M Nagaraju Urges Microfinance Institutions To Lower Interest Rates For Financial Inclusion

• DFS Secretary M Nagaraju calls for reasonable interest rates from MFIs

• MFIs are crucial for financial inclusion and women's empowerment

• He says, high interest rates lead to increased stressed assets in the sector

Financial Services Secretary M Nagaraju on Thursday asked microfinance institutions (MFIs) to keep their interest rates reasonable to foster financial inclusion.

"I come across very uncomfortable rates of interest by some MFIs. It is actually because of inefficiencies in a MFI," Nagaraju said while addressing an event organised by Sa-Dhan, an RBI appointed SRO for MFIs.

He said a high or unreasonable rate of interest could be because you fail to achieve cost efficiency and productivity.

The Secretary urged MFIs that they should ensure that they achieve productivity and cost efficiency which translates into lower interest rates for borrowers.

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, he said.

Stress in the sector 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.

Highlighting the importance of MFIs in the country, Nagaraju said they are very important for promoting financial inclusion and promoting women empowerment as they provide loans at the doorsteps.

He also asked MFIs to come up with innovative ways to promote financial inclusion.

"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." There is a need to come up with innovative steps or measures so that the excluded population can be part of a formal channel, he said.

Speaking at the event, National Bank for Agriculture and Rural Development (Nabard) Chairman Shaji K V, said the stress in the MFI sector is unwinding and the sector needs to be cautious.

Shaji said Nabard is digitising the Self Help Group System and also developing Grameen Credit Score.

"We are doing some pilot for Grameen Credit Score with smaller MFIs who are dealing with extremely poor," he said.

The Union Budget 2025-26 announced Grameen Credit Score, a framework to be developed by public-sector banks for the credit needs of members of Self-Help Groups (SHGs) and people in rural areas.

The current credit scoring mechanism used by Credit Information Companies (ClCs) is, by design, generic to all individual borrowers with no specific consideration for the rural sector.

A Grameen credit score tailored for the credit assessment purposes of SHG borrowers and the rural population would facilitate better credit assessment, thereby improving access to formal credit not just for SHGs but for the rural population, including farmers and marginalised communities.

This is crucial for their economic growth and development. The government is working out the modalities and contours of the Grameen Credit Score in consultation with the stakeholders.