Microfinance Sector: Backbone of India's Financial Inclusion

Non-banking financial companies (NBFCs) and microfinance-focused NBFCs now account for 86% of the microfinance client base in India, as highlighted in a recent report. The study, co-authored by Sa-Dhan and NABARD, indicates an active client base of 8.28 crore with loans amounting to Rs 3,81,225 crore by the end of fiscal 2024-25.

While traditional banks and small finance banks also distribute microloans, the top regions benefiting from this significant micro-lending business include Bihar, Tamil Nadu, Uttar Pradesh, West Bengal, and Karnataka. NABARD chairman K V Shaji emphasizes the critical role of microfinance institutions (MFIs) in driving India's socio-economic development, enabling millions to access essential credit without collateral.

However, challenges remain. Sa-Dhan CEO Jiji Mammen points to the issue of over-leveraged credit that stresses the sector. In response, industry leaders and self-regulatory organizations have introduced strict lending controls to stabilize growth, with an optimistic outlook for improvements in the current fiscal year.

(With inputs from agencies.)