New Delhi
Bihar, Uttar Pradesh, and Karnataka are emerging as the leading states in India’s rapidly expanding microfinance industry, according to a report on Monday.
The report highlights that these states have shown stronger growth than the industry average, significantly contributing to the overall expansion of the microfinance sector. Bihar, with over 80% penetration, leads in microfinance reach, followed by Karnataka (57%) and Tamil Nadu (53%). However, this high level of penetration suggests these markets might be nearing saturation, with other states expected to drive future growth.
The report also points to the rising role of non-banking financial company microfinance institutions (NBFC-MFIs), which have grown their market share from 31% in 2021 to 40% in 2024. These institutions have played a crucial role in expanding microfinance services, especially in underserved regions.
Valued at Rs 4.2 trillion, the Indian microfinance industry has grown at a strong 20% annual growth rate (CAGR) from FY21 to FY24. This growth has been driven by an increase in the number of borrowers, which has risen at 13% CAGR, and a rise in average loan sizes, growing at 6% CAGR. However, the report also warns of potential challenges, particularly in high-growth regions where borrowers may face over-leverage issues. This is partly due to practices that may bypass Reserve Bank of India guidelines. The report calls for careful management of borrower exposure to ensure long-term, sustainable growth in the sector.
