Guardrails for MFIs need to continue

ET BureauLast Updated: Apr 11, 2026, 09:52:00 AM IST

Synopsis

In a recent advisory, Sa-Dhan, a key player in the microfinance arena, underscores the necessity of upholding lending standards for financially vulnerable populations. These standards not only mitigate the risk of over-borrowing but also enhance trust within the financial ecosystem. The microfinance sector continues to demonstrate its resilience amid market fluctuations.

Sa-Dhan, one of the self-regulatory organisations for the microfinance industry, on Friday suggested continuation of the lending guardrails adopted by lenders to customers at the bottom of the pyramid, even as the industry has shown signs of improvement.

The issue was discussed at a microfinance conclave organised by Sa-Dhan in Mumbai.

Microfinance guardrails in India, enforced by self-regulatory organisations such as the Microfinance Industry Network and Sa-Dhan, were implemented to ensure responsible lending and curb borrowers' over-indebtedness, which was the primary reason for the severe stress the sector has been passing through over the past two years.

The key measures include limiting lenders to three per borrower, capping total indebtedness at ₹2 lakh, and restricting loans to customers with existing, significant delinquencies.

"The microfinance sector has shown resilience over the years, but it must continue to evolve with changing realities. By focusing on governance, transparency, and customer well-being, these guardrails will help build greater trust and long-term sustainability in the sector," Sa-Dhan chairman K Paul Thomas said.

At the conclave, Reserve Bank of India's central board member Satish Marathe is said to have suggested setting up a steering committee to address issues faced by the microfinance sector.

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