cap provided that these are calculated by assessing the cost of funds and the cost involved in deploying those funds.