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 4 - Section 4.5 - SubSection 4.5.2.iiiDebt Funding

Since most of the MLIs are not allowed to mobilise deposits, debt funding becomes very important for microfinance operations. The funding structure of microfinance institutions is a key determinant of their liquidity, cost of funds and capacity to sustain lending operations. Given the sector’s reliance on external funding to support loan portfolios, the composition of liabilities provides insight into the extent of funding diversification and institutions’ access to different sources of finance. Examining the mix of borrowings, debt instruments, bonds, ECBs and other sources helps assess the sector’s funding resilience and ability to manage changing market conditions and funding costs.

Sources of funding based on types of instruments

Sources of funding based on Institution types

Outstanding Borrowings (₹ in Cr.) – Yearly Trend

Outstanding Borrowings (₹ in Cr.) – MLI-Category-wise Break-up of 2026 (Legal Form)

Outstanding Borrowings (₹ in Cr.) – MLI-Category-wise Break-up of 2026 (Portfolio Size)

Fund Received during the year and MLI-Category-wise Break-up of 2026

4.5.2.iii Debt Funding

Figure 4.5.5: Sources of funding based on types of instruments

The funding structure indicates that borrowing from banks, DFIs and other financial institutions, remains the dominant source of external funding, accounting for 65% of total funds. This is followed by NCDs at 13%, while ECBs and other sources each contribute 9%. Subordinated debt accounts for 4%. This heavy reliance on borrowing highlights the sector’s continued dependence on bank and institutional finance to support lending operations. At the same time, the presence of ECBs, NCDs and other market-based instruments indicates some diversification of funding sources. A broader funding mix can help institutions manage liquidity and funding costs, although access to market-linked sources may vary significantly by institutional size and credit profile. Overall, the funding structure underscores the importance of diversifying liabilities and maintaining stable, cost-efficient sources of finance, particularly for smaller institutions that may have more limited access to capital markets.

The funding distribution by source indicates that the private sector is the largest provider of funds to microfinance institutions, accounting for 37% of total funding. This is followed by the public sector and other categories, contributing 15%, each. While NCDs account for 14%. NBFCs contribute a further 6%, with NABARD at 3%, MUDRA at 1%, and other financial institutions at 7%. SIDBI sources account for the remaining 2%.

Figure 4.5.6: Sources of funding based on Institution types

The composition reflects a diversified funding ecosystem, with both banks and financial institutions playing an important role alongside market-based debt instruments. The substantial private-sector contribution highlights the importance of commercial lenders in supporting microfinance operations. In contrast, the combined contribution of public-sector institutions and development-oriented lenders such as SIDBI and NABARD provides an important channel for institutional and potentially longer-term funding. The 14% share of NCDs also indicates growing relevance of market-based funding. Overall, the distribution suggests that the sector has access to multiple funding channels, which can help institutions manage liquidity and reduce dependence on any single source. At the same time, the dependence on borrowing still very high and the sector need to move into other market instruments to have better access to funding without relying on borrowing.

Borrowing outstanding has expanded substantially over the past decade, rising from ₹44,822 crore in 2016 to ₹1,29,128 crore in 2026. After a decline to ₹33,923 crore in 2017, borrowings increased steadily through 2020, with a temporary moderation in 2021. The pace of growth accelerated significantly thereafter, reaching ₹1,13,332 crore in 2023 and peaking at ₹1,30,044 crore in 2024. Borrowings fell sharply to ₹85,877 crore in 2025, then recovered strongly in 2026 to ₹1,29,128 crore, a 50.4% year-on-year increase.

The recovery of microlending towards the end of FY 2026 reflects on the renewed access to external funding following the contraction observed in 2025. The introduction of Credit Guarantee Scheme for MFI 2.0 in March 2026, may not have been made use of in FY 2026. But provide a positive sentiment to the funders.

The near return to the 2024 peak also suggests institutions have rebuilt their borrowing capacity to support lending operations and liquidity requirements. This trend aligns with the broader recovery in the sector’s outstanding portfolio and indicates continued reliance on external borrowings as the principal source of funding. At the same time, significant year-to-year fluctuations highlight the importance of maintaining diversified, stable funding channels to manage liquidity and funding-cost risks.

Figure 4.5.7: Outstanding Borrowings (₹ in Cr.) – Yearly Trend and MLI-Category-wise Break-up of 2026

The distribution of borrowing outstanding in 2026 shows a strong concentration among NBFC-MFIs and the largest institutions. By legal form, NBFC-MFIs account for ₹1,25,694 crore, representing the overwhelming majority of total borrowings, while NBFCs account for ₹2,670 crore and other legal forms contribute relatively small amounts. By portfolio size, institutions with portfolios above ₹5,000 crore hold ₹94,680 crore of borrowings, followed by the ₹2,000–5,000 crore category at ₹21,726 crore and the ₹500–2,000 crore category at ₹9,581 crore. Together, institutions ‘above ₹2,000 crore’ account for most outstanding borrowings.

