Context:
Despite the Reserve Bank of India (RBI) cutting the repo rate by 100 basis points in recent months, several microfinance institutions (MFIs) have increased their lending rates, citing persistent borrowing costs and asset quality stress. This move contrasts with the expected transmission of monetary policy to end borrowers.
Key Developments
- Leading NBFC-MFIs such as CreditAccess Grameen, Muthoot Microfin, and Fusion Finance have hiked interest rates between June and July 2025.
- Asirvad Micro Finance and Arohan Financial Services, both earlier penalised by the RBI for “excessive” interest rates, have again revised their rates upward.
Why Are Rates Rising?
- High Credit Cost:
- Post-pandemic asset quality remains under pressure, increasing credit costs.
- Sticky Borrowing Costs:
- MFIs claim banks and capital markets haven’t yet passed on lower rates.
- Operational Costs:
- Rural outreach and servicing add to cost structures.
