Our own experience with local entities, such as, cooperative banks, deposit taking nonbanking financial companies and Regional Rural Banks – which are largely geared to meet the needs of the poor and the un-banked – has highlighted the risks of poor governance, connected lending, geographic concentration leading to vulnerability to natural calamities and downturns.
The recent experience of the microfinance industry is another example of an initiative to foster financial inclusion resulting in financial stress to the very institutions which are promoting inclusion. Hence, the risks for financial institutions catering to the less developed and low-income markets need to be well understood.