This concentration reflects larger MLIs’ scale of operations and greater access to institutional funding. Larger institutions are likely to have stronger credit profiles, established lender relationships and greater ability to access diverse funding instruments. In contrast, smaller institutions have significantly lower outstanding borrowings, which may reflect smaller portfolios and comparatively limited access to large-scale institutional finance. The distribution also reinforces the sector’s dependence on NBFC-MFIs as the principal borrowers and highlights the need to diversify funding and improve access to competitive finance for smaller and mid-sized institutions.

Borrowing Received

The microfinance sector received ₹1,07,081 crore by way of borrowings during FY 2026, with NBFC-MFIs accounting for ₹1,05,208 crore, or nearly 98% of total borrowing received. NBFCs received ₹1,553 crore, while other legal forms accounted for relatively small amounts. The concentration is similarly pronounced by institutional size, with institutions having portfolios above ₹5,000 crore receiving ₹86,532 crore, followed by the ₹2,000–5,000 crore category at ₹12,789 crore and the ₹500–2,000 crore category at ₹6,391 crore.

Figure 4.5.8: Fund Received during the year and MLI-Category-wise Break-up of 2026

The distribution indicates that larger institutions continue to attract most fresh debt funding, reflecting that the small and medium ones have still to gain the confidence of the funders. The CGSMFI 2.0 is likely to change this sentiment. The strong concentration of borrowing among larger NBFC-MFIs also reflects the sector’s structure, where these institutions account for most lending activity. Overall, the data indicate strong mobilisation of debt funding in FY 2026, while highlighting the continuing need to broaden access to stable and competitively priced debt for smaller and mid-sized institutions.

Table 4.5.1 and Figure 4.5.9 below illustrate the debt received by MLIs from various source types.

Table 4.5.1: Source wise fund received (in ₹ Cr.) by different entities during the year

	Public Sector Banks	Private Sector Banks	SIDBI	NABARD	NBFCs	Other Fin. Ints.	NCDs	Any Others
NBFC-MFIs	15,893	51,548	1,214	1,558	7,075	2,643	7,366	17,910
NBFCs	70	220	-	-	421	23	194	626
Pvt. Ltd. Com.	2	1	-	-	37	27	-	5
Sec. 8 Coms	8	-	2	-	1	8	0.20	1
Others	37	4	0.25	-	0.30	107	-	79
Total	16,010	51,773	1,217	1,558	7,535	2,808	7,560	18,621

Figure 4.5.9 : Source-wise Share of Loans lent among Different Legal Forms of MLIs during 2025-26

Major lenders to MLIs during 2025-26

The tables below list the major lenders (based on the information received for the top 10 lenders for each institution) that provide debt funds to MLIs.

Table 4.5.2 (a): List of banks that lent to MLIs as of March 2026 (Based on the Top 10 lenders out of the total)

Sl. No.	Name of Lenders	No. of MLIs
1	Assam Cooperative Apex Bank (ACAB)	1
2	Assam Gramin Vikash Bank	1
3	AU Small Finance Bank	3
4	Axis Bank Ltd.	10
5	Bandhan Bank Ltd.	8
6	Bank of Baroda	10
7	Bank of Maharashtra	6
8	Canara Bank	2
9	City Union Bank	1
10	CSB Bank Ltd.	1
11	DBS Bank India Ltd.	2
12	DCB Bank Ltd.	4
13	District Central Co-operative Bank	1
14	Equitas Small Finance Bank	1
15	ESAF Small Finance Bank	1
16	Federal Bank Ltd.	7
17	HDFC Bank Ltd.	3
18	HSBC Bank Ltd.	7
19	ICICI Bank Ltd.	8
20	IDBI Bank Ltd.	4
21	IDFC First Bank Ltd.	18
22	Indian Bank	1
23	Indian Overseas Bank	7
24	IndusInd Bank Ltd.	2
25	Jana Small Finance Bank	6
26	Karur Vysya Bank	3
27	Kotak Mahindra Bank Ltd.	2
28	NABARD	1
29	NE Small Finance Bank	1
30	Pudhuvai Bharathiyar Grama Bank	1
31	Punjab & Sind Bank	1
32	RBL Bank Ltd.	3
33	REPCO Bank	1
34	SBM Bank Ltd.	2
35	Shivalik Small Finance Bank	1
36	SIDBI	9
37	Standard Chartered Bank	4
38	State Bank of India	21
39	State Bank of Mauritius	2
40	Suryoday Small Finance Bank	1
41	Tamil Nadu Grameen Bank	1
42	The Assam Co-operative Apex Bank Ltd.	1
43	UCO Bank Ltd	4
44	Union Bank of India	9
45	West Bengal Gramin Bank	2
46	Yes Bank Ltd.	6

Table 4.5.2 (b): List of other lenders who lent to MLIs as of March 2026 (Based on the Top 10 lenders out of the total)

