Breaking Down India's Microfinance Industry: A Growth Story

The microfinance industry in India has come a long way since its inception in 1974. 

The industry is a vital tool for promoting financial inclusion and providing small loans and other financial services to poor and low-income households. Clocking a growth of 26% year-on-year amounting up to Rs. 3.24 lakh crore by the end of December 2022, India’s microfinance industry holds an outstanding portfolio. As of September 2022, the gross portfolio of NBFC-MFIs, which control the market with a 38.5% stake and dominate the sector, was over Rs. 2,71,350 crore. The industry's portfolio increased by 16.5 times, from Rs 17,264 crore in March 2012 to Rs 2,85,441 crore as of March 2022.

However, the industry still faces challenges that need to be addressed for inclusive growth.

Structure of India’s Microfinance Industry

Microfinance is a type of financial service that routinely and legally offers modest loans and other financial services to low-income people. It was created as a financial inclusion tool to help poor and low-income households get out of poverty, boost their income levels, and improve their overall living standards. This helps the implementation of national initiatives aimed at poverty alleviation.

The microfinance industry in India is diverse, with a wide range of firms offering low-income consumers financial services such as loans, insurance, and pensions. Small Finance Banks, NBFC MFIs (Non-Banking Financial Company-Micro Finance Institutions), Banks, and Non-profit MFIs are the basic categories used to categorize microfinance market players.

All of these, except for non-profit MFIs, are under RBI(Reserve Bank of India) regulation. In India, lending is guarded by the concept of Joint Liability Group (JLG). JLGs are a group of 5-10 members who join hands to avail of a bank loan, either individually, or collectively. The loan is provided against a mutual guarantee.

Government Initiatives

Microfinance Institutions Network (MFIN), the country's microfinance industry association, has acted as an SRO (self-regulatory organization) since 2010. This has contributed to the creation of a responsible finance ecosystem by allowing the sector to build on strong foundations such as customer protection, an industry code of conduct, and policy advocacy.

The government has then persistently expanded on its existing microfinance infrastructure to push progressive financial incentives to support the country's economy. In a similar vein, the Government of India established the Micro Units Development & Refinancing Agency (MUDRA) in 2015 to refinance collateral-free loans of up to 10 lakhs made by lending companies to non-corporate small borrowers, mostly for non-farm revenue development. MUDRA loans are divided into three categories: Shishu loans (up to 50,000), Kishor loans (50,000 to 5 lakhs), and Tarun loans (5 lakhs to 10 lakhs).


The third quarter showed a substantial increase in microcredit in the country, fueled by festivities and a recovering economy. Banks involved in microfinance through lending to joint liability group members have grown at a relatively slow 9.2% year on year. Small financing banks grew by 19.6%, while NBFCs gained the most traction (59%). From October 2022 and December 2022, total lender disbursements were Rs 77,819 crore, compared to Rs 70,582 crore during the same period the previous year. There has been a significant surge in loans with larger ticket amounts. Portfolios with ticket sizes ranging from 50,000 to 75,000 had a 45% year-on-year increase and 9.6% quarterly growth as of December 2022.

How the geographical regions fare

As of December 2022, the top ten states accounted for 84.6% of the total gross loan portfolio (GLP). In terms of disbursements during the third quarter, Bihar, Tamil Nadu, Uttar Pradesh, Karnataka, and West Bengal were the top five states, accounting for 56% of total disbursements. The Eastern region led the industry growth at 32%, followed by the South at 27% as of December 2022.


One of the industry's main issues is its highly concentrated character, where it is concentrated in a few states and districts, making it subject to economic shocks and political instability in certain areas. For more balanced growth, it is critical to broadening credit distribution to other credit-deficient areas. Allocating the loan to other credit-deficient areas might provide a bigger boost to the country's microfinance sector. Because microfinance loans are often modest and unsecured, lenders find it difficult to reclaim them in situations of failure or nonpayment. This increases the lenders' operational expenses and has a detrimental impact on their bottom line.

Way Ahead:

In recent years, India's microfinance business has grown dramatically. Yet, concerns such as unequal credit distribution must be addressed in order to achieve equitable growth. The sector must take steps to expand loan distribution and guarantee that the benefits of microfinance are available to the general public. Although the business is governed by the Reserve Bank of India (RBI), better laws and standards are needed to prevent predatory lending practices and guarantee consumer rights are protected.

