Funding squeeze pushes Indian microfinance lenders toward larger loans and new income criteria
Indian microfinance institutions are seeing smaller portfolios and fewer borrowers, prompting calls to raise the income eligibility threshold and shift toward higher-ticket loans.
Sa-Dhan’s latest figures reveal Indian microfinance institutions have increased average loan size by 15% to ₹62,962, even as the sector’s total portfolio shrank 7.6% to ₹3.26 trillion and the borrower count fell 15% to 65.4 million. Executives argue one outlet ₹3 lakh income eligibility rule, set four years ago, should be raised to ₹4-5 lakh and tied to each state’s gross domestic product. RBI’s cap on the number of lenders per borrower and higher interest rates are steering borrowers toward larger, consolidated loans, while private banks retreat from the ₹25-50 k ticket range.
NBFC-focused MFIs have modestly expanded, but legacy defaults have risen, with 180-day past-due loans climbing to 17.4%. Stakeholders propose using Mudra Bank exclusively for MFI refinancing and leveraging account-aggregator data to better assess repayment capacity.
Why it matters
The shift affects credit access for millions of low-income borrowers and the stability of India’s microfinance sector.
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