Bharat Microfinance Report 2025

Indian Microfinance: Resilience, Responsibility & Inclusion

The State of Microcredit: A Panoramic View of the Microfinance Sector

2.1 Sector Overview clickhere

2.1.1 Key Performance Highlights

2.2 Loan Accounts clickhere

2.3 Loan Outstanding Analysis clickhere

2.4 Asset Quality and Delinquency Overview clickhere

2.5 Disbursement Overview clickhere

Mapping Microfinance Expansion Across India

3.3 Client Outreach of MLIs clickhere

3.4 Loan Outstanding clickhere

3.5 Distribution of Loans by Purpose clickhere

3.6 Going Beyond Credit: Credit-Plus Activities of MLIs clickhere

3.7 Conclusion clickhere

Performance of NBFC-MFIs in Microfinance

Operational Eminence of Micro Lending Institutions

4.1 Productivity of Workforce clickhere

4.2 Asset Quality in MLIs

4.3 Income and Expenditure Analysis clickhere

4.4 Self-Sustainability and Profitability clickhere

4.5 Balance Sheet and Capital Structure clickhere

SHG-Bank Linkage Programme: Moving from Financial Inclusion to overall wellbeing

5.3 SHG-BLP Activity since Inception clickhere

5.4 Joint Liability Group Financing: Complementing the SHG-Bank Linkage Channel

5.5 SHG Graduation to Enterprises clickhere

Financial Inclusion and Business Correspondent Model

Geographical Spread

Select & View Tables

Chapter 3 - Section 3.5Distribution of Loans by Purpose

Under the current regulatory framework, RBI has not prescribed any proportion for income-generating and non-income-generating lending. MLIs have, however, broadly retained the lending pattern followed earlier.

Share of MLIs’ Income Generation Loans and Non-income Generation Loans

3.5 Distribution of Loans by Purpose

Self-reported data indicate that borrowers use loans for a range of purposes. A majority of lending is directed towards income-generating activities such as agriculture, animal husbandry, trading and agro-enterprises. Loans are also used for non-income-generating purposes, including consumption, housing, education, water and sanitation, and health.

Figure 3.8 presents the distribution of lending between income-generating and non-income-generating purposes. Within income generating segment, Agriculture accounts for the largest share at 41%, followed by animal husbandry (18%), and trading (14%). Within the non-income-generating segment, the principal uses are housing, education, water and sanitation, consumption and health-related expenses.

The RBI’s recent guidelines on the reduction of qualifying asset criteria for NBFC-MFIs from 75% to 60% open up significant opportunities for the NBFC-MFIs, especially to diversify their portfolios and strengthen financial resilience. A more diversified portfolio will allow the NBFC-MFIs to better manage sector-specific shocks, such as natural disasters or socio-political disruptions that disproportionately affect low-income microfinance borrowers. By shifting a portion of lending toward less volatile segments, the NBFC-MFIs can minimise credit losses and sustain earnings across cycles. However, most of the MLIs are following a cautious approach to this new facility.

Figure 3.8: Share of MLIs’ Income Generation Loans and Non-income Generation Loans

3.5.1 Types of Income Generation Loans and their respective share

Figure 3.9: Share of MLIs’ Income Generation Loans under Different Sub-sectors as of March 2026

Figure 3.9 presents the distribution of income-generating loans across major sub-sectors. Agriculture accounts for the largest share at 41%, followed by animal husbandry at 18% and trading at 14% of the income-generating loan portfolio.

3.5.2 Types of Non-Income Generation Loans and their respective share

Figure 3.10: Share of MLIs’ Non-Income Generation Loans under Different Sub-sectors as of March 2026

Figure 3.10 shows that housing accounts for a major share of non-income-generating loans at 35%. The remaining 65% is allocated to education, consumption, health and medical needs, water and sanitation, clean energy and other purposes. These uses address essential household needs and may support household resilience and longer-term well-being.

Note: Although there could be some variance in the actual purpose for which borrowing is done, it still gives us some idea and trend as to how the funds are used by the microfinance borrowers.

Box 3.1: Data-Driven Operational Risk Assessment Framework for Risk-Based Branch Supervision in Microfinance

To ensure consistent control standards and strengthen operational resilience across its expanding branch network, Midland Microfin Limited implemented a structured Data-Driven Operational Risk Assessment Framework that evaluates every branch on a monthly basis using predefined operational risk indicators. The framework assesses portfolio quality, governance, operational controls, fraud exposure, people risk, customer protection, audit observations, and process compliance, and classifies branches into High, Medium, or Low Risk categories.