Related Blogs

Customer Intelligence
May 15, 2023

Marketing During a Recession: Lessons from Resilient Brands

Currently, economists are anticipating a substantial economic slump, which might have far-reaching effects for both B2B and B2C companies.

Customer Intelligence
May 9, 2023

Beyond Gen Z: The Importance of Advertising to Older Generations

More than 85% of people over the age of 40, don’t feel represented enough in the ads they come across.

April 20, 2023

Technology as an enabler of smart retail: A close look at the emerging trends

The global economy's economic trajectory appears to be on a bumpy course for the remainder of this year.

Industry Analysis
April 11, 2023

How Digital Payments Changed the Game: A Look at the Past, Present, and Future

The methods through which a buyer can finish a transaction have been drastically transformed during the last few decades.

Market Analysis
March 21, 2023

The Rise of Tier 2 Cities in Indian E-Commerce: What Businesses Need to Know

Last year, three out of every five orders placed through e-commerce platforms were transported to purchasers in Tier 2 cities and beyond.

March 16, 2023

India's goal of becoming a USD 5 Trillion economy ahead of IMF's forecasts: A closer look

The government of India has recently indicated that the country intends to attain a USD 5 trillion GDP by 2025

Industry Analysis
March 2, 2023

Understanding the Changing Face of India's Credit Landscape: How India's Youth are Driving Credit Boom

India is now witnessing one of the most vibrant consumption-led growth periods as seen in recent times.

Industry Analysis
March 1, 2023

Navigating Uncertainty: How Business Interruption Insurance Can help MSMEs

Here’s why insurance crucial for enterprises so crucial for small and medium-sized enterprises. 

Customer Intelligence
February 15, 2023

Maximizing Profits: Using Customer Data to Drive Offline Retail Sales

The retail sector is seeing the undercurrents of change as consumers' buying preferences continue to shift quickly.

Customer Intelligence
February 6, 2023

The Future of Customer Experience: Harnessing the Power of Customer Intelligence

Customer behavior and tastes are currently driving industry changes.

Industry Analysis
January 31, 2023

Sustainable Digitization: The Secret to SME Success in the Digital Age

SMEs find it extremely difficult to remain competitive in the fast-paced digital environment of today.

Industry Analysis
January 30, 2023

The State of Cybersecurity in India

Ranking 4th among APAC countries and Top 10 In Global Cybersecurity Index 2020 Rankings, India has been immensely vocal about its cybersecurity ambitions.

Market Analysis
January 17, 2023

Energy Market Dynamics: How Renewable Energy is Changing the Game

One of the fastest growing and most complicated markets, energy markets are of major significance in the global economy.

January 12, 2023

Adaptive AI for business: Unlocking new opportunities and driving growth

Adaptive AI is a type of AI that can change its behavior and decision-making processes based on new information and changing circumstances.

January 6, 2023

India’s growth Trajectory in 2023: Can it dodge the looming global downturn?

2022 marked the highest inflation rate in some of the most advanced economies in the world.

December 26, 2022

Market Highlights : Looking back at the major disruptions in 2022

This year has been described as a year of change. There has been a wave of disruption and turbulence that has earmarked certain trends that are going to influence the sectors in the days to come.

Market Intelligence
December 22, 2022

Market Intelligence: Harness the power to drive Business Growth and Success

Companies that use market intelligence are twice as likely to outperform their competitors. Research shows that market leaders view analytics as a major differentiator.

Business Transformation
December 19, 2022

Business intelligence in action: How insight can drive decision-making in different industries

Business Intelligence (BI) augments an organization’s capability in decision-making and drives business growth.

Business Transformation
December 16, 2022

Maximize Your Business Potential: How Business Intelligence Can Transform Your Business

Business intelligence (BI) refers to the collection, analysis, and interpretation of data about a company's operations, markets, and competitors.

Industry Analysis
December 14, 2022

Visualizing Banking's New Frontier: How the Industry is Transforming to Meet the Needs of the Future

The banking industry is undergoing a period of rapid change, driven by advancements in technology and changing customer expectations.

December 5, 2022

India Assumes G20 Presidency: Startups at the Forefront of Key Agenda

India assumed its first-ever G20 Presidency on 1st December 2022 and will be hosting 200 events in 32 different sectors across 50 cities until the next G20 Summit to be held in New Delhi in September 2023.

