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Microfinance in India: Growth & Outlook



  Sep 20, 2023

Microfinance in India



Trust SRIRAM's for micro and macro financial analysis

What is Microfinance (MFI) and why is it growing in India?

Microfinance, often abbreviated as MFI, is a financial service that provides small loans, savings accounts, and insurance products to individuals and small businesses with limited access to traditional banking services.
It is growing in India due to the increasing demand for financial inclusion, especially among economically disadvantaged and underserved populations.
MFIs play a crucial role in offering financial support to these individuals and promoting economic development.

Why has there been renewed interest from investors in the microfinance sector?

The microfinance sector in India faced challenges with non-performing assets (NPAs) during the COVID-19 pandemic.
Many MFIs needed capital to address these issues but struggled to attract investors.
However, the sector has rebounded, with improved financial performance and renewed investor confidence.

How has the loan portfolio of the microfinance sector evolved recently?

The microfinance loan portfolio in India has experienced robust growth since April 2022, reversing a period of slower expansion in the preceding years.,
This growth reflects the increasing demand for microloans and financial services among borrowers.

What are the prospects for future growth in the microfinance sector?

Industry experts and rating agencies project a promising future for the microfinance sector in India.
It is expected to continue growing, with a particular focus on Non-Banking Financial Company-Microfinance Institutions (NBFC-MFIs), which are anticipated to expand at an accelerated pace.

How have changes in regulations impacted the microfinance sector?

Recent regulatory changes have contributed to the growth and development of the microfinance sector.
These changes include allowing lenders to set their interest rates and redefining the purpose of microloans, enabling borrowers to use them for various needs, such as education, healthcare, and weddings.

What measures have MFIs taken to improve efficiency and reduce operational costs?

MFIs have embraced digital collection methods for loan installments, which have streamlined operations and lowered costs associated with cash handling and transit.
Additionally, changes in loan appraisal and disbursement procedures have increased operational efficiency.

How has the asset quality of MFIs improved following the pandemic?

The microfinance sector faced asset quality challenges during the COVID-19 pandemic.
However, improved macroeconomic conditions and effective collection efforts have led to a decline in non-performing assets (NPAs), indicating a more stable financial environment for MFIs.


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