Micro Matters - Macro View - BR - India Microfinance Review FY 22-23

CHAPTER 3
Microfinance Industry Network | 1

CHAPTER 3
2 | India Microfinance Review FY 2022-23

MICRO MATTERS:
MACRO VIEW
India Microfinance Review
FY 2022-23
By
Microfinance Industry Network
Copyright @ Microfinance Industry Network, 2023
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First published in November 2023 by
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ISBN: 978-81-967065-1-7
Contents
CHAPTER 3
Abbreviations 6
Message from the Chairperson 10
Prologue 12
1. Macroeconomic environment 14
1.1 Economic & growth indicators 14
1.2 Human development indicators 21
1.3 An analysis of banking sector credit flow 24
2. An overview of financial inclusion in India 28
2.1 Role of financial inclusion in development 28
2.2 Sub dimensions of Financial Inclusion 32
2.3 Role of microfinance 41
2.4 A few policy Issues for furthering financial inclusion 45
3. Microfinance industry – a performance update 48
3.1 Outreach 48
3.2 Products – ticket size, tenure, frequency 50
3.3 Financial strength (NBFC-MFIs) 52
3.4 Portfolio quality (Universe) 55
3.5 Operational efficiency (NBFC-MFIs) 56
3.6 Human resource trends (NBFC-MFIs) 57
3.7 Risks 58
4. Life after amended regulations for mF loans 60
4.1 Compliance to regulatory changes 60
4.2 Some key initiatives of MFIN as the sector body 66
4.3 Policy issues – work in progress 70
4.4 Expanded role of MFIN as a representative body for the sector 79
5. The future of microfinance – a summary 81
5.1 Industry progress against potential 81
5.2 Sector futureproofing initiatives 83
5.3 Opportunities and challenges 88
Annexes 92
A) Mor Committee vision statements 92
B) Chronology of relevant policy and regulatory developments 94
C) Steps by the SRO for customer protection 97
D) Estimating microfinance market size & demand 99
E) Microfinance in news 100
CHAPTER 3
Abbreviations
A2F Access to Finance CG Credit Guarantees
AB PMJAY Ayushman Bharat Pradhan CGFMU Credit Guarantee Fund for
Mantri Suraksha Bima Yojana Micro Units
AC Accounts CGRM Customer Grievance Redressal
Mechanism
ADB Asian Development Bank
CGSMFI Credit Guarantee Scheme for
AIFI All India Financial Institutions
MFIs
AMFIRS Assam Micro Finance Incentive
CGSSD Credit Guarantee Scheme for
& Relief Scheme
Subordinate Debt
AP Andhra Pradesh
CGTMSE Credit Guarantee Trust for
API Application Programming Micro and Small Enterprises
Interface
CIC Credit Information Company
ATM Automated Teller Machine
CICRA Credit Information Companies
BBPS Bharat Bill Payment System (Regulation) Act
BC Business Correspondents CIR Credit Information Report
BRICS Brazil, Russia, India, China, and CKYCR Central Know Your Customer
South Africa Registry
BSBD Basic Savings Bank Deposit COC Code of Conduct
CAD Current Account Deficit Cr Crores
CAGR Compound Annual Growth Rate CRL Code for Responsible Lending
CAIIB Certified Associate of Indian CSP Customer Service Point

Institute of Banking and Finance
CSR Corporate Social Responsibility
CB Credit Bureau
DEA Depositor Education and
CBDC Central Bank Digital Currency Awareness
CBSP Capacity Building Service DFS Department of Financial

