 "Swaminathan J, Deputy Governor, Reserve Bank of India")
The Reserve Bank of India (RBI) expects microfinance lenders’ boards to review their spreads against the cost of funds and operating efficiency, said Swaminathan J, Deputy Governor, RBI. He also urged them to question outliers to ensure pricing remains reasonable and reflects actual costs, risk, and efficiency improvements so that no lender takes undue advantage of a borrower’s circumstances.
Speaking at a MFIN event in Mumbai on November 14, Swaminathan said, “The Reserve Bank expects lenders to use the room provided by the 2022 framework in a way that strengthens borrower welfare and long-term portfolio quality.”
The 2022 reset of the microfinance framework removed pricing caps and aligned rules across all regulated lenders. Swaminathan noted that lighter regulation is possible only if industry standards remain high. “Flexibility and accountability travel together,” he said.
He stressed that lenders must properly assess borrowers’ incomes, seasonal variations, and existing obligations to avoid pushing households into unsustainable debt. Outsourcing collections, he said, does not dilute lender accountability for customer conduct by business correspondents or recovery agents.
The RBI also wants timely bureau reporting so that good repayment behaviour is visible across lenders. Swaminathan warned that geographic or segment concentration can amplify shocks, and urged MFIs to strengthen early- warning systems to track skip patterns, roll rates, and repeat top- ups.
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He also stressed that incentive structure should also reward responsible growth, accurate underwriting, and good conduct—not just volumes. Complaint analysis, collections exceptions, and pricing outliers must receive adequate board attention.
According to Swaminathan, credit decisions work best when they consider the full cash-flow life cycle of a household. Encouraging savings, ensuring basic insurance coverage, and providing a small emergency credit line can improve repayment predictability and portfolio quality.
He outlined several priority areas for the microfinance ecosystem, including tech-enabled underwriting with human judgment. “Technology can help overcome thin files, but human expert judgment must stay. AI models must be explainable, so review exceptions by a human, and back-test results regularly. The aim is less friction, not less prudence,” he said.
Additionally, lenders must design products to match how small businesses actually grow. A single working-capital loan is often the first step, but it should progressively graduate into inventory finance, capital asset financing, and basic payments support, he said.
He also reiterated that customer data must be handled responsibly, with clear consent in local languages, purpose limitation, and secure storage.
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