MFI industry should lend responsibly, improve cost efficiency, says NABARD's chairman Shaji KV

Shaji KV

National Bank for Agriculture and Rural Development (NABARD) Chairman Shaji KV, on October 8, said microfinance lenders should lend responsibly and improve operational efficiency to reduce costs.

"First thing is that they should lend loans in a responsible manner. They have to improve their efficiency in terms of reducing the cost of operations so that the rates at which they are giving the loans should not be just profit-minded," Shaji said during an interaction at the Global Fintech Fest 2025.

He added that these lenders should act responsibly as they are dealing with people who are not very aware of how to handle their finances.

Further, he said that MFIs’ cost of funds is high, but that cannot be helped. However, they need to improve their efficiency in terms of reducing the cost of operations so that the rates at which they are giving the loans are not purely profit-driven.

"Of course, profit is needed for sustainability. But then, for their existence to continue in an ongoing manner, they should be very stingy in generating profits out of each transaction," he said.

He also advised MFI lenders to focus on increasing volumes rather than profits per transaction.

In the last few quarters, the microfinance sector has been reeling under stress with higher NPAs and lower collection efficiencies. To address this, the self-regulatory organisation (SRO) of microfinance institutions has put in place guardrails for the sector.

Additionally, the Karnataka government earlier this year approved the Karnataka Microfinance (Prevention of Coercive Actions) Ordinance, 2025, which seeks to curb coercive practices by microfinance institutions (MFIs) in the state.