Chapter 6 - Section 6.4MLIs as Business Correspondents: Trends in Credit Operations

The BC portfolio declined by 4% to ₹51,004 crore in FY 2025-26, with the borrower base falling from 129.61 lakh to 102.43 lakh.

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6.4 MLIs as Business Correspondents: Trends in Credit Operations

MLIs have increasingly used BC arrangements to diversify funding sources, preserve last-mile credit outreach and leverage their field infrastructure. Under this arrangement, the regulated lender provides funding and retains responsibility for the credit exposure, while the MLI undertakes agreed sourcing, servicing and collection activities.

The BC model offers several potential benefits to lenders and MLIs:

  • Expansion of credit outreach without proportionate branch expansion
  • Access to trained field teams and established borrower relationships
  • Lower customer-acquisition and servicing costs
  • Improved availability of local information for underwriting and monitoring
  • Diversification of funding channels for MLIs
  • Opportunity for banks and NBFCs to serve priority and underserved segments
  • Digital collection trails and more timely portfolio monitoring

At the same time, growth in BC-led lending must be accompanied by appropriate lender oversight, customer-protection safeguards, field-staff capability, technology controls and clear accountability for each stage of the lending journey.

Table 6.2: Trend in MLIs operating as Business Correspondents
Year No. of Reporting MLIs excluding Banks & SFBs No. of Reporting MLIs with BC operations BC portfolio (in ₹ Crore) BC borrowers (in Lakhs) BC portfolio as % of total MLI portfolio Growth in BC portfolio
FY 2021-22 213 77 30,517 101.20 23% 23%
FY 2022-23 213 81 38,617 114.23 21% 27%
FY 2023-24 217 104 54,416 145.39 21% 41%
FY 2024-25 203 90 53,287 129.61 22% -2%
FY 2025-26 178 84 51,004 102.43 21% -4%

The Business Correspondent model recorded strong growth between FY 2021-22 and FY 2023-24, with the BC portfolio as well as the number of MLIs operating through the BC model increasing, indicating the growing importance of BC arrangements as a funding-diversification and last-mile credit-delivery mechanism for MLIs.

The growth momentum, however, moderated in FY 2024-25 and reversed in FY 2025-26. The BC portfolio declined marginally by 2% in FY 2024-25, from ₹54,416 crore to ₹53,287 crore, before declining further by 4% to ₹51,004 crore in FY 2025-26. The BC portfolio as a proportion of the total MLI portfolio also reduced from 22% in FY 2024-25 to 21% in FY 2025-26. The decline in the BC portfolio should be viewed in the context of the wider microfinance-sector correction during FY 2025-26. Over the preceding quarters, lenders adopted more cautious growth strategies in response to elevated repayment stress, increased delinquency, borrower over-leverage concerns and the need to strengthen underwriting and collection practices. Loan portfolios were rationalised, fresh disbursements were moderated in certain geographies and lenders focused on improving the quality of their existing portfolios rather than pursuing rapid expansion.

At the sectoral level, the microfinance sector experienced a significant contraction during FY 2025-26. The borrower base under the BC model also declined from 129.61 lakh borrowers in FY 2024-25 to 102.43 lakh borrowers in FY 2025-26. This represents a reduction of 27.18 lakh borrowers, or around 21%. The sharper decline in borrower numbers relative to the decline in portfolio suggests that lenders and BC partners may have reduced lower-ticket or marginal borrower exposures, tightened borrower-selection criteria, curtailed lending in higher-risk geographies, and focused on servicing relatively stronger or more established customer segments.

As against 203 MLIs reported their data in FY 2024-25, only 178 MLIs have reported their data in FY 2025-26. As a result, there has been reduction in the number of MLIs with BC operation, the number declining from 90 to 84. Therefore, the year-on-year movement in BC portfolio reflects both the sector-wide moderation in lending activity and the change in the reporting universe. Notwithstanding the decline, BC arrangements continued to account for a substantial share of managed credit operations. As of 31 March 2026, the BC portfolio of 84 MLIs engaged in BC operations stood at ₹51,004 crore. This represented approximately 70% of the total reported off-balance-sheet portfolio of ₹73,027 crore across 178 reporting MLIs. This indicates that BC-led lending remained the predominant off-balance-sheet portfolio model for reporting MLIs, despite the broader slowdown in microfinance lending.

Figure 6.2: Trend in BC portfolio
Figure 6.2
Figure 6.3: Trend of BC portfolio as a share of total MLI portfolio
Figure 6.3

The FY 2025-26 trend therefore reflects a transition from expansion-led BC growth towards a more cautious and risk-sensitive operating environment. Going forward, the BC model is likely to remain important for banks, NBFCs and MLIs seeking to maintain last-mile outreach. However, future growth will depend on stronger borrower assessment, responsible lending practices, effective collection and servicing systems, improved lender oversight, digital controls, field-staff capacity and robust customer-protection mechanisms.