The present AUM penetration stands at 35 per cent across 16 states, highlighting significant headroom for expansion.
Mumbai: Despite weathering multiple downcycles, India's microfinance sector remains resilient and is projected to clock 15 per cent CAGR in the gross loan portfolio (GLP), surpassing Rs 10 lakh crore over the next 5–6 years, according to a report by Avendus Capital on Monday.
The progress is a direct result of deliberate regulatory actions such as MFIN guardrails and the Credit Guarantee Funds for Micro Units (CGFMU) scheme, aimed at curbing borrower overleveraging and improving asset quality.
The report notes that the sector is now entering a structural upcycle. The sector is expected to return to historical cross-cyclical Return on Equity (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. 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.
Snigdha Khemka, Director, Financial Institutions Group Investment Banking, Avendus Capital, said, “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 one-time 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.”
The present 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.
