critical aspect of customer protection that the reserve bank is looking to strengthen through the proposed changes. the inability / difficulty of a borrower to repay his loan may be caused by several reasons such as unforeseen / unavoidable 3 / 5 bis central bankers'speeches adverse circumstances, natural calamities, over - indebtedness, etc. a cap on the loan repayment obligation of a household as a percentage of the household income is expected to address the inability of the microfinance borrowers to repay the loan. 18. further, in this case borrowers often lack the type of collateral preferred by the lenders and whatever little collateral they have for pledging may be of little value for the lenders even while it might be highly valued by the borrower. even if lenders take such collateral, it is more for inducing repayments rather than to recover losses. therefore, it has been proposed to extend the collateral free nature of microfinance loans, as applicable to nbfc - mfis, to all lenders in the micro finance space. way forward 19. i am sure everyone present here shares my concerns outlined above and appreciates the fact that negative consequences of over - indebtedness, harsh recovery practices and adverse outcomes arising from harassment of customers will adversely impact the mfi eco system. from society ’ s perspective, there are economic and social implications. while chasing higher asset growth and returns, lenders should not throw caution to the winds. any slip - up through adverse actions of the mfis may undo the tremendous progress achieved over the decades and the sector can ill - afford to do that. 20. the roots and origin of micro finance should not be forgotten and sacrificed at the altar of bottom - line growth. there is no denying the fact that self - sufficiency and financial sustainability are the objectives that the lenders need to pursue. however, prioritization of profitability at the expense of social and welfare goals of the micro finance may not be an optimal outcome. lenders need to remain cognizant of the fact that the balance sheet growth should not be built by compromising on the prudent conduct. 21. micro finance in my view, at its core, should focus on understanding the needs of the customer first and offer them adequate levels of support through appropriate financial products. the customers of micro finance institutions often have lower level of financial awareness and literacy and are often too desperate to turn away any source

##phoria of financial alchemy is the basic tenet that the financial sector has no standing of its own ; it derives its strength and resilience from the real economy. it is the real sector that should drive the financial sector, not the other way round. 18. financial crises are not uncommon. then how come we don ’ t learn? i can do no better than quote reinhart and rogoff. in their recent seminal book – this time is different : eight centuries of financial folly, they say, [ i quote ] : “ finance professionals and, all too often, government leaders explain that we are doing things better than before, we are smarter, and we have learned from past mistakes. each time, society convinces itself that the current boom, unlike the many booms that preceded catastrophic collapses in the past, is built on sound fundamentals, structural reforms, technological innovation, and good policy ”. [ unquote ] 19. having said that, we must remember that not all financial liberalization is bad ; the world has benefitted from financial innovation and liberalization. true, the damage inflicted by the crisis has been colossal, but the world enjoyed the benefits of the great moderation – over 15 years of unprecedented growth, price stability and low unemployment. 20. it is important therefore to take a balanced view. who better then than a person with the scholarship and stature of lord turner to approach that balanced view. 21. lord turner incidentally is the second chairman of fsa to deliver the c. d. deshmukh memorial lecture. mr. howard davies, the then chairman of fsa, had delivered the tenth c. d. deshmukh memorial lecture in february 2000 on the subject of “ international financial regulation : the quiet revolution ”. in his concluding statement, mr. davies had said, “ i wish you a volatile, but not too volatile, future ”. in many ways, mr. davies prediction has come true. we had our share of volatility, and i believe it has been good for us, giving us as it did, an opportunity for us to work on schumpeterian “ creative destruction ”. 22. lord turner has two important responsibilities. apart from being the chairman of fsa, he is also the chairman of the committee on climate change ( ccc ). i believe that is a fair balance. as chairman of fsa, his job is to save capitalism from well, the onslaught of capitalists