Why do people lend money to unknown persons? Interesting story from RBI Governor's life

Banks and other financial institutions lend money only after properly verifying the borrower's repayment capacity and credit history. But in informal settings, people often extend credit even to relatively unknown persons. Ever wondered why this happens? It's mostly because of the trust.

RBI Governor Sanjay Malhotra on Monday (June 23, 2025) shared an interesting story from his college days that sheds light on how trust enables people to extend credit even to unknown persons. At a larger level, this trust factor can shape careers and companies.

Delivering the Convocation Address at IIT Kanpur, his alma mater, the RBI Governor recalled that students were always short of funds and in debt during those days. That was the time when they relied heavily on the hostel canteen, when a samosa cost 35 paise and a bottle of Thums Up 2 rupees and 25 paise.

But the man running the canteen used to generously lend money to students. Even outside the hostel, they used to get credit from juice vendor and shops in the shopping centre. While getting credit from vendors inside the college or nearby the IIT Kanpur campus was not surprising, students used to get credit even from shopkeepers in Kanpur city. But, why?

Malhotra said it was because of their trust in the IIT students.

"My last learning is from the student days in IIT, when we were always short of money and under debt...We relied heavily on the hostel canteen. The canteen was managed by a person called Lala. Lala was loved by everyone. He would serve us till late in night and very generously gave us credit. Even outside hostel, we got credit from the juice vendor, the shops in Shopping Centre, etc. This may not be surprising. Lala knew us, recognizing us as hostelers. Other vendors too recognized us as students from the campus," the RBI Governor said.

"What was surprising though was that we got credit even from some shopkeepers in Kanpur, who did not know us at all. Why did these shopkeepers give credit to us? It is because of their trust in the IIT students," he added.

People do business with those they trust

Malhotra further explained the importance of trust, stating that people do business with those they trust.

"Trust is the foundation on which any relationship is built, whether it is marriage, friendship, or at workplace - between the CEO and the employees, or between a company and its consumers," he said.

How to build trust?

The Governor said trust in a person makes him a leader. And people follow a leader because of trust. But to develop trust, integrity, and ethics are of paramount importance.

"It is not easy to gain trust. To earn trust, a leader must have the courage to take difficult decisions. He must act in the interest of the employees and other stakeholders. He must be willing to accept responsibility. He must lead by example. He must possess the humility to learn from his mistakes. He must be just, transparent and respectful. Trust takes time to build. But it is easy to lose trust," he said.

Other lessons from the RBI Governor

Malhotra shared several other life lessons during the address.

The first one is about learning itself. He said learning is for life. "The moment one is not learning, it is a signal that one is not growing; one is not advancing."

The second lesson Malhotra has learnt is about questioning the status quo. "I learnt that there is always scope for improvement. This helped me improve efficiency in various organisations and departments that I worked in."

His third learning is that a person's karma determines outcomes and results in life.

"... today, as I I look back, I can confidently say that it is karma that largely determines outcomes and results. It is the path that one chooses that broadly determines the destination. Today, I appreciate how true Steve Jobs was when he said, 'You can't connect the dots looking forward; you can only connect them looking backward,'" the RBI Governor said.