In Focus by The Hindu How are the guardrails of India’s microfinance sector helping it back to health?
Nov 5, 2025
Alok Misra, CEO of MFin, sheds light on India's microfinance sector and its recent recovery path. He discusses how self-regulation has introduced effective guardrails that improved credit quality metrics and reduced default rates. Misra also explains the impact of rising loan sizes due to inflation and cautious lending. He highlights the funding challenges the sector faces and suggests the need for government guarantees to restore liquidity. With a focus on empathetic approaches to non-willful defaults, he provides insights into the sector’s promising outlook.
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Guardrails Brought Credit Quality Back
- Self-imposed guardrails and improved recovery efforts have materially strengthened credit quality in microfinance.
- Portfolio-at-risk (up to 60 days) fell to 2.4% by September, signaling a return toward normal levels.
Cap Lenders And Loan Size
- Limit borrower exposure by capping lenders per borrower and total loan amounts to protect underwriting.
- MFin recommended max three lenders per borrower and a per-borrower cap of ₹2 lakh to reduce over‑leveraging.
Funding, Not Only Guardrails, Shrunk AUM
- Assets under management fell mainly because of reduced funding and the intentional effects of guardrails.
- Misra estimates funding, not guardrails, as the primary driver of the ~20% decline in AUM and client counts.