By transforming operational data into actionable risk intelligence, the framework enables early identification of emerging vulnerabilities, supports risk-based supervision, and facilitates timely management intervention. Acting as an enterprise-wide Early Warning System (EWS), it drives targeted supervisory actions, focused audits, and corrective measures for higher-risk branches while optimising the allocation of supervisory resources in line with each branch’s risk profile.

IT-Enabled Operational Enhancements (FY 2025–26)

To complement the risk framework, Midland Microfin Limited upgraded its Loan Origination System (LOS) with advanced technological controls:

API-Based Disbursement Controls: Introduced disbursement amount/loan count visibility and OTP-based authorization via SMS/Email to secure batches and improve governance.
Credit Workflow & Data Validation: Integrated enriched Credit Bureau summaries (incorporating PAN, Voter ID, phone numbers, and addresses), borrower matching analytics, and robust expense validation controls.
OCR-Based KYC Verification: Digitized document verification and KYC/bank document access to reduce manual work, accelerate customer onboarding turnaround times, and boost compliance accuracy.

Key Benefits & Strategic Outcomes

Continuous Monitoring: Monthly risk assessments enable early detection of operational vulnerabilities before they escalate.
Risk-Based Supervision: Supervisory visits, internal audits, and management oversight are dynamically allocated based on each branch’s risk profile, intensifying focus on High-Risk locations while maintaining routine checks on Low-Risk branches.
Enhanced Governance: Structured dashboards provide senior management with real-time risk visibility, supporting data-driven decisions and accountability.
Strengthened Risk Culture: Transparent categorisation encourages operational teams to strictly adhere to internal controls and risk management practices.

By combining data-driven branch risk assessments with robust IT enhancements, Midland Microfin Limited has successfully transitioned from reactive monitoring to a proactive, risk-based supervision model, optimising resources, reinforcing operational resilience, and safeguarding customer interests.

Courtesy: Midland Microfin Ltd.

