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Reserve Bank of India (RBI) Governor Shaktikanta Das on Wednesday said that some Non-Banking Financial Companies-Micro Finance Institutions (NBFC-MFIs) are reporting high interest margins. He said institutions should use the flexibility given to them to judiciously determine the interest rate charged to borrowers.
Addressing the annual FI-BAC program jointly organized by industry body FICCI and Indian Banks Association, Das said that small credit institutions (MFIs) cater to marginal customers. The sector has emerged as an important financial instrument to promote financial inclusion.
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“Although interest rates have been deregulated, some NBFC-MFIs are enjoying relatively high interest margins,” he said. It is indeed for microfinance lenders themselves to ensure that the flexibility given to them in setting interest rates is used judiciously.’
It is to be noted that after the crisis in small money lending institutions in Andhra Pradesh, the Reserve Bank had fixed the maximum interest limit. Under this, such lenders can charge 24 percent interest. In the year 2021, the interest rate system was deregulated, making it possible for institutions to charge as much as they wanted. The MFI crisis led to the formation of the NBFC-MFI sector. Das admitted that such institutions have to consider the affordability and repayment capacity of borrowers while fixing their interest rates.