Need to introspect on reduction in loan accounts, outstanding in MFI Sector: DFS Secretary

Underlining the importance of microfinance in the country’s economic development and empowerment of women, Department of Financial Services Secretary M. Nagaraju on Thursday called for introspection in the sector, noting that there has been a reduction in the number of loan accounts and outstanding amount during the last year, which is a cause of concern and stress for these institutions. He also highlighted that some institutions charge interest at an uncomfortable rate.

Addressing the 20th Sa-Dhan National Conference on Inclusive Growth, he noted that loan accounts had reduced in the last one year by 4.5 crore to 11.45 crore by September 30, 2025, and the total outstanding has reduced to Rs 3.4 lakh crore as on September 2025 from Rs 4.4 lakh crore as of March 2024.

“This is a huge number…both the outstanding amount declined as well as the accounts. This calls for introspection. The reason why I have brought this up is that what are we doing wrong…is there something we can improve upon? Are the models good for the large segment of the population,” he said while calling for consolidation.

He also said that there is a need to look at the interest rates. “I come across very uncomfortable rates of interest rate by some MFIs. That is because of inefficiencies. You have improved productivity cost efficiencies so that translates to lower interest rates to groups,” he further said.

Highlighting the importance of the MFI sector, the DFS secretary also said that about 300 million to 350 million adults in the country still need to be brought into the ambit of financial inclusion as they have not benefitted despite various schemes of the government.

Meanwhile, addressing the conference Shaji KV, Chairman, NABARD said the agency is working on developing a Grameen Credit Score and is working with CIBIL on it. While it was announced in the Union Budget 2025-26, the NABARD Chief said that the challenge is in building the right model for it and it is now doing some pilots with CIBIL.

As the name suggests, the Grameen Credit Score will be a framework developed by public-sector banks for the credit needs of members of Self-Help Groups (SHGs) and people in rural areas.

NABARD is also working on a data warehouse with an AI model for credit history of the poor which will lower the cost of underwriting.