Provider Services
CCIR Company Credit Information DQI Data Quality Index

Report
DSCR Debt-Service Coverage Ratio

CHAPTER 3
ECB External Commercial Borrowing HR Human Resource

ECLGS Emergency Credit Line IDRBT Institute for Development and
Guarantee Scheme Research in Banking Technology
EIR Effective Interest Rate IGA Income Generation Activities
EMDE Emerging Market and IIP Index of Industrial Production
Developing Economies
IMEF International Master in
EME Emerging Market Economies Economics, Finance and Data
Science
EMI Equated Monthly Instalment
INR Indian Rupee
FCR Financial Cost Ratio
I-O Input-Output
FI Financial Inclusion
IOD Institute of Directors
FIDC Finance Industry Development
Council IOI Incidence of Indebtedness
FIOR Fixed Income to Obligation IPO Initial Public Offering
Ratio
IRACP Income Recognition, Asset
FO Field Officer Classification and Provisioning
FOIR Fixed Obligation to Income IRDAI Insurance Regulatory and
Ratio Development Authority of India
FPC Fair Practice Code IRR Internal Rate of Return
FY Financial Year JAIIB Junior Associate of Indian
Institute of Banking and Finance
GDP Gross Domestic Product
JAM Jan Dhan-Aadhar-Mobile
GECL Guaranteed Emergency Credit
Line JLG Joint Liability Group
GI Gender Inequality K Thousand
GLP Gross Loan Portfolio KCC Kisan Credit Card
GNPA Gross Non-Performing Assets KMP Key Managerial Personnel
GOI Government of India KYC Know your Customer
GVA Gross Value Added LCR Liquidity Coverage Ratio
HDI Human Development Index LEF Large Exposure Framework
HFI High Frequency Indicators LFPR Labour Force Participation Rates
HH House Hold LIC Low-Income Country

CHAPTER 3
LIH Low-Income Household NCGTC National Credit Guarantee

Trustee Company Ltd
LLP Limited Liability Partnership
NFHS National Family Health Survey
LMS Learning Management Systems
NHB National Housing Bank
LO Loan Officer
NNPA Net Non-Performing Assets
LOS Loan Origination System
NPA Non-Performing Asset
MF Micro Finance
NRC Nomination and Remuneration
MFI Microfinance Institution
Committee
MFIN Microfinance Industry Network
NRLM National Rural Livelihoods
MGNREGS Mahatma Gandhi National Rural Mission
Employment Guarantee Scheme
NTC New to Credit
ML Middle Layer
O/S Outstanding
MLI Member Lending Institutions
OCEN Open Credit Enablement
MOB Months of Business Network
MoF Ministry of Finance OECD Organisation for Economic Co-

operation and Development
MoMSME Ministry of Micro, Small &
Medium Enterprises OER Operating Expense Ratio
MSC MicroSave India Consulting Pvt OSS Operational Self-Sustainability

Ltd
PAN Permanent Account Number
MUDRA Micro Units Development &
PAR Portfolio at Risk
Refinance Agency Ltd
PCA Prompt Corrective Action
NABARD National Bank For Agriculture
And Rural Development PER Personnel Expense Ratio
NatCat Natural Catastrophe PFCE Private Final Consumption
Expenditure
NBFC Non-Banking Financial
Company PLI Production Linked Incentive
NBFC-MFI Non-Banking Financial PMFBY Pradhan Mantri Fasal Bima
Company - Micro Finance Yojana
Institution
PMJDY Pradhan Mantri Jan Dhan
NCAER National Council of Applied Yojana
Economic Research
PMSBY Pradhan Mantri Suraksha Bima
Yojana

CHAPTER 3
PSB Public Sector Banks SME Small Medium Enterprises

PSL Priority Sector Lending SRO Self-Regulatory Organisation
QA Qualifying Assets SRS Sample Registration System
QoQ Quarter on Quarter SVB Silicon Valley Bank
RBI Reserve Bank of India TA Technical Assistance
RE Regulated Entities TAT Turn Around Time
ROA Return on Assets TOT Training of Trainers
ROE Return on Equity TPE Third-Party Evaluations
RRB Regional Rural Banks TPP Third-Party Products
Rs Rupees TSP Technical Support Providers
SA Statutory Auditor TWG Technical Working Group
SBA Small Borrowal Accounts UB Unique Borrower
SBLP SHG-Bank Linkage Programme UCRF Uniform Customer Reporting
Format
SBR Scale Based Regulation
UL Upper Layer
SCA Statutory Central Auditor
UPI Unified Payments Interface
SCB Scheduled Commercial Banks
UR Unemployment Rate
SDG Sustainable Development Goal
UT Union Territory
SFB Small Finance Bank
VID Virtual Identity
SFTP Secure File Transfer Protocol
WC Working Capital
SHG Self Help Group
WPR Worker Population Ratio
SIDBI Small Industries Development
Bank of India WRMS Weather Risk Management
Services
SIT State Initiative Team
YoY Year on Year
SLA Special Liquidity Assistance

