The Bharat Microfinance Report 2025 by Sa-Dhan, India’s microfinance self-regulatory body, reveals a steep rise in loan delinquencies across the microfinance sector, with Bihar performing the worst in both loan exposure and default rates.
Microfinance
- Definition: Microfinance refers to the delivery of financial services such as microcredit, savings, insurance, and remittances to low-income households and self-employed individuals excluded from formal banking.
- It aims to promote financial inclusion by enabling poor and marginalized people—especially women—to start small businesses, improve livelihoods, and reduce poverty.
Key Components
- Microcredit: Small collateral-free loans to individuals or Self-Help Groups (SHGs).
- Microsavings: Safe and flexible savings products for low-income groups.
- Microinsurance: Protection against risks like illness, crop loss, or accidents.
Institutions Involved in Microfinance
- Self-Help Groups (SHGs): Small community groups, mainly of women, that save collectively and access formal credit through NABARD’s SHG–Bank Linkage Programme (1992).
- Microfinance Institutions (MFIs): Organizations such as NBFC-MFIs, NGOs, and cooperatives that provide small, collateral-free loans and other financial services to low-income households.
- Banks and Small Finance Banks (SFBs): Commercial banks, RRBs, and SFBs offer direct microloans and support MFIs, promoting financial inclusion and rural entrepreneurship.
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Key Highlights from the Report
- Sharp Increase: The share of microfinance loans overdue by more than 30 days rose to 6.2% in 2024–25, compared to 2.1% in 2023–24.
- Non-Performing Loans: Loans overdue by more than 90 days (NPA benchmark) increased to 4.8%, up from 1.6% the previous year.
- The Portfolio at Risk (PAR) 30+ days past due surged to 6.2%, marking a major deterioration in asset quality across the sector.
- State-Wise Performance:
- Bihar reported ₹57,712 crore in outstanding microfinance loans as of March 2025.
- 7.2% of these loans were overdue by more than 30 days (national average: 6.2%); 4.6% were overdue by over 90 days, officially qualifying as NPAs.
- Rural–Urban Breakdown:
- Rural Borrowers: Worst affected, with 6.4% of loans overdue beyond 30 days and 3.7% overdue beyond 90 days.
- Semi-Urban Borrowers: Defaults at 6.1% (30+ days) and 3.2% (90+ days).
- Urban Borrowers: Slightly better at 6% (30+ days) and 3.2% (90+ days)
Sectoral Concerns
- Portfolio at Risk (PAR): The sharp increase in PAR 30+ and PAR 90+ highlights growing fragility in credit quality within the microfinance ecosystem.
- Systemic Risk: The trend may undermine financial inclusion efforts, as high defaults discourage lending institutions from extending credit to low-income households.
- Liquidity Stress: Rising NPAs can erode the profitability of Microfinance Institutions (MFIs) and increase borrowing costs for small borrowers.
About Sa-Dhan
- Sa-Dhan is an association of Community Development Finance Institutions (CDFIs) and microfinance institutions (MFIs) in India.
- It serves as the self-regulatory organization (SRO) for the microfinance sector, recognized by the Reserve Bank of India (RBI).
- Established in 1999, registered under the Societies Registration Act, 1860.
- Objective:
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- To promote financial inclusion and strengthen the microfinance ecosystem.
- To ensure ethical lending, client protection, and responsible finance practices among member institutions.
- Members: Includes NGO-MFIs, NBFC-MFIs, Small Finance Banks, and SHG Federations.
Government Initiatives for Microfinance in India
- SHG–Bank Linkage Programme (1992): Launched by NABARD, it connects Self-Help Groups (SHGs) directly with banks to provide collateral-free loans and promote financial inclusion, especially for rural women.
- Micro Units Development and Refinance Agency (MUDRA), 2015: Established under Pradhan Mantri Mudra Yojana (PMMY) to refinance MFIs and small banks, providing loans up to ₹10 lakh under Shishu, Kishor, and Tarun categories for micro-entrepreneurs.
- Deendayal Antyodaya Yojana – National Rural Livelihoods Mission (DAY-NRLM), 2011: Aims to organize rural poor women into SHGs, enhance their access to credit, and support livelihood diversification through capacity building and microenterprise development.
- Financial Inclusion Initiatives: Schemes like Pradhan Mantri Jan Dhan Yojana (PMJDY), Direct Benefit Transfer (DBT), and Digital India enhance access to banking and digital payments for microfinance beneficiaries.
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13 Oct 2025
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