Microfinance Market Realignment: Shifts and Surges in India's Lending Landscape

The microfinance sector in India saw a 41.7% decline in loans disbursed, with a 34.9% reduction in the amount lent in the December quarter. This dip is attributed to stricter regulations and changes in lending strategies. However, non-banking financial companies witnessed growth in their portfolio.

According to a recent report by Crif High Mark, the microfinance sector in India witnessed a significant contraction. The number of loans disbursed by lenders fell by 41.7%, and the total disbursed amount dropped by 34.9% during the December quarter. This marked decline is attributed to stricter industry regulations and a strategic recalibration posed by lending institutions.

The report highlighted that loans unpaid within a 31 to 180-day period jumped to 6.4% of the portfolio by the end of December 2024, up from 2% the previous year. This indicator hints at emerging challenges within microfinance operations. Regional impacts varied, with Kerala experiencing the most substantial plunge in outstanding loans by 15.8%, while Uttar Pradesh demonstrated moderate growth.

Despite overarching declines, non-banking financial companies stood out, expanding by 17.3%. Their concentrated focus on loans over Rs 1 lakh appears to be paying off, making them a key driver of growth amidst regulatory upheavals. As lenders recalibrate strategies, market dynamics suggest a noteworthy shift in the landscape of microfinance lending in India.

(With inputs from agencies.)