CHAPTER 3
Message from the

Chairperson
“India’s leap in financial inclusion, powered by meaningful participation of women in the economy
Digital Public Infrastructure”, were the words as decision makers.
of Hon’ble Prime Minister Narendra Modi in
September 2023 against the G20 backdrop as India In this context, Micro Matters: Macro View,
achieved its financial targets faster than predicted, India Microfinance Review FY 2022-23 carries
powered by robust digital payment infrastructure more weight than its previous issues as it presents
and the spirit of its people. an overarching overview of financial inclusion
in the country and the game changing role of
Augmenting the efforts of the government policies Microfinance in enabling low-income households
like the Pradhan Mantri Jan Dhan Yojana (PMJDY), across 28 states and 8 union territories in gaining
were the exhaustive efforts of the microfinance credit access.
sector that had one of the strongest footholds in
rural India, making it possible to take financial This is the third issue of Micro Matters: Macro
inclusion to the nation’s hinterland. Microfinance View, introduced by Microfinance Industry
not only provided the unserved, access to finance Network (MFIN) in 2021 with the objective of
but its adoption of digital technologies fast tracked presenting an accurate analysis of the sector as
the inclusion process. As of 31 May 2023, the total seen through its eyes as an Association and SRO.
loan portfolio of the microfinance industry stood I am pleased to observe that with every passing
at Rs 3,50,322 Cr with a total of 13.2 Cr active loans year, Micro Matters: Macro View is getting more
and 7 crore borrowers. comprehensive and catering to the interest of every
microfinance stakeholder in some way or the other.
More importantly, it is primarily women who
comprise the 7 crore borrowers, reaffirming the The report 2022-23 is also the first post-covid
importance of microfinance in spurring gender assessment of the sector in a way as the previous
equality and entrepreneurship. The G20 Delhi two issues reflected the Covid impact on the sector
Leaders’ Declaration in September 2023 has or its efforts to recover. I recognize with pride how
among other points committed to promoting this sector and the institutions that comprise it
women’s inclusion into the formal financing navigated repeated crises and yet kept their focus
system by strengthening their access to economic on customer-centricity. It was the sector’s foresight,
resources, particularly through digital finance owing to a thorough understanding of its borrower,
and microfinance, leading to equal, effective, and that it adopted a tech-touch model which always
held the borrowers in good stead.

M E S S A G E F R O M T H E C H AC IHR AP PE TR ES RO N3
This is the first complete year after the introduction has continuously demonstrated its contribution
of the new landmark regulations by the Reserve towards these goals and will play an important role
Bank of India and therefore we understand that in the country’s inclusive growth. Credit demand
there will be an interest in gauging the sector of digitised SMEs is predicted to cross $570b in 5
performance keeping that in mind. We have years (report by Redseer and GetVantage; out of
therefore introduced a special chapter on ‘Life after the $220 billion credit demand, only $165 billion
amended regulations for microfinance loans’ and is being fulfilled). The future looks bright from the
hope that you will find the same useful. demand and supply sides and with the supportive
role played by policy in the past, India will continue
Financial inclusion will be crucial to meeting to be one of the fastest-growing economies.
the Sustainable Development Goals for India by
reducing poverty, encouraging good health/well- Udaya Kumar Hebbar
being, gender equality, among others. The sector Chairperson – MFIN

CHAPTER 3
Prologue
At the helm of MFIN, I wondered that while host yearly report on the Indian economy, observes that
of agencies write about financial inclusion and despite significant global challenges, India was one
microfinance with their own predilections, there of the fastest-growing major economies in FY22/23
is no report that analyses the sector holistically. at 7.2%. Similarly, on the human development
This is how “Micro Matters: Macro View” was front, progress on access to improved water
conceived in 2021 and this is the third edition. The source, sanitation, Under 5 mortality rate and life
idea on which the report is based is our 360-degree expectancy complement economic progress. All
knowledge of the sector derived from interaction these are pointers towards our progress towards
with policy makers, regulator, industry players, national aspiration of $5 trillion economy. But the
funders and analysts; and this needs to be presented. key point is that aggregate measures often belie the
In addition, the activities done by MFIN to ensure equity part of growth story. John F. Kennedy said
that the sector is sustainable and responsible also “A rising tide lifts all boats”, but history of economic
needed to be documented. The report tries to do development shows that “lifting all boats” is not
this, while avoiding any biases as our role as SRO is automatic but requires conscious policy actions.
focused on clients and their journey in shaping an
Inclusive growth model for India. Over the years, Based on this belief, the role of financial sector
the structure has remained similar with some and microfinance in ensuring that development
additions each year. leaves no one behind is taken up in Chapters two
and three. While bank account ownership has
Microfinance being an integral part of the Indian become near universal in India, gaps in credit
economy and the financial sector, first two chapters delivery and insurance coverage need work. While
are devoted to these aspects. A holistic scan of the it is acknowledged that Commercial banks have
Indian economy on both economic and social/ limitations in retailing small size loans, their role
human parameters shows the progress towards in such cases needs to shift to providing wholesale
becoming a developed country. The fact that India loans to institutions, which specialise in this. This
was able to grow and hold its currency range will be a true spirit of cooperative effort in solving
bound despite global headwinds in the form of the inclusion challenge as envisaged by the Mor
COVID overhang, accentuated trade disruptions committee set up by the RBI in 2014. Last mile
due to Russia-Ukraine war and rise in policy rates inclusion effort of banks rests on shoulders of BCs
in US and EU is a story of resilience. World Bank’s and the sudden drop in numbers during 2022
India Development Update (IDU), the flagship half is a matter of concern. Equally concerning is the

