RBI Dy Gov Wants MFI Lenders to Price Loans Reasonably
He said that when microfinance is delivered responsibly, it does not remain “micro.”
Mumbai: The Reserve Bank of India (RBI) wants microfinance lenders to price loans reasonably, reflecting cost, risk, and efficiency improvements,and not take undue advantage of the borrower’s situation. The central bank expects microfinance lenders’ boards to review their spreads against the cost of funds and operating efficiency.
Speaking at the MFIN event, Swaminathan J said, “Customers deserve a clear view, which means plain-language loan agreements/contracts that set out instalments, fees, and total cost; and staff who can explain these in local language. Where technology or funding reduces cost-to-serve, borrowers should also reap the benefit. Boards of entities are expected to review spreads against cost of funds and operating efficiency, and to question outliers.”
He said that when microfinance is delivered responsibly, it does not remain “micro.” It becomes macro progress. It turns access into livelihoods, borrowers into business owners, and informal activity into measurable economic output. The deputy governor said lending should not result in over-indebtedness, grievances must be easy to file, acknowledged promptly, and resolved within published timeframes. His other suggestions included timely bureau reporting, cyber hygiene at branch, partner, and device level, early warning frameworks.
Meanwhile, microfinance loans in India have declined by 17 per cent to Rs 3.39 lakh crore as on September 30, 2025 as lenders have curtailed funds to the sector. This has resulted in nearly 50 lakh borrowers going out of formal finance according to data released by the Micro Finance Industry Network (MFIN), an industry association of banks, NBFC-MFIs, small finance banks and NBFCs providing microfinance and an RBI-recognized self-regulatory organization. This is the sixth consecutive quarter where the portfolio has declined. The outstanding microfinance portfolio was Rs 4.08 lakh crore at the end of same quarter last year.
Alok Misra, CEO & Director, MFIN said, “Continued funding squeeze has resulted in sixth consecutive quarter fall in microfinance portfolio to Rs 3.39 lakh crore. This has resulted in nearly 50 lakh clients going out of formal finance. It is ironical as Portfolio at Risk (31-90 days) has improved to 1.09 per cent and 98 per cent of clients are within the MFIN Guardrails showcasing disciplined underwriting in the sector.”
The microlending universe is facing multiple headwinds for the past several quarters, and the regulator has blamed industry practices, including multiple lending to the same borrower by different lenders and charging usurious interest rates with a view to expand profits as among the problems. Faced with high delinquencies, banks have become highly selective in lending to the MFI sector despite the RBI reducing risk weights on bank credit to NBFCs and microfinance sector to 100 per cent from 125 per cent.
Of the total microloans outstanding, NBFC-MFIs contribute 39.2 per cent share making them the largest lenders in microfinance sector, followed by banks at 31.4 per cent, small finance banks and NBFCs make up the remaining share of portfolio.
