India's Microfinance Sector: A Remarkable Journey

NEW DELHI: Over the past 12 years, the microfinance institutions (MFIs) in India have experienced an extraordinary growth of more than 2,176%. The sector's business has surged from Rs 17,264 crore in March 2012 to an impressive Rs 3.93 lakh crore as of November 2024. This significant achievement was highlighted in a recent meeting chaired by M Nagaraju, secretary of the department of financial services (DFS), ministry of finance, in the national capital.

Empowering Rural Communities

Currently, MFIs are operational across 723 districts, including 111 aspirational districts, covering 28 states and 8 Union Territories. They serve nearly 8 crore borrowers, contributing 2.03% to India's GDP and supporting 1.3 crore jobs. The discussions at the meeting focused on strengthening the MFI sector to better serve low-income households in rural areas, providing them with easier access to financial assistance.

Overcoming Challenges

The sector faces several challenges, including difficulties in raising low-cost, long-term funds and a reduction in lending affecting portfolio quality. MFIs proposed initiatives such as credit guarantee schemes, special funds for operations in the North-East, and relaxed qualifying asset norms to diversify lending risks. In response, the DFS secretary urged the institutions to develop a roadmap to strengthen the sector and ensure its long-term viability.

Adopting Digital Solutions

Nagaraju emphasized the need for MFIs to adopt digital repayment methods, prioritize cybersecurity, and improve governance standards to enhance sectoral credibility. He appreciated the significant contributions of MFIs in advancing financial inclusion and uplifting rural lives, acknowledging DFS's efforts in supporting the sector's growth.