CP H
RAO PL TO EGRU E3
regional skewness in credit flow coupled with MFIN in itself went through a paradigm change with
steady increase in share of personal loans over the changes in the ecosystem. MFIN membership
agriculture, industry and services sector. now comprises of all Regulated Entities active
in microfinance lending, thereby bringing all
Microfinance sector on its part has rebounded microfinance lenders under the same umbrella.
after COVID aided by RBI’s new guidelines for This will provide us a unique advantage as issues
microfinance. The sector [NBFC-MFIs, Banks, across entities can be resolved in a collaborative
SFBs, NBFCs] added 80 lakh new clients to its fold manner.
during 2022-23 and as of March 2023 catered to
6.60 crore clients with a loan portfolio of Rs.3.48 Chapter 5 turns to future growth potential of the
lakh crore. The reach of the sector is phenomenal sector as well as steps being planned for FY 23-24
with operations across 729 districts including 112 and beyond for fool proofing the sector. The vision
aspirational districts. Criticality of microfinance in at MFIN has always been to crystal gaze future
building economic aspirations is amply brought out challenges based on current scenario and take
by the fact that in absence of microfinance due to steps to strengthen the preparedness. The belief
state intervention in Andhra Pradesh, the share of underpinning this is that – we owe it to millions
informal sector in credit in AP rose from 57.9% in of clients and prospective clients as well as to the
2012 to 64.2% in 2018. The other redeeming feature nation. The report assesses microfinance potential
of microfinance has been that its regional focus demand during FY 23-24 at Rs 13 lakh crore and
has been on credit deficient states. As RBI’s new compared to current figures, credit gap works
regulations have moved the needle to principles- out to 70%. This underlies the immense growth
based framework, it is expected that microfinance potential of the sector.
operations will further go to financially excluded
areas. However, the growth will only be possible, if the
sector addresses emerging issues and remains true
As an SRO, MFIN has the responsibility to in letter and spirit to the regulatory framework.
ensure that the sector remains true to its mission, Key issues which MFIN has been flagging are
responsible and compliant with regulations. weakening of group discipline, staff turnover and
Discharging that role entails working on plugging over saturation in certain markets. Added to this
ecosystem issues like credit bureau reporting, list is the challenge posed in the field by app-based
building capacity of the sector through analysis of lenders who lend without physical presence and
gaps and future challenges, monitoring compliance get conflated with microfinance by local agencies.
and field issues and dialogue with the regulator and While MFIN will keep doing its best, I am sure
policy makers. Chapter 4 details the key steps taken that the supporting hand of the regulator and
by MFIN during the year in this sphere. Revision willingness of the practitioners to take proactive
of Code of Conduct post new RBI guidelines, data steps will help us navigate these challenges.
reporting to the RBI on pricing and indebtedness,
working with bureaus and TWGs to streamline I feel pleased to see that Micro Matters: Macro
credit bureau reporting, training of middle View has found its place as a regular annual
management through a specially curated program, publication and hope readers will find it enriching.
programme for independent directors and risk Let us march forward reiterating “The future is not
management workshop are some of the important something we enter. The future is something we
initiatives taken by MFIN in addressing the entire create.” ~ Leonard I. Sweet.
value chain.
Dr Alok Misra
CEO & Director