Sl. No.	Name of Lenders	No. of MLIs
1	AK Capital Services Ltd.	1
2	Ambium Finserve Pvt. Ltd.	1
3	Annapurna Finance Pvt. Ltd.	4
4	Archbridge Capital Pvt. Ltd.	1
5	Arohan Financial Services Ltd.	20
6	Assam Finance Corporation (AFC)	4
7	Asvanta Financial Consultants Pvt. Ltd.	2
8	Aurukshaya Consultants Pvt. Ltd.	1
9	Avanti Finance Pvt. Ltd.	2
10	Baid Finserv Ltd.	2
11	Bajaj Finance Ltd.	1
12	Barclays Bank PLC	1
13	Blacksoil Capital Pvt. Ltd.	3
14	Blue Orchard Microfinance Fund	2
15	Carron Capital LLP	1
16	Caspian Investments Pvt. Ltd.	1
17	Concard Financiers Pvt. Ltd.	1
18	Creation Investments Capital Management	1
19	Electronica Finance Ltd.	1
20	Finstars Capital Ltd.	1
21	Floras	1
22	FMO	1
23	Fuherer Capital Pvt. Ltd.	1
24	FWWB	18
25	Global Gender Smart Fund (Incofin)	1
26	Godavari Urban Multistate Credit Co-operative Society	1
27	Gosree Finance	1
28	Grip Invest Technologies Pvt. Ltd.	3
29	Hero FinCorp Ltd.	1
30	Hindon Mercantile Ltd.	1
31	Hinduja Leyland Finance	1
32	IBL Finance Ltd.	3
33	IFMR Fimpact	1
34	IIX Global	1
35	InCred Financial Services Ltd.	2
36	Infina Finance Pvt. Ltd.(IFPL)	1
37	IRIS	1
38	Jackson Commercial Pvt. Ltd.	1
39	Janasha Finance Pvt. Ltd.	1
40	Jeevan Utthan Financial Services Pvt. Ltd.	2
41	Kaleidofin Capital Pvt. Ltd.	4
42	Kamdhenu Financial Services Pvt. Ltd.	1
43	Karnataka State Financial Corporation	1
44	Kashi Vishwanatha Vidya Samasthe	1
45	Kiara Microcredit	1
46	Kissandhan Agri Financial Services Pvt. Ltd.	2
47	Kiyansh Finance Pvt. Ltd.	2
48	Kula International	1
49	Lord Fincap Ltd.	1
50	Maanaveeya Development & Finance Pvt. Ltd.	6
51	Manappuram Finance Ltd	1
52	MAS Financial Services Ltd.	13
53	Microfinance Solidaire	1
54	MILAAP	3
55	Money Wise Financial Services Pvt. Ltd.	2
56	Moringway	1
57	Mufin Green Finance Ltd.	1
58	Muthoot Microfin Ltd.	1
59	NABFINS Ltd.	3
60	NABKISAN Finance Ltd.	2
61	Naman Finlease Ltd.	1
62	National Cooperative Development Corporation (NCDC)	2
63	NEDFi	7
64	Neo Markets Services Pvt. Ltd.	1
65	Nipha Finance Pvt. Ltd.	1
66	NKC Finance Pvt. Ltd.	2
67	Northern Arc Capital Ltd.	13
68	Nova Vyapar Pvt. Ltd.	1
69	OXY Venture	1
70	Oxyzo Financial Services Ltd.	3
71	PAFT Finance Ltd.	1
72	Pagasa Consultancy Pvt.Ltd.	1
73	Phillip Capital	1
74	Pinoy Consultancy Pvt. Ltd.	1
75	Piramal Finance Ltd.	4
76	Rajputana Investment and Finance Ltd.	1
77	RAR Fincare Ltd	7
78	Real Touch Finance Ltd.	1
79	ResponsAbility	1
80	Rockland Finstock Ltd.	1
81	Sabrimala Fintech Pvt. Ltd.	2
82	Sahabhagi Services Pvt. Ltd.	1
83	Saidhan Mercantile Pvt. Ltd.	1
84	Samunnati Services Pvt.Ltd.	1
85	SAS Finserv Pvt. Ltd.	1
86	Satin Creditcare Network Ltd.	1
87	SAVE Solutions Pvt. Ltd.	1
88	Share Bazar Financial Pvt. Ltd.	1
89	Shine Star Build Cap Pvt. Ltd.	2
90	Shriram Finance Ltd.	11
91	SK Finance Ltd.	1
92	SV Creditline Ltd.	1
93	Tamilnadu Industrial Investment Corporation (TIIC) Ltd.	1
94	Tata Capital Ltd.	3
95	The Kangra Central Co-op Bank Ltd.	1
96	Tipsons Consultancy Services Pvt. Ltd.	1
97	Triodos Investment Management BV	1
98	Tuvis Services	1
99	UC Inclusive Credit Pvt.Ltd.	9
100	Usha Financial Services Pvt. Ltd	8
101	UTI Responsibility	1
102	Viridian Capital and Financial Services Pvt. Ltd.	2
103	Vivriti Capital Pvt. Ltd.	10
104	Western Capital Advisors Pvt. Ltd.	1
105	Wint Wealth	1
106	WLB Asset Vii PTE Ltd .	1

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.