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 5 - Section 5.5SHG Graduation to Enterprises

The SHG movement in India has evolved from a savings-and-credit mechanism into an important platform for women-led livelihoods, micro-enterprise development and local economic participation. The next stage of inclusion lies in enabling mature SHG members to undertake viable enterprises and participate more effectively in markets.

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

5.5 SHG Graduation to Enterprises

The SHG movement in India has evolved from a savings-and-credit mechanism into an important platform for women-led livelihoods, micro-enterprise development and local economic participation. While regular savings, internal lending and bank linkage remain the foundation of the SHG-Bank Linkage Programme, the next stage of inclusion lies in enabling mature SHG members to undertake viable enterprises, improve household incomes and participate more effectively in markets.

5.5.1 Graduation Pathways: From SHG to Enterprise

The enterprise journey of SHG members is generally gradual and non-linear. Members may enter, exit or move between stages depending on business performance, seasonal income patterns, household responsibilities, market conditions and access to finance. A typical progression begins with collective savings and small internal loans, followed by group-based bank credit for livelihood activities, and subsequently moves towards individual or collective enterprise financing.

Table 5.2: SHG Graduation Pathway

Sl. No.	Stage	Focus	Institutional Support
1	Financial Inclusion	Savings, internal lending, building credit history	NRLM, Banks, NABARD, CSOs, Sa-Dhan
2	Livelihood Diversification	Identification of livelihood opportunities, skill mapping and skill development.	NRLM, Banks, NABARD, CSOs
3	Micro-Enterprise Initiation	Setting up small individual/group enterprises through Credit/Grant support	NRLM, Banks, NABARD, MUDRA, Govt. Departments
4	Enterprise Scaling	Market linkages, formalisation, MSME integration	NRLM, MUDRA (Tarun/Tarun Plus), Banks, MoMSME, NABARD, Sa-Dhan

5.5.2 Institutional Approaches on Enterprise Graduation for SHGs/Members

Enterprise graduation among SHG members requires coordinated support from government programmes, banks, development finance institutions, training agencies, market platforms and community institutions. The institutional ecosystem plays an important role in helping women move from basic financial inclusion to enterprise ownership, growth and market participation.

5.5.2.1 Government of India and DAY-NRLM initiatives

The Ministry of Rural Development, through the Deendayal Antyodaya Yojana–National Rural Livelihoods Mission (DAY-NRLM), has positioned enterprise promotion as an important component of the SHG ecosystem. DAY-NRLM supports SHG members and their households through livelihood planning, skills development, credit linkage, enterprise incubation, community institutions and convergence with other government programmes.

The Start-up Village Entrepreneurship Programme (SVEP) is a key initiative under DAY-NRLM for promoting rural non-farm enterprises. The programme supports SHG members and their family members in setting up and strengthening micro-enterprises through finance, incubation and skill development. A key feature of the programme is the Community Resource Person-Enterprise Promotion cadre, which provides local-level support for business planning, credit linkage, training, market access and early-stage handholding. Around 3.74 lakh non-farm enterprises had been promoted under SVEP as of 30 June 2025.

The Lakhpati Didi initiative provides a clear income-oriented framework for SHG graduation. The initiative seeks to enable SHG women to achieve sustainable annual household incomes of at least ₹1 lakh through diversified livelihoods, enterprise activities, skill development, access to finance and market linkages. As of August 2026, 3.44 crore women had been identified or reported as Lakhpati Didis, with Maharashtra, Bihar and West Bengal among the leading states. The Government has set a revised target of creating 6 crore Lakhpati Didis by March 2029.

The Pradhan Mantri MUDRA Yojana (PMMY) provides an important credit bridge for SHG members graduating from group-based loans to individual micro-enterprise finance. Through Shishu, Kishor, Tarun and Tarun Plus categories, the scheme offers collateral-free loans for non-farm micro and small enterprises. The Kishor and Tarun categories are particularly relevant for mature SHG members seeking to expand enterprises beyond the scale of regular group loans. During FY 2025-26, 15.36 lakh MUDRA loans were sanctioned to NRLM/NULM beneficiaries, amounting to ₹33,667.52 crore, of which ₹30,884.81 crore was disbursed.

