Microfinance Sector Faces Digital Transition and Stress Challenges

Financial Services Secretary M Nagaraju urged microfinance institutions (MFIs) to promote digital loan repayments, improve cybersecurity, and IT infrastructure. The meeting addressed MFI fundraising challenges and portfolio quality concerns. MFIs are crucial in rural financial inclusion, contributing significantly to GDP and employment. Stress signs, such as rising delinquencies, are noted.

On Wednesday, Financial Services Secretary M Nagaraju highlighted the need for microfinance institutions (MFIs) to transition into digital loan repayments, while prioritizing cybersecurity and robust IT infrastructure. The secretary chaired a meeting emphasizing the importance of MFIs in rural areas, underscoring the need for a fortified and financially sound sector.

The discussion, which included industry bodies like MFIN and Sa-Dhan, stressed the necessity for MFIs to devise a strategic approach to bolster the sector's viability. Challenges faced by MFIs, such as difficulty in securing low-cost long-term funds and decreasing sector lending, were also addressed.

MFI representatives expressed a need for a credit guarantee scheme and a special fund for northeastern players. Despite the sector's growth to 3.93 lakh crore and substantial GDP contribution, rising delinquencies and borrower indebtedness remain a concern, as noted in an RBI Financial Stability Report.

(With inputs from agencies.)