List of Abbreviations

#	Abbreviation	Full Form
1	AA	Account Aggregator
2	ABCO	Average Borrower per Credit Officer
3	ABS	Active Borrowers per staff
4	AI	Artificial Intelligence
5	API	Application Programming Interface
6	APY	Atal Pension Yojana
7	AS	Accounting Standards
8	ATS	Average Ticket Size
9	AUM	Assets Under Management
10	BC	Business Correspondent
11	BF	Business Facilitators
12	BSBDA	Basic Savings Bank Deposit Account
13	CA	Chartered Accountant
14	CAGR	Compounded Annual Growth Rate
15	CAR	Capital Adequacy Ratio
16	ChatGPT	Chat Generative Pre-trained Transformer
17	CICs	Credit Information Companies
18	CLA	Co-Lending Arrangement
19	CLM	Co-Lending Model
20	CMI	Credit Market Indicator
21	CRPs	Community Resource Persons
22	CSA	Climate Smart Agriculture
23	CSR	Corporate Social Responsibility
24	D/E	Debt/Equity
25	DAY NRLM	Deendayal Antyodaya Yojana-National Rural Livelihood Mission
26	DAY NULM	Deendayal Antyodaya Yojana-National Urban Livelihoods Mission
27	DAY-NRLM	National Rural Livelihood Mission
28	DUGJY	Deen Dayal Upadhyaya Gram Jyoti Yojana
29	DEA	Depositor Education and Awareness
30	DoP	Department of Post
31	DPD	Days Past Due
32	ECB	External Commercial Borrowings
33	ECL	Expected Credit Loss
34	EDP	Enterprise Development Programmes
35	EIP	European Investment Plan
36	eKYC	Electronic Know Your Customer
37	EMI	Equated Monthly Instalment
38	ESG	Environmental, Social, and Governance
39	EV	Electric Vehicle
40	FACE	Fintech Association for Consumer Empowerment
41	FIs	Financial Institutions
42	FPOs	Farmer Producer Organizations
43	FSI	Financial Services Industry
44	FSSAI	Food Safety and Standards Authority of India
45	FY	Financial Year
46	GCC	General Credit Card
47	GDP	Gross Domestic Product
48	GJ	Gigajoules
49	GPFI	Global Partnership for Financial Inclusion
50	GRIP	Graduated Rural Income Generation Project
51	GST	Goods and Services Tax
52	HR	Human Resource
53	ICT	Information and Communication Technology
54	ID	Identity Document
55	IMF	International Monetary Fund
56	IRDAI	Insurance Regulatory and Development Authority of India
57	IVR	Interactive Voice Response
58	JEE	Joint Entrance Examination
59	JLG	Joint Liability Group
60	JLGPls	Joint Liability Groups Promoting Institutions
61	KCC	Kisan Credit Card
62	KFS	Key Facts Statement
63	KYC	Know Your Customer
64	LEDP	Livelihood and Enterprise Development Programme
65	LSPs	Loan Service Providers
66	MACS	Mutually Aided Cooperative Societies
67	MEDP	Micro Enterprise Development Programme
68	MGNREGA	Mahatma Gandhi National Rural Employment Guarantee Act
69	MLIs	Micro Lending Institutions
70	MMU	Mobile Medical Unit
71	MoRD	Ministry of Rural Development
72	MoSPI	Ministry of Statistics and Programme Implementation
73	MoU	Memorandum of Understanding
74	MSME	Micro, Small, and Medium Enterprises
75	MUDRA	Micro Units Development & Refinance Agency Ltd.
76	NABARD	National Bank for Agriculture and Rural Development
77	NBFCs	Non-Banking Financial Companies
78	NCD	Non-Convertible Debentures
79	NCDs	Non-Communicable Diseases
80	NDA	National Defence Academy
81	NEET	National Eligibility cum Entrance Test
82	NFHS	National Family Health Survey
83	NFP	Not-for-Profit
84	NGO	Non-Governmental Organizations
85	NOF	Net Owned Fund
86	NPA	Non-Performing Asset
87	NPS	National Pension System
88	NRHM	National Rural Health Mission
89	NRLM	National Rural Livelihood Mission
90	NSSO	National Sample Survey Office
91	OCEN	Open Credit Enablement Network
92	OD	Overdraft
93	OED	—
94	OECD	Organisation for Economic Co-operation and Development
94	ONDC	Open Network for Digital Commerce
95	OPEC	Organization of the Petroleum Exporting Countries
96	OSS	Operational Self Sufficiency
97	PACS	Primary Agricultural Cooperative Societies
98	PAN	Permanent Account Number
99	PAR	Portfolio at Risk
100	PFRDA	Pension Fund Regulatory and Development Authority
101	PIB	Press Information Bureau
102	PLFS	Periodic Labour Force Survey
103	PMFBY	Pradhan Mantri Fasal Bima Yojana
104	PMJAY	Pradhan Mantri Jan Arogya Yojana
105	PMJDY	Pradhan Mantri Jan Dhan Yojana
106	PMJJBY	Pradhan Mantri Jeevan Jyoti Bima Yojana
107	PMMY	Pradhan Mantri Mudra Yojana
108	PMSBY	Pradhan Mantri Suraksha Bima Yojana
109	POs	Producer Organizations
110	PSBs	Public Sector Banks
111	QoQ	Quarter on Quarter
112	QR	Quick Response
113	RBI	Reserve Bank of India
114	RCBs	Rural Cooperative Banks
115	RE	Regulated Entity
116	ROA	Return on Assets
117	ROE	Return on Equity
118	RRBs	Regional Rural Banks
119	SC/ST	Scheduled Castes/Scheduled Tribes
120	SDGs	Sustainable Development Goals
121	SFB	Small Finance Bank
122	SGSY	Swarnajayanti Gram Swarozgar Yojana
123	SHG	Self-Help Group
124	SHG-BLP	Self-Help Group Bank Linkage Programme
125	SHPIs	Self Help Group Promoting Institutions
126	SIDBI	Small Industries Development Bank of India
127	SME	Small and Medium-sized Enterprises
128	SRLM	State Rural Livelihoods Mission
129	SROs	Self-Regulatory Organizations
130	TLE	Transfer of Loan Exposures
131	UI	User Interface
132	ULI	Unified Lending Interface
133	UPI	Unified Payments Interface
134	US	United States
135	UTs	Union Territories
136	WASH	Water, Sanitation, and Hygiene
137	WEAF	Women Enterprise Acceleration Fund
138	WE-LEAD	Women Entrepreneurship Livelihood Enhancement and Development
139	YEP	Youth Entrepreneurship Program
140	YoY	Year on Year

Glossary

ABCO

ABCO is an acronym for Active Borrower per Credit Officer. It is a key operational metric in microfinance that measures the client-to- credit officer ratio, indicating the average number of active borrowers managed by each credit officer. It is also commonly referred to as the Case Load. This will also indicate the efficiency of operation, which can impact the operational expenses

Active Borrowers

The individuals whose loan accounts are current have an outstanding loan balance with the MFI, and are under repayment obligation. Individuals who have multiple loans with an MFI should be counted as a single borrower.

