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

PTI New Delhi

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, Nabard Chairman Shaji K V, said the stress in the MFI sector is unwinding and the sector needs to be cautious.