Inefficiency in MFIs leads to high interest rates: DFS secretary

The reduction in the number of loan accounts and the outstanding amount during the last financial year is a cause of concern and stress for microfinance institutions (MFI), Secretary, Department of Financial Services, M Nagaraju said on Thursday, highlighting “inefficiency” in MFIs that leads to higher rates of interest.

- RUCHIKA CHITRAVANSHI

Emphasising the need for introspection by the sector, the DFS secretary expressed concern that people in desperate need may borrow at high rates, but they may not be able to return the amount. “I came across very uncomfortable rates of interest that are actually because of inefficiency in microfinance institutions organisations,” Nagaraju said, urging the MFIs to keep interest rates reasonable to foster financial inclusion.

“What are we doing wrong? Is there something we can improve and are our models right and good for a large section of the population,” Nagaraju said while addressing a conference organised by Sa-Dhan, an association of Impact Finance Institutions. “There is a need for stronger infrastructure, diagnostics and sector-wide services that can support sustainable microfinance,” he said.