Microfinance Sector Contraction
The microfinance sector has experienced a noteworthy contraction as highlighted in the Reserve Bank of India's latest Financial Stability Report.
Key Observations
- Decline in Active Borrower Accounts: The sector saw a reduction of 4,000,000 borrower accounts.
- Regulatory Impact: Increased regulatory oversight and stricter underwriting practices have curtailed new borrower additions and slowed lending activity.
- Bank Credit Reduction: Credit flow to microfinance institutions has been negatively affected.
- Credit Decline Statistics:
- Bank credit to the sector decreased by 13.8% during FY25.
- This decline reduced the sector's overall share to 48.3%.
- Growing Segment Stress: There is increasing caution among lenders due to rising portfolio risks.
