9 months ago
Microfinance Institutions Must Rebuild Credibility for Sustainable Growth: Study
Imagine microfinance as a system built on trust, like borrowing toys from a friend.
Recently, big events like demonetisation and the pandemic made things less about trust and more about just swapping toys.
This has made it harder for these lenders to be reliable and for people to trust them.
Even the people who give them money are getting worried.
To get back on track, these lenders need to help people understand the rules, teach them about money, and be really fair in how they talk and collect things.
They've also been lending less money to focus on being safe, but they can't just stop lending.
They need to find a way to be both safe and grow again.
One big problem is making sure people don't borrow more than they can handle, which is risky for everyone.
Microfinance institutions (MFIs) must rebuild credibility and confidence to achieve sustainable growth, according to a joint study by PwC and Sa-Dan.
The sector's trust-based nature has become more transactional, exacerbated by demonetisation and the Covid pandemic, impacting repayment discipline and public confidence.
External stakeholders like investors and refinancers have shown declining support due to increased caution regarding bottom-of-the-pyramid borrowers.
Empowering customers with information, promoting financial literacy, and ensuring fair practices are crucial for regaining trust.
The MFI industry has prioritized asset quality over aggressive growth, leading to a significant decline in disbursements from ₹3,86,287 crore in 2023-24 to ₹2,85,130 crore in 2024-25, a strategy deemed unsustainable long-term.
- Who
- Microfinance Institutions (MFIs), borrowers, field officers, lending institutions, investors, refinancers, PwC, Sa-Dan
- What
- A joint study found that MFIs need to rebuild credibility and confidence for sustainable growth, noting a shift to transactional interactions, declining external support, and a strategic focus on asset quality leading to reduced disbursements.
- Where
- The study was presented in Kolkata.
- When
- Published on November 15, 2025, with reference to demonetisation, the Covid pandemic, and disbursement figures for 2023-24 and 2024-25.
- Why
- The microfinance sector has faced setbacks that eroded trust and repayment discipline, leading to reduced external support. A deliberate focus on low-risk customers to improve asset quality is not sustainable long-term, and over-indebtedness poses a systemic risk.
Focus on Asset Quality
Focus on Sustainable Growth
Growth Strategy
Focus on Asset Quality
The MFI industry has deliberately focused on low-risk and disciplined customers to improve asset quality, leading to a significant decline in disbursements.
Focus on Sustainable Growth
While focusing on asset quality is beneficial for trust, it is not sustainable in the long term and the industry needs to balance growth with quality.
Key facts
- Study Authors
- PwC and Sa-Dan
- Key Challenge
- Rebuilding credibility and confidence for sustainable growth.
- Contributing Factors to Trust Decline
- Transactional nature of microfinance, demonetisation, Covid pandemic, impact on repayment discipline and public confidence.
- External Stakeholder Support
- Declining support from investors and refinancers due to caution regarding bottom-of-the-pyramid borrowers.
- Proposed Solutions
- Empowering customers with information, promoting financial literacy, ensuring fairness, clarity, consistency, and care in communications and practices.
- Disbursement Trend
- Decline from ₹3,86,287 crore (2023-24) to ₹2,85,130 crore (2024-25).
- Critical Challenge
- Risk of over-indebtedness among borrowers, posing systemic risk.
Quotes
The study
A joint study by consultancy firm PwC and Sa-Dan
“Rebuilding credibility and confidence remains a major challenge to achieving sustainable growth”
thehindubusinessline.com
Sources
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