Based on a review of existing literature on microfinance in India, the authors of this study seek to: (1) analyze the size and growth of the domestic microfinance market; (2) explore issues relating to the promotion of microfinance; (3) study the challenges in implementing microfinance policies; and (4) offer suggestions for boosting the development of rural India through microfinance.
As of March 2021, the aggregate gross loan portfolio of the Indian microfinance industry totaled INR 2.5 trillion (USD 31 billion), up from INR 2.3 trillion (USD 27 billion) a year earlier. Despite this growth, the sector faces challenges related to poor infrastructure in rural areas and microfinance institutions (MFIs) reportedly receiving 70 percent of total repayments late. Two other issues relate to regulatory changes the Reserve Bank of India (RBI) made in 2022. One is that many MFIs are charging higher microloan interest rates since the rate cap of 26 percent per year has been removed. The other is that some MFIs are redirecting their focus away from urban households since the relaxation of restrictions on lending to rural households.
In conclusion, the authors argue that MFIs can contribute more to poverty alleviation if they: (1) are required to lower their interest rates; (2) increase their exposure to urban households; (3) adopt more efficient financial technologies to reduce costs and improve service delivery; and (4) expand their list of services to better compete with commercial banks, including the provision of remittances and financial advice.
This is a summary of a paper by Mohammad Abu Saleh, Zubair Ahmad; published in the International Journal of Scientific Research in Engineering and Management; February 2023; 11 pages; available at https://www.researchgate.net/publication/369825669_Microfinance_in_India_Issues_Challenges_and_Opportunities.
By Vaughn Rajah, Research Associate
Additional Resources
International Journal of Scientific Research in Engineering and Management homepage
https://ijsrem.com/
RBI Homepage
https://www.rbi.org.in/
MicroCapital article on 2022 regulatory changes in India
https://www.microcapital.org/microcapital-brief-new-flexibility-for-nbfc-mfis-in-india-includes-lifting-interest-ceiling-on-microfinance-loans/
Do you know that MicroCapital publishes the MicroCapital Monitor newspaper each month? Download a sample at https://www.microcapital.org/products-page/.
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