Chapter 2 Section 2.3.1Loan Outstanding (in ₹ Cr.)

Every lender category except Other lenders recorded a year-on-year decline in loan outstanding, with Banks contracting the steepest at -29%.

Read More

Loan Outstanding (in ₹ Cr.) across micro-lenders

2.3.1 Loan Outstanding (in ₹ Cr.)

Figure 2.3: Loan Outstanding (in ₹ Cr.) across micro-lenders
Figure 2.3

The sector’s loan outstanding contracted from ₹3,74,006 Cr. in March 2025 to ₹3,33,907 Cr. in March 2026, reflecting a decline of 11%. Every lender category except Other lenders recorded a year-on-year decline in loan outstanding, though the magnitude of decline varied sharply: Banks contracted by (-29%), the steepest among all categories, followed by SFBs at (-13%), while NBFC-MFIs and NBFCs contracted by only (-1%) and (-0.1%), respectively. One of the probable reasons for the decline in loan outstanding is the imposition of stricter guardrails by the SRO’s in response to overleveraging, which caused the micro-lenders to tighten eligibility and reduce disbursements, thereby shrinking the overall loan outstanding. The second reason is due to the lack of adequate funding support, which was addressed to some extent towards the end of the year, and may not have been reflected in the performance of FY 2025-26. The Government of India (GOI) introduced a guarantee scheme called Credit Guarantee Scheme for MFI 2.0 (CGSMFI 2.0), similar to the one introduced during COVID-19, with a higher corpus of ₹20,000 crore and a separate quota for small, medium and other MFIs.

Box 2.1: CGSMFI-2.0: Strengthening Credit Flow to Microfinance Institutions

Access to institutional funding remains critical for Microfinance Institutions (MFIs), particularly small and medium-sized institutions. During periods of funding constraints, Sa-Dhan, as an industry association and RBI-recognised SRO, consistently engaged with policymakers, banks, financial institutions and other stakeholders to highlight challenges in accessing bank finance, articulate the sector’s funding needs, and promote a conducive funding and regulatory environment to strengthen lender confidence and improve credit flow. Sa-Dhan also strongly recommended a dedicated allocation within the guarantee mechanism for small and medium-sized MFIs, ensuring that institutions facing greater challenges in accessing institutional and collateral-based credit can adequately benefit from the guarantee.

These efforts helped build a stronger case for a risk-sharing mechanism for lending to MFIs. The Government of India subsequently introduced CGSMFI-2.0 on 20 March 2026, with the objective of providing guarantee cover to eligible lending institutions for finance extended to NBFC-MFIs and MFIs for on-lending to small borrowers. The scheme envisaged facilitating credit flow of up to ₹20,000 crore to the sector.

Under the scheme, the guarantee coverage varies according to the size of the NBFC-MFI/MFI. Small institutions with AUM below ₹500 crore receive 80% guarantee cover, medium institutions with AUM of ₹500 crore to below ₹2,000 crore receive 75%, and large institutions with AUM of ₹2,000 crore and above receive 70%. The financial assistance is subject to an overall ceiling of 20% of the institution’s AUM. Following the June 2026 revision, the maximum loan amount for large NBFC-MFIs/MFIs was increased from ₹300 crore to ₹1,000 crore.

The scheme also provides for an interest-rate cap. Loans from MLIs to NBFC-MFIs/MFIs are capped at one-year MCLR or EBLR plus 2% per annum. For onward lending to small borrowers, the interest rate is capped at 1% below the institution’s average lending rate during the preceding six months. The guarantee fee is 0.50% per annum, calculated on the sanctioned amount during the first year and on the outstanding amount thereafter.

An important feature of CGSMFI-2.0 is its focus on improving access to funding for smaller and mid-sized MFIs. The scheme requires MLIs to allocate at least 5% of the total sanctioned amount to small NBFC-MFIs/MFIs with AUM below ₹500 crore and at least 10% to medium-sized institutions with AUM between ₹500 crore and ₹2,000 crore. This provision is intended to broaden the reach of the guarantee facility beyond the larger institutions.

As of 10 June 2026, loans aggregating ₹770 crore had been sanctioned under the scheme. The Government subsequently extended the validity of CGSMFI-2.0 up to 31 August 2026, or until guarantees amounting to ₹20,000 crore were issued, whichever was earlier.

CGSMFI-2.0 thus provides a risk-sharing mechanism between lenders and the guarantee framework, with the potential to improve liquidity and diversify funding sources for MFIs, particularly smaller and mid-sized institutions. Its effectiveness will depend on the extent to which eligible institutions are able to access the facility and translate the additional funding into responsible and sustainable lending to small borrowers.