Mumbai: India’s microfinance sector is projected to clock a 15 per cent CAGR in the gross loan portfolio (GLP), surpassing Rs 10 trillion (Rs 10 lakh crore) loan portfolio over the next five-six years, a report said on Monday.
The report by Avendus Capital highlights a resilient reset underway in India’s most critical engines of financial inclusion.
Despite weathering multiple downcycles, the microfinance sector has remained resilient and is now entering a structural upcycle.
“The sector is expected to return to historical cross-cyclical RoEs, ranging from 15-20 per cent over the next five to six years. This shift is driven by improved credit discipline, operational reengineering by industry frontrunners and stronger regulatory oversight,” the report mentioned.
Diverse geographic potential and deeper rural market penetration are opening new frontiers for financial inclusion, while the rising engagement with new-to-credit (NTC) customers is broadening the industry’s borrower base.
Accelerated adoption of AI-powered technologies is further enhancing operational efficiency and enabling smarter, data-driven lending decisions.
“The microfinance industry has shown strong resilience in recent years, with downturns getting shorter. This progress is a direct result of deliberate regulatory actions such as MFIN guardrails and the CGFMU scheme, aimed at curbing borrower overleveraging and improving asset quality,” explained Anshul Agarwal, Managing Director and Head, Financial Institutions Group Investment Banking, Avendus Capital.
Green shoots are already visible on the ground signaling stronger borrower discipline and improved fundamentals going forward. Together, these developments are building the base for renewed investor confidence and durable sector health, Agarwal noted.
According to the report, large white spaces exist as the present asset under management (AUM) penetration stands at 35 per cent across 16 states, highlighting significant headroom for expansion. The persistent demand for credit in informal markets presents a compelling opportunity for MFIs to deepen their reach and further drive financial inclusion.
“As the sector fundamentals reset through both regulatory and institutional actions, we anticipate a re-rating of sector valuations with multiples rising meaningfully from the current 1.0x levels in the medium term, making this an opportune time for investors to get their skin in the game and participate in the sector’s next upcycle,” said Snigdha Khemka, Director, Financial Institutions Group Investment Banking, Avendus Capital.
(IANS)