Enterprise finance is also being strengthened through the DAY-NRLM’s engagement with banks. The Memorandum of Understanding with Public Sector Banks and IDBI Bank has encouraged the development of dedicated enterprise-credit products for mature SHG women. Such products aim to facilitate individual enterprise loans with larger ticket sizes and more suitable repayment structures. The FY 2026-27 DAY-NRLM credit plan proposes a distinct focus on individual SHG-member financing, with a target of 13.52 lakh individual enterprise loans aggregating ₹13,516 crore and a proposed minimum loan size of ₹1.50 lakh per loan.

The Jan Samarth Portal can also support enterprise graduation by providing a common digital platform through which SHG members and rural entrepreneurs can identify eligible credit-linked schemes, assess eligibility and access institutional finance. The portal may facilitate linkages with MUDRA, PMEGP, agriculture infrastructure and other enterprise-support schemes.

The Government’s proposed SHE-MARTs, announced in the Union Budget 2026-27, may provide an additional market-access channel for SHG enterprises. Envisaged as community-owned retail outlets operated by Cluster Level Federations, SHE-MARTs can provide SHG entrepreneurs with physical market space, product visibility, branding support and stronger consumer linkages.

5.5.2.2 NABARD initiatives

NABARD plays a significant role in strengthening enterprise capabilities among SHG members through capacity building, livelihood development, market support and institutional linkages. Its interventions are particularly important in helping SHG members progress from subsistence activities to more viable micro-enterprises.

The Micro Enterprise Development Programme (MEDP) supports SHG members through skill upgradation, entrepreneurship development and business-management training. It seeks to strengthen the ability of mature SHG members to establish or improve micro-enterprises by building technical skills, improving product quality and supporting business planning. During 2025-26, 5310 SHG members were trained through 172 MEDPs with grant assistance of ₹1.61 crore for equipping them with livelihood skills. Cumulatively, 6.28 lakh SHG members have been trained through 21,225 MEDPs with total grant support of ₹64.78 crore as on 31 March 2026.

The Livelihood and Enterprise Development Programme (LEDP) adopts a value-chain and cluster-based approach to enterprise promotion. It supports groups of SHG members in contiguous villages to undertake farm and non-farm livelihood activities, develop producer groups and improve access to production, processing, value addition and markets. This approach is particularly relevant for activities that require aggregation, common facilities, collective procurement and market coordination. During 2025-26, 9,672 SHG members were provided skill and entrepreneurship training through 112 LEDPs with an expenditure of ₹8.06 crore. As on 31 March 2026, 3.26 lakh SHG members have been supported through 2,593 LEDPs with grant support of ₹139.13 crore. The main activities included Handicrafts, Paintings, Tailoring, Fashion Designing and Embroidery, Food Processing and Value Addition, and Goat Farming/Goat Rearing.

The m-Suwidha programme - Microenterprises through Skill Upgradation for Women - is a flexible, Detailed Project Report-based intervention for SHG members seeking to establish enterprises at a larger scale. The programme supports end-to-end enterprise development through assessment of skill gaps, identification of suitable occupations, training through knowledge partners, enterprise strengthening, market tie-ups and facilitation of credit support from banks and financial institutions. As on date, ₹2.68 crore grant has been sanctioned for five projects in four states (two in Tamil Nadu, one each in Telangana, Assam and Andhra Pradesh) to strengthen the livelihood of 2300 SHG members of 09 districts.

NABARD’s market-linkage initiatives also support SHG entrepreneurs by facilitating access to digital and physical markets. Through onboarding support for ONDC and other e-commerce platforms, SHG producers can improve product visibility, access customers beyond local markets and develop digital commerce capabilities. During FY 2025-26, NABARD-supported SHG sellers generated 1,583 orders through the MyStore page on ONDC, with a turnover of approximately ₹8.03 lakh.

