Microfinance can drive ‘macro progress’, says RBI Deputy Governor Swaminathan J

Reserve Bank of India (RBI) Deputy Governor Swaminathan J (file photo) | Photo credit: ANI

Speaking at the launch 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: “If microfinance is provided responsibly, it does not remain ‘micro’. It becomes macro progress. It turns access into livelihoods, borrowers into entrepreneurs and informal activities into measurable economic output,” Swaminathan said.

He emphasized that microfinance is poised to increase its impact in the current financial inclusion landscape built up 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 collection framework has the potential to unlock approved cash flow data,” he said, adding that these public rails will enable microfinance to travel “well beyond the traditional industry footprint”.

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

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 who would otherwise be excluded and helps them create a transaction record…which in time opens the doors to greater formal credit.”

Swaminathan also presented five ideas to shape the next phase of the sector, including credit decisions at the household level, explainable AI in underwriting, moving from mono-product lending to micro-enterprise financing, integrating climate resilience into credit models and ensuring responsible data practices. “Technology can help overcome thin files, but the judgment of human experts must remain,” he warned. On regulation, he noted that the reset of the RBI’s microfinance framework in 2022 was aimed at increasing inclusivity, focusing on borrower welfare and aligning the rules for all regulated lenders. While the removal of price caps gave lenders flexibility, he stressed that this came with higher behavioral expectations. “Greater flexibility brings a higher bar for behavior,” he said.

Calling for responsible pricing, he said loan rates “must be reasonable, reflect costs, risk and efficiencies and not take undue advantage of the borrower’s situation.” He stressed that agreements must remain transparent and interpreted in local languages. He further underlined expectations on prevention of over-indebtedness, responsible collections, strong complaint handling mechanisms, accurate reporting by credit agencies and robust operational and cyber security standards. “Outsourcing collections does not dilute responsibility,” he reminded lenders.

Swaminathan said the long-term health of the sector depends on strong governance and responsible growth incentives. “If industry standards remain high, regulatory or supervisory intervention may ultimately remain light. Flexibility and responsibility go hand in hand,” he said.

Published on November 28, 2025