MFIs Told To Keep Interest Rates Reasonable To Foster Financial Inclusion

New Delhi: Financial services secretary M Nagaraju on Thursday asked microfinance institutions (MFIs) to keep their interest rates reasonable to foster financial inclusion. He also said that MFIs should ensure that they achieve productivity and cost efficiency, which translates into lower interest rates for borrowers. The move of the government comes after noticing a high rate of interest charged by some MFIs.

“A high or unreasonable rate of interest could be because you fail to achieve cost efficiency and productivity. I come across very uncomfortable rates of interest by some MFIs. It is actually because of inefficiencies in a MFI,” Nagaraju said, while addressing the Sa-Dhan event.

Besides, the secretary also highlighted the importance of MFIs in the country's microfinance ecosystem, saying that they are very important for promoting financial inclusion and women empowerment as they provide loans at the doorsteps. “The MFIs need to come up with measures, including innovative ideas to promote financial inclusion,” he said.

Concerned with the high rate of interest, Nagaraju also said that people who are desperately in need of funds can borrow at a high rate of interest but they may not be able to return, resulting in a rise in stressed assets in the system. With such stress in the sector, it has resulted in a reduction in account from 4.4 lakh at March 31, 2024 to 3.4 lakh at the end of March 2025.

“We still have about 30-35 crore youth who need to be brought into financial inclusion. Despite a large number of government schemes, we still have a huge segment of population, which is outside financial inclusion. That’s one area MFIs have to focus on,” he said.