New Delhi: Financial Services Secretary M Nagaraju on Thursday urged microfinance institutions (MFIs) to keep their lending rates reasonable and improve efficiency to strengthen financial inclusion.
Speaking at an event organised by Sa-Dhan, an RBI-appointed self-regulatory organisation for MFIs, Nagaraju said some institutions were charging “uncomfortable” interest rates due to inefficiencies in their operations. “A high or unreasonable rate of interest could be because of a failure to achieve cost efficiency and productivity,” he said, adding that MFIs must ensure these gains translate into lower borrowing costs.
He warned that borrowers desperate for funds may take loans at high rates but struggle to repay, leading to rising stressed assets in the sector. The number of stressed MFI accounts has declined from 4.4 lakh at the end of March 2024 to 3.4 lakh a year later, reflecting gradual improvement.
Highlighting the role of MFIs in financial inclusion and women empowerment, Nagaraju said they pro-vide crucial doorstep credit access. However, he stressed that about 30–35 crore young people remain outside the formal financial system and called for innovative strategies to reach them.
“Despite nu-merous government schemes, a large section is still excluded. MFIs need to innovate to bring them into formal finance,” he said.
At the same event, NABARD Chairman Shaji K V said stress in the MFI sector is “unwinding” but cau-tioned institutions to remain prudent.
He added that NABARD is digitising the Self-Help Group (SHG) system and piloting a Grameen Credit Score with smaller MFIs catering to the poorest borrowers.
Announced in the Union Budget 2025–26, the Grameen Credit Score aims to tailor credit assessment for SHG members and rural borrowers, improving access to formal credit for farmers, rural entrepre-neurs, and marginalised communities. The government is finalising the framework in consultation with stakeholders.