Summary of this article
Microfinance sector could help in acheiving Viksit Bharat goals
Easier and affordable access to credit to drive up depth and quality of microfinance loans is a way
Microfinance can play a crucial role in steering India to become a developed nation, said Reserve Bank of India Deputy Governor, Swaminathan J. Microfinance can be used to increase accessibility of credit for all and bring more people into the fold of the formal sector, he said.
“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,” Swaminathan said.
Swaminathan iterated that the country’s goals of financial inclusion need a deeper and meaningful shift towards increasing access and availability of credit for a wider mass. To this extent, he said that over the last decade, India has laid strong public rails of inclusion, with Jan Dhan accounts, simplification of Aadhaar, reducing the threshold for UPI payments, and through the account aggregator framework. These frameworks can be used to develop a responsible and transparent microfinance sector that travels beyond the traditional reach of credit, he said.
The Financial Inclusion Index has moved to 67.0 on March 31, 2025, from 43.4 on March 31, 2017, he said. This reflected a meaningful shift in access and availability. “However, the task now is depth and quality of use,” he said.
To this end, the RBI deputy governor laid out five ideas in strengthening the microfinance sector. “Serve the household, not just the applicant: Credit decisions work best when they read the full cash life cycle of the family. It is better to promote a savings habit, a basic insurance cover, and a short emergency line, as all these together can make credit quality predictable,” he said.
Enabling technology to induce underwriting practices with human oversight and judgment should also be the next step for microfinance. Additionally, changing the product design to provide capital to small businesses instead of just personal loans for individuals was essential to boost microfinance. Microfinance products that are resilient to climate and weather shocks are also needed, Swaminathan said.
“Taken together, the aim is to convert first access into regular use, regular use into stable income, and stable income into a clear route to formal credit. This is the quality of growth the sector should now aim for,” he said.
Swaminathan added that the central bank expects microfinance lenders to use the higher cap provided in the revised framework in a way that strengthens borrower welfare and long-term portfolio quality. In order to do this, pricing and transparency should be optimal. The board of these microfinance entities must review the spreads against the cost of funds and operating efficiency. Additionally, he also highlighted that lenders should avoid over-indebtedness and make a proper assessment before lending.
