India's Microfinance Sector will Grow to Rs 10 lakh crore in next 5-6 years: Report

Mumbai (The Uttam Hindu): India's microfinance sector is expected to grow at a compound annual growth rate (CAGR) of 15 percent to reach the figure of Rs 10 lakh crore in the next 5 to 6 years, a report said on Monday. Avendus Capital's report said that despite several downturns, the sector remains strong and is ready for a new boom again.

The sector is expected to return to its historical cross-cyclical RoE, which is between 15-20 per cent, over the next five to six years, the report said. This turnaround is driven by improved credit discipline, operational reengineering by industry leaders and stronger regulatory oversight.

Diverse geographical opportunities and deeper penetration in the rural market are opening new doors for financial inclusion, while the growing number of new-to-credit (NTC) customers is expanding the industry's borrower base, the report said.

The rapid adoption of AI-powered technologies is further enhancing operational efficiency and enabling smart, data-driven lending decisions.

Anshul Agarwal, Managing Director and Head, Financial Institutions Group Investment Banking, Avendus Capital, said, “The microfinance industry has shown strong resilience in recent years, with downturns being short-lived. This progress is a direct result of deliberate regulatory actions such as MFIN Suraksha and the CGFMU scheme, aimed at curbing overleveraging by borrowers and improving asset quality.”

The report said that positive signs are already visible at the ground level. Strong borrower discipline and better loan base will be seen in the coming times.

According to the report, with current asset under management (AUM) penetration at 35 per cent across 16 states, large gaps exist, indicating substantial scope for expansion in the sector. The continued demand for credit in informal markets presents an attractive opportunity for MFIs to expand their reach and further drive financial inclusion.