Microfinance can drive 'Macro Progress', says RBI Deputy Governor Swaminathan J

Mumbai (Maharashtra) [India], November 28 (ANI): Reserve Bank of India (RBI) Deputy Governor Swaminathan J said that microfinance, when delivered responsibly, can become a driver of broad-based economic progress and play a pivotal role in advancing India's journey towards Viksit Bharat 2047.

Speaking at the release of Micro Matters: Macro View - India Microfinance Review FY 2024-25 at an MFIN event in Mumbai, he said the core idea guiding the sector is simple yet powerful, "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," noted Swaminathan

He emphasised that microfinance is poised to expand its impact in the current financial inclusion landscape built over the past decade.

"Jan Dhan has given households a basic account, Aadhaar has simplified verification, UPI has made small payments instant, and the account aggregator framework has the potential to unlock consented cash-flow data," he said, adding that these public rails allow microfinance to travel "far beyond traditional branch footprints."

Pointing to rising inclusion, he noted that the financial inclusion index has improved significantly, to 67.0 on March 31, 2025 from 43.4 on March 31, 2017.

The Deputy Governor outlined four fundamental reasons for the growing importance of microfinance, its ability to bridge information and collateral gaps, build productive capacity, serve as a platform for financial innovation, and connect excluded households to formal financial systems.

He reiterated that microfinance "brings the benefits of formal finance to those otherwise excluded and help them create a transaction record... which opens doors to larger formal credit over time."

Swaminathan also presented five ideas to shape the sector's next phase, including household-level credit decisions, explainable AI in underwriting, transitioning from mono-product lending to micro-enterprise financing, integrating climate resilience into credit models, and ensuring responsible data practices. "Tech can help overcome thin files, but human expert judgment must stay," he cautioned.

On regulation, he noted that the RBI's 2022 microfinance framework reset was aimed at expanding inclusion, placing borrower welfare at the centre, and aligning rules across all regulated lenders.

While the removal of pricing caps gave lenders flexibility, he stressed that it came with higher expectations of conduct. "Greater flexibility brings a higher bar for conduct," he said.

Calling for responsible pricing, he said loan rates must be "reasonable, reflecting cost, risk, and efficiency improvements, and not taking undue advantage of the borrower's situation."

He insisted that agreements remain transparent and explained in local languages.

He further underlined expectations on preventing over-indebtedness, responsible collections, strong grievance redressal mechanisms, accurate credit bureau reporting, and robust operational and cybersecurity standards. "Outsourcing collections does not dilute accountability," he reminded lenders.

Swaminathan said the long-term health of the sector rests on strong governance and responsible growth incentives.

"Eventually, if industry standards remain high, regulatory or supervisory intervention can stay light. Flexibility and accountability travel together," he said. (ANI)

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