Assets Under Management (AUM)

Assets Under Management (AUM) refers to the total value of client loan portfolios that an institution actively manages, including both on- book and off-balance sheet (off-BS) portfolios. This includes all outstanding principal from current, delinquent, and renegotiated loans, but excludes loans that have been written off, on the own book, as well as those securitized or direct assignment assets resting on the securitization partners. AUM reflects the overall scale of financial assets the institution is responsible for, regardless of ownership.

Average Loan Size

Average Loan size represents the client-per- capita loan amount. It is calculated as the Loan portfolio divided by the number of clients of an MFI. It is a key indicator used to assess the scale and depth of credit outreach.

Average Ticket Size (ATS)

Average Ticket Size (ATS) refers to the average loan amount disbursed per loan during a specific period of time. This metric is typically calculated for a defined time period such as monthly, quarterly, or annually, depending on the reporting or analysis needs. It is calculated as the Total Loan Amount Disbursed divided by the Total Number of Loans Disbursed.

Borrowing Cost

The cost of borrowing refers to the total charge incurred for taking a debt obligation, which includes interest payments as well as any additional financial fees (such as processing fees, service charges, insurance premiums, or administrative costs). A percentage of such cost over the total amount borrowed indicates the rate of such cost.

Capital Adequacy Ratio

Capital Adequacy is a key financial indicator used to measure the solvency and risk-bearing capacity of Microfinance Institutions (MFIs). It reflects the institution’s ability to absorb potential losses and protect depositors and creditors. It is the proportion of the equity capital and free reserves or own funds held by an MFI against its total risk-weighted assets. A higher Capital Adequacy Ratio indicates stronger financial health and a greater ability to withstand credit or operational shocks. A minimum requirement of an NBFC-MFI is 15%.

Capital to Total Assets

The Capital to Total Assets ratio is a measure of an institution’s financial strength and stability. It indicates the proportion of an institution’s own capital (or net worth) relative to its total assets.

Co-lending

Co-lending is a financial arrangement in which two or more regulated entities join hands to extend a loan, by taking a fixed share by each entity. It will reflect on the books of all the partnering institutions. Typically, a bank and a non-bank financial institution (NBFC or NBFC-MFI) or HFC can join together to extend credit to a borrower and a prefixed ratio at a weighted average interest rate. The partnership combines the strengths of both entities.

Debt-Equity Ratio

The Debt-Equity Ratio is a key financial metric that indicates the proportion of total debt to total equity held by an institution at a given point in time. It reflects the degree to which an organization is financing its operations through borrowed funds versus own funds or free capital. It also indicates the leverage of capital of an entity

Debt Funding

Debt Funding refers to the portion of a financial institution’s loan portfolio that is financed through external borrowings, rather than from internal accruals or equity capital. It reflects the extent to which an institution relies on borrowed funds, such as loans from banks, financial institutions, or capital markets, to support its lending activities.

External Cost

External Cost refers to the finance cost incurred by Microfinance Institutions (MFIs) on the borrowed funds from external sources, primarily banks and financial institutions. This cost is largely determined by the prevailing lending rates of banks, and as such, it is beyond the direct control of MFIs.

Finance Cost

Finance Cost refers to the actual interest and other financial expenses incurred by a Microfinance Institution (MFI) on the average borrowed funds that remain outstanding during a given period. This metric is crucial for evaluating the cost-efficiency and funding strategy of MFIs, and plays a key role in determining their lending rates and financial sustainability.

Financial Inclusion

Financial Inclusion refers to the delivery of affordable, accessible, and appropriate financial services to disadvantaged and low-income segments of society who are traditionally excluded from the formal financial system. These services include savings, credit, insurance, remittances, pensions, banking services, etc.

Joint Liability Groups

Groups of 4 to 8 borrowers come together to borrow from a financial institution under a joint liability concept, as per which there is an inter se agreement between the members whereby each borrower is liable to repay the loan of each member of the group.

Margin

Margin refers to the difference between the total yield on the loan portfolio and the finance cost incurred to fund that portfolio. It represents the net earnings a Microfinance Institution (MFI) makes from its lending activities before operating expenses and provisions.

