KOLKATA: Microfinance institutions (MFIs) must rebuild credibility and restore public confidence to achieve sustainable growth, according to a joint study by PwC and Sa-Dhan, the sector’s self-regulatory organisation.
The report notes that microfinance—traditionally anchored in trust between borrowers, field officers and lenders—has become increasingly transactional. Shocks such as demonetisation and the Covid-19 pandemic have further weakened the group-based culture of microfinance, adversely affecting repayment discipline and public trust.
“Rebuilding credibility and confidence remains a major challenge to achieving sustainable growth,” the study says, stressing the need to empower borrowers with clear and adequate information to regain their trust.
The report also highlights declining support from external stakeholders, including investors and refinancers, driven by increased caution toward bottom-of-the-pyramid borrowers.
Financial literacy is described as the foundation for meaningful borrower inclusion. The study recommends capacity-building sessions, educational workshops and financial literacy bootcamps to inform customers about their rights, the products they use and their responsibilities. Lenders, it adds, must ensure fairness, clarity, consistency and care in communication, collections and customer support.
To protect asset quality, MFIs have shifted focus toward low-risk, disciplined borrowers, leading to a drop in disbursements from ₹3,86,287 crore in 2023–24 to ₹2,85,130 crore in 2024–25. While this has strengthened portfolios, the study cautions that it is not a viable long-term strategy.
The report stresses that reaching and onboarding last-mile customers requires careful balance between growth and quality. It also flags over-indebtedness as a major risk, warning that it poses systemic challenges to the sector and could lead to higher defaults and financial losses for micro-lenders.