The proposed NABUnnati Kendras are intended to function as local enterprise-support hubs by providing handholding for enterprise identification, business planning, statutory registration, credit facilitation, branding, digital onboarding and market linkage. The initiative has been launched as a pilot in six states, with the first centre sanctioned in East Khasi Hills district of Meghalaya.

NABARD’s RuTAGe Smart Village Centres may also contribute to enterprise graduation by improving access to field-tested technologies, technical advisory, demonstrations and local enterprise opportunities. The centres are intended to connect rural households, SHGs, producer organisations, Panchayats and local institutions with technology providers, research organisations and start-ups across agriculture, renewable energy, water, sanitation, healthcare, education and other relevant sectors.

5.5.2.3 Sa-Dhan’s initiative for women enterprise promotion in SHGs

Sa-Dhan has entered into an MOU with National Rural Livelihood Mission (NRLM) for working as a Technical Support agency for promotion of women enterprises among SHGs. This project is supported by Gates Foundation. Accordingly, Sa-Dhan has taken up 4 states, viz. Assam, Chhattisgarh, Jharkhand and West Bengal, where dedicated teams are placed to support the local SRLMs in training the Vitta Sakhis and mentors/ SRLM officials. The teams also liaise with the banks in the states/ districts and help in credit linkage of the identified beneficiaries. The programme has made significant progress across its key objectives:

Enterprise Finance & Portfolio Quality: Since inception, 1,85,305 SHG members across the intervention states have been financed, with ₹2,04,374.69 lakh in cumulative finance. Portfolio quality remains strong, with NPAs below 0.5% in Assam and West Bengal, below 1% in Jharkhand, and below 2% in Chhattisgarh.
Capacity Building: 12,604 participants have been trained through new and refresher programmes, including 9,092 Vitta Sakhis (7,228 new and 1,864 refresher) and 3,512 SRLM officials and other cadres, including SRPs/NRPs (3,178 new and 334 refresher).
Bank Integration: 12 Public Sector Banks have developed Business Rule Engines (BREs) to support digital appraisal and processing, while IELA has been integrated with six PSBs - Canara Bank, Indian Bank, Indian Overseas Bank, Bank of India, Union Bank of India and Punjab National Bank. Work is underway to expand integration to RRBs through the Jan Setu framework.
Evidence & Learning: A multi-state comparative study has been initiated across Andhra Pradesh, Tamil Nadu, Maharashtra, Rajasthan, Madhya Pradesh and Tripura to examine the institutional, financial, community and socio-economic factors influencing women’s access to, uptake and utilisation of individual enterprise finance, and identify practices that can strengthen enterprise finance outcomes.

Individual Enterprise Loan Application (IELA)

Sa-Dhan efforts to support the SRLMs have also resulted in developing a digital platform for the submission of the loan application to bank branches for their monitoring and tracking. Also, it provides a seamless way to get the loan application sanctioned in a shorter time. The application is built on the existing LokOS and JanSamarth portal and integrating them for smoother data flow and validations required by banks. The IELA was launched nationwide by the Hon’ble Union Minister for Agriculture and Rural Development Shri. Shivraj Singh Chouhan on 21 February 2026 and has been rolled out to the entire country for its adoption, following pilot testing and field validation. In the intervention states, 29,729 applications have been initiated, of which 16,477 have been submitted to banks and 2,649 sanctioned. The IELA architecture, workflow and system framework is provided as under:

Framework of the Individual Enterprise Loan Application (IELA)

Conclusion

Together, these institutional initiatives demonstrate that enterprise graduation requires a combination of group-based financial inclusion, individual enterprise finance, skill development, incubation, market access, formalisation and technology support. The effectiveness of these interventions will depend on their ability to translate programme outreach into viable enterprises, sustained income growth, improved market participation and resilient livelihoods for SHG members.

