Microfinance Sector Sees 44% Drop in Multi-Lender Borrowers Amid Regulatory Changes

1 min read     Updated on 19 Aug 2025, 05:50 AM
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Jubin VergheseBy ScanX News Team
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Overview

The Indian microfinance industry is experiencing significant changes following the implementation of a three-lender exposure cap. The number of borrowers with four or more microfinance lenders has decreased by 44%, from 5.70 million to 3.10 million year-on-year. These high-risk borrowers now represent only 4% of the 79.80 million active borrower base. The microfinance market has contracted by 17%, with the total portfolio at ₹3.59 lakh crore. Active loan accounts have reduced from 159.30 million to 132.00 million, and the customer base has shrunk from 86.60 million to 80.00 million. The sector faces asset quality challenges with loans overdue by more than 90 days at 15.54% of the total portfolio, and gross non-performing assets at ₹55,820.00 crore. The industry is now focusing on risk management and portfolio stabilization.

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*this image is generated using AI for illustrative purposes only.

The microfinance industry in India is witnessing significant shifts following the implementation of a three-lender exposure cap, according to recent data. This regulatory change has led to a substantial decrease in the number of borrowers with multiple lenders, indicating a potential reduction in high-risk lending practices.

Key Highlights

  • Sharp Decline in Multi-Lender Borrowers: The number of borrowers taking loans from four or more microfinance lenders has plummeted by 44%, falling from 5.70 million to 3.10 million year-on-year.

  • Impact on High-Risk Borrowers: These higher-risk borrowers now represent only 4% of the 79.80 million active borrower base, holding ₹35,712.00 crore in outstanding loans, which accounts for about 10% of the sector's total portfolio.

  • Overall Market Contraction: The microfinance market has contracted by 17%, with the total portfolio now standing at ₹3.59 lakh crore.

  • Reduction in Active Loan Accounts: The number of active loan accounts has decreased from 159.30 million to 132.00 million.

  • Shrinking Customer Base: The customer base has declined from 86.60 million to 80.00 million.

Portfolio Quality and Risk Management

The microfinance sector is grappling with significant asset quality challenges:

  • High Portfolio at Risk: Loans overdue by more than 90 days remain elevated at 15.54% of the total portfolio.

  • Substantial Non-Performing Assets: Gross non-performing assets amount to ₹55,820.00 crore.

In response to these challenges, the industry is shifting its focus from growth to risk management and portfolio stabilization. This strategic pivot comes in the wake of overleveraging issues that have led to high delinquencies and asset quality stress over the past year.

Industry Outlook

The implementation of the three-lender exposure cap appears to be having its intended effect of reducing the concentration of high-risk borrowers. However, the contraction in the overall market size and customer base suggests that the sector is undergoing a period of adjustment.

As the microfinance industry navigates these changes, it will be crucial to monitor how these risk management strategies impact financial inclusion efforts and the availability of credit to underserved populations. The sector's ability to balance prudent lending practices with its mission of providing financial access will be key to its long-term sustainability and growth.

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