Chapter 3A - Section 3a.10Funding

The funding pattern indicates a strong shift toward private sector banks and other diversified financial sources as institution size increases. Overall funding was ₹1,05,208, with Private Sector Banks contributing the largest share (₹51,548), followed by Any Others (₹17,910) and Public Sector Banks (15,893). Very Large institutions accounted for the bulk of total funding (₹86,532; over 82%), with Private Sector Banks contributing ₹44,462 and Any Others ₹16,031, highlighting the greater access to diversified and larger funding sources.

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Performance of NBFC-MFIs in Microfinance

3.A.10 Funding

The funding pattern indicates a strong shift toward private sector banks and other diversified financial sources as institution size increases. Overall funding was ₹1,05,208, with Private Sector Banks contributing the largest share (₹51,548), followed by Any Others (₹17,910) and Public Sector Banks (15,893). Very Large institutions accounted for the bulk of total funding (₹86,532; over 82%), with Private Sector Banks contributing ₹44,462 and Any Others ₹16,031, highlighting the greater access to diversified and larger funding sources.

Figure 3 A.4: Source-wise Funds received (₹ in Cr) by different sizes of NBFC-MFIs in FY 2025-26

Box: 3A.2 SANKALP 3.0: Guardrails for Micro Lending Institutions (MLIs)

The microfinance sector went through some stressful times in the last few months. Sensing the stress in the microfinance sector, Sa-Dhan convened a meeting of CEOs of MFIs and other institutions on 10th April 2026 in Mumbai, wherein it was decided to continue with the SANKALP 2.0 guardrails for another year.

Three key issues to be addressed through guardrails are:

  • Pricing: Transparent and fair pricing of loans
  • Over-indebtedness: Control Over-lending and overexposure.
  • Discipline: Adherence to the Code of Conduct and Responsible lending practices.

The new set of guardrails in the form of SANKALPS (combining both the Sankalps) is as under:

Over Indebtedness

Guardrail 1: The number of lenders for microfinance loans shall not exceed 3 (THREE), from all types of lenders.

Guardrail 2: While considering a fresh loan, the combined exposure of a household in microfinance and unsecured retail loans shall not exceed ₹2,00,000, subject to RBI-prescribed repayment obligation cap of 50% of the household’s monthly income.

Guardrail 3: No fresh loan to the same borrower whose existing loan is still continuing as outstanding, before 12 months of disbursement or has not completed 50% repayment

Guardrail 4: Every microfinance loan should mandatorily do a comprehensive credit bureau check at the household level.

Pricing of Loans

Guardrail 5: Lending Institutions should follow transparent practices in deciding the pricing of loans. Components of the rate of interest (Cost of Funds, Opex Cost, Risk Margin and Margin) should be well defined and in compliance with guidelines issued from time to time. The Rate of Interest should be justifiable and approved by the Board of lending institutions.

Guardrail 6: Processing fee to be capped at 1.5% (excluding applicable taxes)

Code of Conduct and Discipline

Guardrail 7: No loan to be given to clients who is in default of any loan amount, and such due shall not exceed ₹3,000 and remain unpaid for more than 60 days (60+ dpd). Efforts should be made to bring down the norm of the delinquency level to 30+ dpd, to improve the hygiene of loan assets.

Guardrail 8: The MFIs should move towards making PAN Card as the first ID for KYC and Credit bureau reporting. An aspirational level of 30% coverage through PAN may be attempted within a year time.

Guardrail 9: The end use of loans to be verified to ensure proper utilization of loans.

Guardrail 10: Do a mandatory employee bureau check before hiring. Any staff hired from the microfinance industry should only be given three months’ time to produce a relieving letter. The lending institutions should also not withhold the relieving letter of any staff member without a justifiable reason.

Conclusion

NBFC-MFIs have emerged as a critical pillar in expanding financial inclusion, particularly for rural and women borrowers. Their outreach has expanded with increased geographical coverage, expanded branch networks, and significant client growth. However, FY2025-26 highlighted stress in portfolio quality, with rising PAR levels and substantial write-offs, reflecting heightened credit risk. Despite strong disbursement volumes and increasing asset size, sustainability remains challenged by high operating costs, staff attrition, and pricing pressures. In the future, balancing growth with prudent risk management and ensuring affordable credit will be vital for strengthening resilience and maintaining their role in inclusive financial development.

Overall, NBFC-MFIs continued to demonstrate strong scale and outreach, with Very Large institutions accounting for the majority of portfolio, clients, staff and disbursements. The sector maintained a largely stable branch network and expanded into new states. Larger institutions benefited from lower funding and operating costs, supporting relatively lower interest rates and highlighting the benefits of scale and operational efficiency.