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Informist, Thursday, Jan. 29, 2026

--EconSurvey: Microfin sector growth hinges on responsible lending practices 

--EconSurvey: Microfin sector growth hinges on resilience to manage volatility

MUMBAI – The microfinance sector grew significantly in the past decade and a continuation of this growth would largely depend on responsible lending practices by the microfinance lenders, according to the Economic Survey for 2025-26 (Apr-Mar), tabled in Parliament by Finance Minister Nirmala Sitharaman Thursday.

Moreover, the growth of this sector will depend on the strengthening of the enabling infrastructure including tools to assess creditworthiness and continued strengthening of institutional resilience to manage cyclical volatility, the survey said.

Over the past decade, the microfinance sector gained active borrowers, nearly doubling from 33 million in FY14 to 62.7 million in FY25. During this period, the gross loan portfolio of microfinance institutions rose nearly seven times from INR 335.17 billion in FY14 to INR 2.38 trillion in FY25.

At present, microfinance institutions do not offer tailored credit with differential pricing for different category of borrowers, the survey said. Lending by these financial institutions is likely to become more competitive when multiple microfinance institutions serve each borrower category.

Moreover, these institutions have limited visibility over certain types of loans as gold loans, agriculture loans, and cooperative society credit, which constrains the ability of these institutions to calculate the accurate repayment obligations of the borrower while availing credit, the survey said.

The Reserve Bank of India reduced the minimum qualifying assets to 60% from 75% of the total assets which will likely allow microfinance institutions to manage their portfolio risks more effectively, the survey said.

"In response to the prompt regulatory action, stress in the MFI sector has begun to temper with a reduction in risky assets on a quarterly basis between June quarter FY26 and September quarter FY26. Other indicators, such as loan disbursements and solvency ratios, showed a steady improvement across the same period." 

The microfinance sector saw a fall of 14% in outstanding loans in FY25 because of the sector's overexposure.

On the financial inclusion front, regulatory innovations through digital infrastructure and government-led initiatives resulted in narrowing of the gaps in financial access over the past decade, the survey said. Among the government-led initiatives, 550 million accounts were opened as of March 2025 under the Pradhan Mantri Jan Dhan Yojana.

The Stand-Up India Scheme offered bank loans between INR 1 million and INR 10 million which led to greenfield establishments. Other similar initiatives led to collateral-free working capital loans and funds to micro and small enterprises in manufacturing, trading, services, and allied agricultural activities which also aided financial inclusion.  End

Reported by Janwee Prajapati

Edited by Ashish Shirke

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