MFIN-NCAER Study: Microfinance Cuts Informal Borrowing to 1%
Why in the news
A study by the Microfinance Industry Network (MFIN) with NCAER found that regulated microfinance has largely replaced moneylenders for its customers. Chief Economic Advisor V. Anantha Nageswaran urged the sector to be ambitious.
Key facts
- Informal borrowing: 46% in 2011 to just 1% in FY25.
- Sample: 10,342 borrowers spread over 10 states, served by 19 regulated lenders.
- Loan use: 75% for business or enterprise; over 50% repay from income generated by the funded activity.
- Disbursement: 100% digital, straight into bank accounts.
- Repayment: still mostly cash at group meetings; 12% use digital channels such as UPI.
- FOIR: 18.7% versus RBI’s 50% ceiling.
| Indicator | Finding |
|---|---|
| Informal borrowing (2011) | 46% |
| Informal borrowing (FY25) | 1% |
| Loans for business use | 75% |
| Digital repayment users | 12% |
| Positive staff behaviour reported | 98% |
| Would return to same lender | 88% |
Background
- FOIR (Fixed Obligation to Income Ratio): share of monthly income going to debt repayment; a low value leaves money for food, education and savings, a high one raises default risk.
- Regulated entities: NBFC-MFIs, banks and SFBs follow RBI’s Fair Practices Code, ensuring transparent rates and no coercive recovery.
- Trust: high borrower confidence lets MFIs support financial literacy and skilling.
Significance
- Shows formal credit has displaced costly debt traps.
- Rebuts the view that microloans mainly fund consumption.
Exam angle
- Study by MFIN and NCAER; figures 46% to 1%.
- Related terms: FOIR, JLG, NBFC-MFI, Fair Practices Code.
- CEA at the time: V. Anantha Nageswaran.