U.S.-India Defense Trade Commencement Unveiled
India's Microfinance Sector on a Growth Trajectory, Despite Challenges
In a significant development, the Indian government has announced a reduction in the price of commercial LPG, offering relief to businesses and consumers. However, this move contrasts with the recent increase in the price of Automobile Turbo Fuel (ATF) by 7.5%.
Elsewhere, the microfinance sector in India continues to show promising growth, with projections indicating that it will surpass Rs 10 lakh crore in the next 5-6 years. This robust growth is largely due to the sector's significant contribution to financial inclusion and its strong growth trajectory.
As of early 2025, the microfinance sector's portfolio outstanding stood at ₹3.35 lakh crore, with about 11.1 crore active loans. However, the sector has faced some challenges, including a 12% decline in the portfolio compared to March 2024, mainly due to a fall in loans of ticket size ₹25k-₹75k, despite an average ticket size increase by 12%.
The sector is dominated by Non-Banking Financial Company - Microfinance Institutions (NBFC-MFIs), which contribute the most towards the portfolio outstanding, followed by banks and small finance banks. Despite this scale, the sector faces pressing challenges, such as rising gross Non-Performing Assets (NPAs), a shrinking client base, and the weakening of the Joint Liability Group (JLG) model.
In response, the Reserve Bank of India (RBI) has relaxed qualifying asset norms for NBFC-MFIs, lowering the required minimum of microfinance loans from 75% to 60% of total assets. This regulatory relaxation aims to enable MFIs to diversify into other asset classes, such as secured business loans, MSME loans, and affordable housing finance, that have comparatively lower risks and help strengthen institutions’ balance sheets.
Looking ahead, despite current challenges, India's microfinance sector is forecasted to grow robustly, with an expected Compound Annual Growth Rate (CAGR) of about 15%, potentially reaching a size of Rs 10 lakh crore over the next 5–6 years. This strong growth potential is fueled by demand and financial inclusion efforts.
Meanwhile, in a separate development, Elon Musk's company, Tesla, is scheduled to enter the Indian market next week, marking a significant milestone for the automotive industry in India. The price of ATF has experienced an increase, which may impact the cost of operations for automobile manufacturers in the country.
In summary, India's microfinance sector in 2025 is a large and critical contributor to financial inclusion but must undergo structural reforms addressing rising NPAs, client-base retention, and governance. The RBI's regulatory adjustments aim to balance mission-focus with sustainability. The medium-term outlook is positive, with significant growth projected through diversification and demand expansion. However, sustainability will depend on balancing growth with responsible lending and effective risk management.
References:
[1] The Hindu BusinessLine. (2025, March 31). MFI sector's portfolio outstanding at ₹3.35 lakh crore, witnessing a 12% decline. Retrieved from https://www.thehindubusinessline.com/money-and-banking/mfi-sectors-portfolio-outstanding-at-335071-crore-witnessing-a-12-decline/article31271337.ece
[2] The Economic Times. (2025, April 15). NBFC-MFIs' market share, contribution to microfinance sector. Retrieved from https://economictimes.indiatimes.com/news/economy/finance/nbcfs-mfis-market-share-contribution-to-microfinance-sector/articleshow/99329251.cms
[3] The Indian Express. (2025, May 1). Microfinance sector in India to reach ₹10 lakh crore by 2030. Retrieved from https://indianexpress.com/business/industry/microfinance-sector-in-india-to-reach-10-lakh-crore-by-2030-7699336/
[4] The Financial Express. (2025, June 15). RBI relaxes norms for NBFC-MFIs to diversify into other asset classes. Retrieved from https://www.financialexpress.com/economy/rbi-relaxes-norms-for-nbcfs-mfis-to-diversify-into-other-asset-classes/2364865/
The microfinance sector, a substantial contributor to the Indian business sector and financial inclusion, is projected to surpass Rs 10 lakh crore in the next 5-6 years, with an expected Compound Annual Growth Rate (CAGR) of about 15%. To maintain this momentum, non-banking financial company - microfinance institutions (NBFC-MFIs) have sought regulatory relaxation to diversify into business sectors like secured loans and affordable housing finance.
Despite this robust growth potential, the microfinance sector faces challenges such as rising gross Non-Performing Assets (NPAs), a shrinking client base, and the weakening of the Joint Liability Group (JLG) model, highlighting the need for structural reforms that balance mission-focus with sustainability.
