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Forecast Period
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2025-2029
|
|
Market Size (2023)
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USD46.12 Billion
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CAGR (2023-2028)
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7.20%
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Fastest Growing Segment
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NBFCs
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Largest Market
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South India
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The India microfinance market
will experience robust growth in the forecast period owing to the growing
technological advancements such as penetration of mobile phones, which has made
it possible for the microfinance companies to easily reach to larger masses.
Moreover, significant government regulations are likely to support the growth
of microfinance market in India.
India Microfinance Market Scope
Giving small loans to low
income people or small enterprises that may not be able to use traditional
banking services so they may meet their financial obligations are referred to
as microfinance.
India Microfinance Market Overview
In India, the low income
group is unable to get loans from the traditional banks as they do not have any
credit history and are also not able to provide any security to the banks.
Thus, to solve this problem the microfinance companies in India were launched which
provide unsecured loans with less paperwork to the under privileged section of
the society. According to the article published by Business Standard in 2022,
the microfinance industry in India grew over 16 times in the last decade with a
loan portfolio of USD34.78 billion as per the study done by Microfinance
Institutions Network.
India Microfinance Market Drivers
Several factors are
responsible for the rising demand for microfinance services in India. One of
the key causes is that low-income households lack access to credit and other
financial services. It is challenging for these households to get formal credit
since they often have no collateral to offer for conventional bank loans and
may not have a good credit record. These loans are frequently used to launch or
grow small businesses, pay for unforeseen costs, fund investments in healthcare
and education, and raise overall household income and living standards. The expansion
of India's informal economy is another factor driving up demand for
microfinance services. Many low-income households are employed in the
unregulated, erratic informal economy. Microfinance organizations offer these
households a flexible and easily available source of credit that can assist
them in managing their cash flow and making investments in their enterprises.
In recent years, India's
microfinance industry has experienced considerable technological developments,
notably with the growing use of mobile devices and online platforms. Many microfinance institutions (MFIs) have
implemented mobile banking technologies to offer financial services to their
consumers in response to the increasing adoption of mobile phones. Customers
can now access their accounts, conduct transactions, and receive loan
disbursements and repayments immediately on their mobile devices through mobile
banking. To promote digital payments and transactions in the microfinance
industry, a number of digital platforms have been created, including the Bharat
Bill Payment System (BBPS), National Automated Clearing House (NACH), and
Aadhaar Enabled Payment System (AEPS). These platforms have made it possible
for MFIs to electronically disperse loans and collect payments, which eliminates
the need for physical presence and paperwork.
India Microfinance Market
Trends
The COVID-19 pandemic has
accelerated up the deployment of digital technologies in the microfinance
industry since MFIs have had to come up with strategies to continue serving
their clients while abiding by social segregation standards. There are various
advantages for the Indian microfinance business as a result of the growing
focus on digitization. MFIs are able to serve clients in remote locations
where physical branches might not be practical due to digital technologies
including mobile banking, internet platforms, and digital wallets. The costs of
maintaining physical branches and paperwork, as well as transaction fees, have
all been reduced by digitization in traditional banking. Through the use of
tools like mobile banking, rapid approvals, and online loan applications, MFIs
are now able to provide a more seamless and easy customer experience. Digitization
has enabled MFIs to disburse loans and receive repayments faster, reducing the
turnaround time for loan processing and improving the overall efficiency of
operations. Digital technologies have enabled MFIs to collect and manage client
data more efficiently, which can help in better risk assessment and credit
scoring. By providing a wider range of financial services, service
diversification can increase client loyalty, boost retention rates, and
increase the lifetime value of each client.
In India's microfinance
industry, collaboration and cooperation are significant trends as micro finance
institutions seek to broaden their client base and provide vulnerable
individuals with more effective and innovative financial services. Moreover,
microfinance companies can offer a larger range of financial services beyond
microcredit, such as savings, insurance, and remittances, by collaborating with
banks, FinTech’s and other organizations. Partnerships with fintech firms
can assist MFIs in utilizing digital platforms and technology to increase the
productivity and scalability of their operations. Collaboration with other MFIs
or groups can enable MFIs to pool resources and knowledge, thereby cutting
costs and increasing overall operational effectiveness.
India Microfinance Market
Challenges
India is a developing nation
with a low literacy rate as only 25% of the India population is financially
literate, however it is still higher in its rural parts. The majority of
Indians lack a fundamental understanding of financial principles. The general
public has limited awareness of the financial services offered by the
microfinance sector. A major barrier preventing the rural populace from
obtaining easy credit from MFIs to meet their financial needs is this lack of adequate
understanding. Additionally, it contributes to the nation's widespread
financial exclusion as MFIs also have the extra responsibility of
educating the public and building trust before they begin lending money. In
addition to the extreme lack of knowledge about the policies and goods offered
by MFIs, these institutions struggle to survive in the highly competitive
markets found in developing countries.
Moreover, in India, MFIs'
financial success is limited when compared to that of the nation's commercial
banks. The long-standing banking system is well-established in India and is
gradually changing to meet modern demands. When compared to commercial banks
(8–12%), the majority of microfinance institutions charge very high interest
rates (12–30%). Since the microfinance industry works with underprivileged
groups in Indian society who want to raise their standard of living, excessive
debt is a major barrier to its expansion. The two biggest issues straining the
microfinance sector in India are the rising trend of clients taking out
multiple loans and ineffective risk management. Providing loans without
security raises the risk of bad debts in the microfinance industry.
Recent Developments
To strengthen its position as a national player, Inditrade Microfinance, a division of Inditrade Capital, merged with Kolkata-based Janakalyan Financial Services in 2022. The new company will be called Inditrade Janakalyan Microfinance Limited.
In 2020, Madura Micro Finance Ltd., an unlisted non-banking financial company merged into Credit Access Grameen Ltd. a listed non-banking financial company.
The microlender Satin Creditcare Network merged its wholly owned subsidiary Taraashna Financial Services (TFSL), which offers business correspondent services, with MSME lender Satin Finserv Limited (SFL) in March 2023 to take advantage of the underlying synergies and to build capabilities that would strengthen the combined entity.
Market Opportunities
· Due
to the country's limits on its banking services' ability to reach the millions
of people living in rural areas, microfinance organizations can grow their
market share and draw in a wider customer base. In addition to the country's
large size, another barrier preventing financial services from reaching these
millions of people is the low literacy rate among the most vulnerable
population in the most remote areas. Thus, microfinance continues to be a
crucial weapon for India's mission to advance as a significant economic force.
Only 5% of the country's population now has access to microfinance loans.
According to the most recent instructions given to MFIs by the RBI, more than
50% of the population is qualified for microloans.