RBI’s Firm Stance on Compliance: A Wake-Up Call for NBFCs and MFIs

The Reserve Bank of India (RBI) sent a strong message in 2024—compliance in the microfinance and NBFC sectors is non-negotiable. Recent regulatory actions, including restrictions on disbursals and onboarding of new customers for select MFIs and NBFCs, were triggered by serious lapses: failure to adhere to Fair Practices Code, weak grievance redress mechanisms, and violations in loan pricing norms.

These actions underscore RBI’s growing intolerance for governance and conduct failures, especially in institutions serving vulnerable borrowers. The intent is clear—to protect borrowers from over-indebtedness, coercive collections, and opaque pricing practices, which have plagued parts of the sector during the rapid growth phase.

For NBFCs and MFIs, the lesson is straightforward: build systems that don’t just look good on paper but work in practice. Transparent pricing, proper KYC, robust risk management, and responsive grievance redressal mechanisms must become standard, not afterthoughts.

Self-regulation alone won’t suffice. Institutions must invest in compliance frameworks, train staff, and actively monitor practices. The RBI is watching, and the credibility of the sector hinges on its ability to align profit motives with responsible, ethical service delivery. The future of inclusive finance depends on getting this balance right.