Box 5.2: Sa-Dhan’s Partnership with DAY-NRLM Enabling Formal Finance for Women-Led Enterprises

Sa-Dhan, with support from the Gates Foundation, is providing Technical Assistance to the National Rural Livelihoods Mission (DAY-NRLM) and select SRLMs to strengthen systems for individual enterprise financing for women emerging from the Self-Help Group (SHG) ecosystem. The Gates Foundation approved the project in November 2023, followed by a formal MoU between Sa-Dhan and NRLM in March 2024. Under the partnership, Sa-Dhan functions as the Technical Support Agency (TSA) for strengthening individual women enterprise financing systems.

The programme aims to facilitate access to finance for one million women entrepreneurs across four states over five years, while strengthening the institutional and community-level ecosystem required to support sustainable women-led enterprises. Sa-Dhan’s direct intervention is being undertaken across 19 districts in four states, namely Assam, Chhattisgarh, Jharkhand and West Bengal. These districts cover approximately 5.09 lakh SHGs, providing a focused platform for strengthening enterprise-financing systems within the SHG ecosystem.

Key Objectives

The programme is structured around the following key objectives:

Expand Enterprise Finance: Contribute to DAY-NRLM’s goal of enabling 1 million SHG women entrepreneurs to access finance, supporting the Lakhpati Didi vision through sustainable, income-generating enterprises.
Strengthen Credit Linkages & Processes: Work with SRLMs, PSU banks and RRBs to strengthen credit linkages, streamline loan processing and address operational bottlenecks.
Build Institutional Capacity: Strengthen the capacity of SRLM officials, Vitta Sakhis and frontline cadres to facilitate enterprise financing and engage effectively with banks.
Enable Digital & Quality Credit: Promote technology-enabled solutions such as Individual Enterprise Loan Application (IELA) to improve application, tracking and processing, while supporting sound credit appraisal and responsible lending.
Generate Evidence & Learning: Document field experience, identify good practices and generate evidence to inform policy, programme improvement and scale-up of women-led enterprise financing.

Institutional Innovations & Sa-Dhan’s Technical Support

As the TSA, Sa-Dhan supports DAY-NRLM and select SRLMs in strengthening the ecosystem for scaled access to formal enterprise finance for women entrepreneurs. Its support spans policy and process development, institutional capacity building, bank engagement, digital solutions and knowledge generation. Key initiatives include:

Vitta Sakhi and Mentor Policy Frameworks: Supporting the development of structured frameworks to strengthen the cadre ecosystem and provide technical handholding.
CLF-based Enterprise Financing Model: Supporting a community-led model to facilitate small-ticket enterprise loans of up to ₹1 lakh through Cluster Level Federations.
Udyam Gyan Learning Management System (LMS): Developing a technology-enabled platform for continuous learning and capacity building.
Exposure Visits and Immersion Panchayats: Facilitating enterprise learning, peer exchange and practical exposure to successful enterprise models.
Livestock Insurance and Financial Solutions: Supporting access to relevant financial solutions to address enterprise-related risks and financing needs.
Bank and RRB Engagement: Supporting engagement with PSU banks and RRBs through SLBC, DLRC, BLBC and branch/regional/zonal forums to address credit-related bottlenecks and strengthen enterprise financing.
Digital Credit Facilitation: Supporting the development and refinement of IELA and the wider digital ecosystem for enterprise loan application, processing and tracking.
Knowledge, Evidence & Learning: Generating evidence, documenting field experience and supporting learning for continuous programme improvement and scale-up.

Key Achievements

Beyond the financing, capacity-building, bank-integration and evidence-generation progress outlined in the chapter, the year’s principal achievement was the operationalisation of digital credit facilitation at scale.

Digital Credit Facilitation: IELA was launched nationwide on 21 February 2026, following pilot testing and field validation. Across the intervention states, 29,729 applications have been initiated, 16,477 submitted to banks, and 2,649 sanctioned.

Way Forward

The next phase will focus on consolidating systems, strengthening digital and banking linkages, documenting outcomes and good practices, and supporting wider adoption of the enterprise-financing approach across the DAY-NRLM/SRLM ecosystem

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.