The National Bank for Agriculture and Rural Development (NABARD) and the Reserve Bank of India (RBI) have been actively promoting rural financial literacy and awareness through a series of targeted initiatives aimed at reaching underserved populations, including microfinance borrowers.

To enhance financial awareness in rural areas, NABARD has supported Financial and Digital Literacy Camps conducted through rural bank branches and Financial Literacy Centres (FLCs). These programmes focus on educating people about banking products, government-backed social security schemes, digital and mobile banking, and cybersecurity. Additionally, NABARD has supported Village Level Programmes (VLPs), working with banks and State Rural Livelihoods Missions (SRLMs) to improve interactions between bankers and Self-Help Groups (SHGs), enabling smoother account openings, credit linkages, and timely loan repayments.

The Centre for Financial Literacy (CFL) project, launched by the RBI in 2017, promotes community-led approaches to financial education. As of March 31, 2025, a total of 2,421 CFLs have been established across India, with each centre covering an average of three blocks.

The RBI has also introduced several reforms to simplify access to credit within the microfinance sector. The definition of microfinance loans has been streamlined, removing earlier restrictions such as loan amount limits per cycle and mandatory tenures. Currently, any collateral-free loan offered to a household earning up to ?3 lakh annually qualifies as a microfinance loan. The previous requirement that at least 50% of loans must be used for income generation was removed, acknowledging the broader credit needs of borrowers, including medical and educational expenses.

To enhance borrower protection, the RBI has mandated a ceiling where monthly loan repayments cannot exceed 50% of the household's monthly income. Guidelines were also issued to ensure fair recovery practices, requiring regulated entities (REs) to implement grievance redressal mechanisms for recovery-related complaints.

Responding to concerns about high interest rates, the RBI deregulated interest rates for microfinance loans in March 2022, allowing competitive market forces to influence rates instead. REs are now required to maintain a board-approved interest rate policy with transparent cost components and ensure that charges are not exploitative.

Self-Regulatory Organisations (SROs) such as Sa-Dhan and Microfinance Industry Network (MFIN) continue to play a vital role in ensuring compliance among their member institutions. These SROs not only monitor regulatory adherence but also help shape policy through regular engagement with the RBI. They have implemented additional safeguards, such as limiting borrower indebtedness and capping the number of lenders per borrower.

To prevent over-indebtedness, the RBI has issued guidelines for credit institutions to report income and loan data of microfinance borrowers to Credit Information Companies (CICs). This comprehensive reporting allows institutions to assess borrower liabilities more accurately and maintain repayment obligations within the 50% income ceiling.

This information was provided by Minister of State in the Ministry of Finance, Shri Pankaj Chaudhary, in a written reply to a question in the Rajya Sabha.