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Informist, Friday, Nov. 28, 2025

 

--RBI Swaminathan: Microfinance lending shouldn't result in over-indebtedness 

--CONTEXT: RBI Swaminathan's comments at MFIN event held on Nov 14 in Mumbai 

--RBI Swaminathan: Analytics, models need strong governance in microfinancing 

--RBI Swaminathan: Microfin cos' operational resilience must reach last mile 

 

MUMBAI – The Reserve Bank of India expects lenders in the microfinance industry to utilise the central bank's framework on microfinance to improve long-term portfolio quality and welfare of borrowers, RBI Deputy Governor Swaminathan J. said at the MFIN event on Nov. 14 in Mumbai. The RBI had issued a revised regulatory framework for microfinance loans in 2022. 

 

The deputy governor advocated for reasonable pricing of microfinance loans, saying that boards of microfinance institutions should review spreads against cost of funds and operating efficiency, and should question outliers. In cases where lower funding rates or use of technology reduces operational costs, the benefit should be passed on to the borrower, Swaminathan said. 

 

Lending should not lead to over-indebtedness, he said. "A proper assessment should consider all sources of income, recognise seasonal variability, and verify all current obligations to ensure that additional lending does not lead to unsustainable indebtedness," Swaminathan said. Swaminathan flagged the risk of concentration of loans in geographies or segments as this can magnify shocks, he said. Timely solution of such problems can be avoided by early warning frameworks that track several indicators, such as skip-patterns, roll-rates, and repeat top-ups, he said. 

 

Digital adoption to improve suitability is welcome, Swaminathan said. However, analytics and models need strong governance and data fed into such systems should be documented, and the outcomes should be tested for accuracy and unwanted bias, he said. While technology can help, human expert judgment must stay, he said. Exceptional cases processed through artificial intelligence models should be reviewed by a human, and results should be constantly back-tested, the deputy governor said. Resilience in the microfinance industry should extend to safe digital practices and cybersecurity, along with operational efficiency and maintenance of standards with partners, he said. The resilience must reach the last mile, he said, adding cyber hygiene at branch, partner, and device level protects both customers and institutions.  End

 

Reported by Cassandra Carvalho

Edited by Akul Nishant Akhoury

 

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