Managed Loan Portfolio

Managed Loan Portfolio refers to the loan assets originally originated by Microfinance Institutions (MFIs) but subsequently sold or assigned to a third party, such as a bank, to improve liquidity. Despite the sale, MFIs continue to manage these loans, including activities like collection of repayments and servicing the accounts on behalf of the purchasing institution. This arrangement helps MFIs free up capital while maintaining their relationship with borrowers and ensuring ongoing portfolio management.

Non-Performing Assets (NPA)

A Non-Performing Asset (NPA) is a debt obligation where the borrower has failed to honour repayment commitments, either interest, principal, or both, to the designated lender for a specified period, typically 90 days or more. As a result, the NPA ceases to generate income for the lender in the form of interest or principal repayments. NPAs represent credit risk and affect the financial health and asset quality of lending institutions.

On-book Portfolio (Net Loan Portfolio)

On-book Portfolio (Net Loan Portfolio) refers to the total outstanding principal of all active client loans recorded on the institution’s balance sheet. This includes current, delinquent, and renegotiated loans, but excludes loans that have been written off. Interest receivable is not included, except for Microfinance Institutions (MFIs) that report under Ind-AS, where such interest is recognized as part of the outstanding amount.

Operating Self Sufficiency (OSS)

Operating Self Sufficiency (OSS) measures the extent to which a Microfinance Institution’s (MFI’s) income from operations and investments is sufficient to cover its operating expenses, like operating costs, loan loss provisions, and finance costs (cost of borrowed funds) incurred for conducting the operations. An OSS ratio of 100% or above indicates that the MFI is generating enough income to sustain its operations without requiring subsidies or external support, reflecting financial viability and sustainability.

Outstanding Borrowings

Outstanding Borrowings refer to the total amount of funds that an entity has borrowed and has not yet repaid as of a specific reporting date. This includes all short-term and long- term debt obligations, such as loans, credit lines, bonds, and other forms of financing, net of any repayments made.

Portfolio Quality

Portfolio Quality refers to the level of credit risk present in a loan portfolio, indicating the likelihood of default by borrowers. A high- quality portfolio contains a lower amount of risk, characterized by timely repayments and minimal defaults. Maintaining good portfolio quality is crucial for the financial health and sustainability of lending institutions.

Portfolio at Risk (PAR)

Portfolio at Risk (PAR) indicates the proportion of outstanding amounts of all loan accounts having past due/arrears to the total outstanding loan. In general, PAR 30 refers to the percentage of the loan portfolio that remains unpaid 30 days or more beyond the due date, which would be used as a measure to assess the portfolio quality. Loans with dues overdue by 90 days or more (PAR 90) are generally classified as Non-Performing Assets (NPAs).

Qualifying Assets

Qualifying Assets are loan portfolios created by MFIs adhering to certain conditions as prescribed by RBI, to make the MFIs eligible to be called as MFIs and to raise loans from banks under the Priority Sector Advances Scheme (as per recent RBI norms). For an MFI, 60% of the total ass ets need to be under this category

Return on Assets (RoA)

Return on Assets (RoA) is the universally accepted profitability measure, which, in essence, is the percentage net income earned out of total average assets deployed by MFIs during a given period, typically one financial year. It is a widely used profitability metric that measures how efficiently an institution utilizes its total assets to generate net income.

Return on Equity (RoE)

Return on Equity (RoE) is a key profitability indicator that measures the net income earned by a Microfinance Institution (MFI) relative to its average equity during a given period, typically one financial year. RoE reflects how efficiently an MFI is using its own capital (equity) to generate profits.

Self Help Groups (SHGs)

SHGs refer to groups of 10-20 persons coming together to form an informal community-based institution to meet their common financial and social needs. Most of the SHGs are formed by women from a homogeneous background. SHGs collect regular savings from members and use them for internal lending, before accessing higher amounts from banks.

SHG Bank Linkage Programme (SBLP)

SHGs are linked to mainstream banks for keeping their surplus savings and also to obtain loans. The loan is often given as a multiplier of the total internal savings accrued in a group. It is considered to be an effective strategy to ensure financial inclusion for the unbanked poor people.

Surplus

Surplus refers to the excess of income over expenses. It is calculated as the difference between the yield (i.e., income earned from the loan portfolio) and the total cost (including finance cost, operating expenses, and provisions). It can also be referred to as net margin.

Yield on Portfolio

Yield represents total income from microcredit operation - interest income, processing fee/ service charge – earned out of the average loan portfolio outstanding for a specific period. It does not include investment income. It is a good proxy/surrogate for loan interest rates. It serves as a useful proxy for the effective loan interest rate charged to clients and is often used to assess the pricing structure and earning capacity of the loan portfolio.