Rural Entrepreneurship Fuels Microfinance Growth as Institutions Hold Lending Rates Steady

Microfinance sector expected to grow 10 to 15% at the end of FY2026-27

Rural livelihoods enhancement and entrepreneurship to drive demand for lending

Microfinance institutions will keep lending rate unchanged, will absorb the repo rate hike

The microfinance sector is expected to grow at over 15% in the third and the fourth quarters of the current financial year, micro lending institutions’ leaders said at the 21st annual conference on inclusive growth, organised by Sa-Dhan.

Chandra Shekhar Ghosh, founder and Chairman, Bandhan Group was felicitated at the conference for his exemplary contributions to bringing formal credit to people in rural areas. He had started Bandhan with a loan from a moneylender in 2001, and over the years has built an NGO to a microfinance institution and now to a universal bank. Speaking on the occasion Shri Ghosh said, “Serving women and transforming their families through income generating loans has been the contribution of Bandhan. Discipline in underwriting and lending, supervision at the ground and the entity level, wealth creation through mutual funds and resilience through insurance, and IT for enhancing efficiency has led to the scale Bandhan has achieved.”

Speaking at the conference, V Vaidyanathan, CEO, IDFC First Bank said, “Microfinance is at the intersection of business and social service; 90% of the microfinance lending is to women borrowers for entrepreneurship such as for making agarbatti, chappals, papad and for dairying. Over 50% of the borrowers are Below Poverty Line card holders. Technology adoption is enhancing productivity, with disbursements directly into the bank accounts and collections through UPI autopay; it is adding to the confidence to lend. We have had a good experience with lending to this sector, with self-regulation and the guardrails, the sector has the potential to grow its loan portfolios substantially in the future.”

Dr Shaji Krishnan V, Chairman, NABARD said, “For over 50% of SHG members, who are women, microfinance is their point of entry into the financial sector; they subsequently graduate to entrepreneurship. NABARD aims to make everyone’s bank better, NABARD has built a technology infrastructure for the cooperative banks which is helping them serve customers better, like intimation over sms or WhatsApp for every transaction. The sector should also leverage technology like the agristack which provides a wealth of anonymized data that allows for a granular view, reduces cost of underwriting, allows for climate-adaptation financing and enables fintechs to build solutions for the rural sector.

NABARD supports the sector through capacity building of microfinance institutions, and is also focussing on enabling entrepreneurship among the youth. The Government is also supporting the sector by encouraging private capital into rural financing as the sector is integral to realizing the Viksit Bharat vision.”

Dr K Paul Thomas, MD & CEO, ESAF Small Finance Bank and Chair, Sa-Dhan said, “Self-regulation in the microfinance sector has been effective, and the sector has prioritized discipline in underwriting over growth. The microfinance loan is for livelihood finance enhancement and diversification, and the average ticket size of loans is increasing towards Rs 75,000 from Rs 50,000 earlier. The NCAER study has also shown the impact on the society and local communities from turning borrowers into entrepreneurs. The sector has emerged stronger from the stress of the last two years, major credit for it goes to the frontline employees.”

The Bharat Microfinance Report was also released at the conference. The report draws on data from Credit Information Companies, Micro Lending Institutions, NABARD and other stakeholders to provide a comprehensive view of the sector. 178 Micro Lending Institutions shared their data, which represents more than 98% of micro-lending business in India.

Jiji Mammen, Executive Director & CEO, Sa-Dhan added, “FY2025–26 can be characterised as a period of consolidation and recalibration, with lenders focusing on strengthening portfolio quality, controlling borrower indebtedness, improving collections and restoring sustainable credit growth. The third set of guardrails from industry leaders and SROs, issued in April 2026, have strengthened credit discipline. The sectoral outlook is expected to further improve in the current financial year.”