Microfinance sector undergoing a churn, hints Bharat Microfinance Report 2025

The client base of India’s microfinance sector declined 13%, and the size of cumulative outstanding loans fell by 14% in 2024-25, indicating a silent churn within the sector, perhaps making it more accountable and transparent, the latest Bharat Microfinance Report 2025, published by Sa-Dhan—an association of Impact Finance Institutions and an RBI-appointed Self-Regulatory Organisation (SRO) for Microfinance Institutions—suggests.

According to the report, the total active client base of the microfinance sector stood at 8.28 crore, with loan outstanding at ₹3,81,225 crore at the end of FY2024-25. There were 13.99 crore loan accounts as of 31 March 2025, the report says. While non-banking financial institutions and microfinance institutions (NBFC-MFIs) accounted for 39% of the loan outstanding (₹1,48,419 crore), the shares of other major institutions were: banks 32% (₹1,24,431 crore) and small finance banks 16% (₹59,817 crore).

“The most widely discussed issue contributing to sector-wide stress is the overleveraging of credit, driven by increased borrower exposure and a higher number of lenders. Sensing this, industry leaders and Self-Regulatory Organizations came up with additional guardrails, the first set issued in July 2024 and the next in April 2025. These restrictions have brought controls in lending; these guardrails, along with restrictions on lending imposed by lenders to MFIs, were also reasons for the negative growth in the sector,” says Jiji Mammen, Executive Director & CEO, Sa-Dhan. “The situation is expected to improve in the current financial year, considering that 91% of loans are being utilized for income generation purposes,” he adds.

Meanwhile, data from Credit Information Companies, which includes banks, small finance banks (SFBs), non-banking financial companies (NBFCs), NBFC-MFIs, and other lenders, shows that the Self-Help Group (SHG) Bank linkage programme registered positive growth in 2024-25, with overall outstanding reaching ₹3.04 lakh crore for 84.94 lakh SHGs. There were around 143.3 lakh SHGs with 17.1 crore households linked to savings under the SHG Bank linkage programme, the Bharat Microfinance Report 2025 said.

The report, a comprehensive reference on microfinance prepared by Sa-Dhan in partnership with NABARD, captures data from Credit Information Companies as well as information directly sourced from 203 Micro Lending Institutions (MLIs), representing more than 98% of MLI business in the country.

According to the report, the MLIs are servicing over 6.27 crore active micro clients, with a total loan outstanding of ₹2,38,198 crore, including a managed portfolio of ₹72,930 crore. Business Correspondents contributed the most to the managed portfolio, at ₹53,287 crore. The loan outstanding per borrower for the reported MLIs worked out to ₹38,005, and the utilization data indicates that about 91% of loans were used for income generation purposes.

“Microfinance has emerged as a cornerstone of India’s socio-economic transformation, fostering financial inclusion and empowering women, small and marginal farmers, artisans, and other vulnerable communities. Millions have been able to access timely and collateral-free credit, enabling them to build sustainable livelihoods and enterprises. With data-driven insights, the Bharat Microfinance Report deepens our collective understanding of microfinance and highlights its role as a catalyst in advancing our shared national vision of Viksit Bharat,” said Shaji KV, Chairman, NABARD.

The report shows that the microfinance sector continued to follow a ‘feet-on-street’ model, with 3.29 lakh personnel employed across 37,380 branches at the end of 2024-25. NBFCs and NBFC-MFIs together contributed to 86% of the total client base and 84% of the outstanding portfolio of the MLIs. The top five states for microfinancing continued to be Bihar, Tamil Nadu, Uttar Pradesh, West Bengal, and Karnataka.