Rural demand lifts microfinance sector as lenders see signs of stability

New Delhi [India] November 27 (ANI): India's microfinance industry is witnessing a renewed upswing, supported by rising rural demand, improved repayment behaviour and early signs of asset-quality stabilisation, according to experts and lenders.

Fresh data from Sa-Dhan, an RBI-appointed Self-Regulatory Organisation (SRO) for Microfinance Institutions, shows that rural regions now account for nearly 80 per cent of the microfinance portfolios of non-bank lenders, the highest share in over a decade.

Small entrepreneurs, farmers, and women-led microenterprises are driving this expansion, with most loans channelled into income-generating activities. NBFC-MFIs continue to play a critical role in underserved states, including Bihar, West Bengal and Uttar Pradesh, where formal banking access remains limited.

A CareEdge assessment projects a mild recovery for FY26, with NBFC-MFI assets under management likely to grow around 4 per cent after a contraction last year. However, experts warn of potential earnings pressure in the near term due to higher credit costs and tight liquidity for smaller players. Despite this, lenders say improved underwriting standards, better borrower assessment and reduced over-leveraging are strengthening the system.

A recent report by Motilal Oswal titled "Rural Rules Urban Follows" echoed the sentiment and says rural consumption continues to outshine urban demand as income growth, credit expansion and better rainfall boost consumption.

"We observed that rural consumption continues to outperform urban consumption despite the income tax cuts and GST 2.0 reforms, which are aimed at boosting urban consumption. Undoubtedly, urban consumption has recovered since 22nd Sep'25 and also from 3QFY25; but rural consumption outshines because of income guarantee schemes, better rainfall outcomes, NBFC-led credit growth, easing input costs and steady MSPs," noted the report.

Experts believe that better crop yields and increased rural purchasing power will support stronger collections and healthier growth in the coming fiscal year.

DJT Microfinance COO Avinash Kumar echoed the sentiment, noting that most of its women borrowers are using microloans to expand small businesses ranging from tailoring and livestock rearing to local retail shops. "Rural momentum is clearly improving, and the correction phase has strengthened sectoral fundamentals. Most of our borrowers are women who use microfinance to start small businesses, from tailoring and livestock rearing to setting up local shops."

With rural credit appetite improving and lenders recalibrating strategies, industry leaders believe the microfinance sector is now entering a more stable and socially impactful growth phase and will play a key role in advancing rural economic development. (ANI)

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