November 30, 2022

Asia’s Foreign Direct Investments: Understanding the Trend

Foreign Investment channeled into Asia has reached a record high exceeding $600 billion in 2021.

November 29, 2022

Edge Computing for Business: Cloud’s Next Evolution

Technology remains to be the biggest trend for driving business transformation

Market Analysis
November 25, 2022

The Sustainability Market: A paradigm shift

In line with the United Nations’ Sustainable Development Goals 2030 and COP 27, as the countries pace up to meet the deadlines, similar trends are readily observed in the startup ecosystem.

Industry Analysis
November 24, 2022

Mobile Commerce: Becoming the Ever-Growing Part of the E-commerce Equation

Mobile Commerce or M-commerce is emerging as one of the most contending subsets of the E-commerce market.

November 22, 2022

Developments at COP 27

The world is presently seeing the largest reallocation of capital in its history.

November 17, 2022

Sensory Marketing: Decoding a Robust Branding Strategy

Sensory marketing, a subset of psychological marketing is all about appealing to one or more of your customer's five senses to uniquely position your brand or product, thus successfully driving their behavior, judgment, or perceptions

Industry Analysis
November 16, 2022

5G: Setting the Stage for the Next Generation of Digital Transformation

Valued at more than $5 billion in 2020, the global 5G technology market is growing at a CAGR of nearly 66% and is forecasted to reach a whopping $800 billion by 2030

Industry Analysis
November 9, 2022

Generative AI: How Technology Disruptor Is Redefining Capabilities

The buzz behind Artificial Intelligence isn’t something new, but recently a category of AI- Generative AI has been making headlines.

Industry Analysis
November 5, 2022

Gearing up for COP27

United Nations Climate Change Conference more commonly referred to as the Conference of the Parties of the UNFCCC

Market Analysis
October 26, 2022

Net-Zero Emission Innovation : The Transition Checklist

Companies are readily seeking to envision a strategic

Consumer Insights
October 25, 2022

Understanding the Dynamically Changing Nature of Consumers

The Covid-19 pandemic has been instrumental to change

Market Insights
October 18, 2022

The Circular Economy - How is Asia Transitioning

In this era of stupendous globalization,

Market Insights
October 18, 2022

Digitalization in Asia - The Competitive Advantage

Using digital technology is no longer meant for just driving solutions

Industry Analysis
September 15, 2022

How Blockchain is Transforming the Banking & Finance Sector

The buzz around the term ‘blockchain’ gained gargantuan momentum in recent years.

Industry Analysis
September 15, 2022

Fintechs : The New Age Disruptors Challenging Traditional Banking

Fintech is an umbrella term for describing all sorts of

Industry Analysis
September 15, 2022

The Future of Banking : How are Banks Reinventing Themselves

The history of banking dates back to around 2000 BCE

August 23, 2022

Turbulence Ahead : A Year of Hiking Interest Rates

The global economy is currently at an unprecedented level

August 22, 2022

The APAC Story : Changing centre of gravity of the global economy.

Including more than 20 countries, home to nearly 60%

Industry Analysis
August 17, 2022

The $10 Trillion Sustainability Centric Market How ready are you to capture the opportunity?

In recent years, there has been a trend in the emergence

August 16, 2022

Internationalisation of Indian Rupee - What does it hold?

In the wake of global market fluctuations and geo-political tensions

August 10, 2022

Inflation on the rise: What does it mean for economic growth?

Two years ago, countries worldwide were concerned to overcome the pandemic

Industry Analysis
August 3, 2022

Business in the Metaverse

Metaverse- a term that first came up in Neal Stephenson’s 1992 science fiction novel - Snow Crash - which described life-like avatars meeting in realistic 3-D buildings and other virtual reality environments - is currently the favourite term of marketers.

Industry Analysis
July 13, 2022

The Protein Challenge: New entrant in the market- Alternate Protein & its Indian Context

Following the Covid-19 crisis, the alternative protein industry has seen a significant boost. The alternative protein market is anticipated to grow at a CAGR of 11.2% from 2020 to 2027 to reach $27.05 billion by 2027.

June 1, 2022

Reaching to the Moon: How is UAE transforming itself as a future nation?

Historically being counted in the oil-country category, the United Arab Emirates (UAE) has been dramatically making its transition into being energy-focused yet finely attuned to technology.

Follow us

Knometrix Market Intelligence
Knometrix Market Intelligence
Knometrix Market Intelligence
Knometrix Market Intelligence