CHAPTER 1
01
Macroeconomic
environment
1.1 Economic & growth indicators Major Macroeconomic Events of FY 2022-2023
Globally Surging Prices: Global supply chains,
India stepped into her ‘Amrit Kaal’ when she which were already strained due to the pandemic
celebrated 75 years of independence on 15th lockdowns, became fragile in the wake of the
August 2022. However, the fiscal year that passed European war. Particularly important was the
saw economies across the world trying to stay affected supply of essential commodities such as
afloat amidst successive global turbulence. The new crude oil, natural gas, and wheat. The outcome was
decade has been marked by disasters with globally globally rising price levels, with World Consumer
spiralling impact. First, the COVID-19 pandemic Prices growing at 8.7% in 2022.1 Inflation in
stifled global economic output with three major advanced economies alone was estimated to be
waves of infection between 2020 and 2022. Second, 7.3% in 20221, more than twice the rate at which
the culmination of geo-political conflicts between prices increased in the year before. The annual
Russia and Ukraine into a war in February 2022, average price of Brent crude oil in 2022 was 100.94
translated into worldwide breakdown of trade. USD per barrel as opposed to 70.89 USD in 2021.2
To deal with the resulting inflation, the Federal Fuel prices hence, remained a big contributor
Reserve hiked policy rates and other central of increase in prices internationally. Pass-on of
banks including India followed suit. Currency these high input costs into final consumer prices
depreciation and widening of the current account primarily drove this phenomenon of ‘cost-push
deficit (“CAD”) that followed this monetary inflation’. The effect on prices of supply shortages
tightening dealt the third blow to emerging market was aggravated by a resurgence in consumer
economies like India. demand after the easing of pandemic restrictions.
1
2023, July. International Monetary Fund. “World Economic Outlook Update”
2
Energy Prices, U.S. Energy Information Administration

CHAPTER 1
Monetary Policy: In a bid to reduce sticky price one such event. Building up with a decade-long
levels, central banks resorted to monetary policy run of scandals revolving around mismanagement
tools. The U.S. Federal Reserve and central banks of funds and other malpractices, the end of Credit
of other advanced economies hiked interest rates Suisse was drawn out over a period where it
through the year, with the objective of removing witnessed large-scale withdrawal by its depositors,
excess liquidity from the market. Between April loss of confidence by investors, and finally, an
2022 and March 2023, the Federal Funds Effective acquisition by UBS. This coincided with the collapse
Rate went from 0.33% to 4.65%.3 While necessary of major U.S. banking entities, most prominently,
for curbing the rampant inflation, tightening of the Silicon Valley Bank (“SVB”). Since the start of
monetary policy led to depreciation of currencies the COVID-19 pandemic, SVB had invested largely
vis-à-vis the US Dollar, capital outflow and in government securities which started working
widening of the current account deficit of emerging against the banking institution as the Federal
market economies (“EMEs”). Most importantly, Reserve hiked interest rates to combat inflationary
the inflation-growth trade-off that is implied by the pressures. Massive withdrawal by customers
theory of Phillips curve4, came into play. Eventually, followed here as well and ended in the shutting
a state of stagflation was reached that remained down of SVB. Together such crises in the banking
prevalent through most of the year. This has been sector revived memories of the 2007-2008 financial
the primary cause of concern for monetary policy crisis as well as fears regarding global contagion
committees the world over. Repo rate in India had and eventual crash of the financial system.
been constant at 4% for nearly two years from 2020
to 2022. Starting May 2022, however, the Monetary Domestic Trend of Macroeconomic Indicators
Policy Committee of the Reserve Bank of India Domestic Inflation: Domestic inflation in FY
hiked the repo rate in each of its six consecutive 2022-2023 was 6.7%6, a reassuring figure when
meetings, till the policy rate hit 6.5% in February compared to the estimate of 9.8% for all Emerging
2023.5 Markets and Developing Economies taken together
Fear of a Financial Crisis: The year ended on yet in 2022.7 In global comparison, India’s state was
another set of dismal notes emerging from the slightly heartening. By itself, the inflationary
global financial sector. The failure of the Swiss pressures in India have still been very concerning.
banking giant, Credit Suisse, in March 2023 was Table 1.1 shows the trend of CPI Headline Inflation
from FY 2013-2014 to FY 2022-2023, with the
Table 1.1: India: CPI Headline Inflation Statistics (%), 2013 - 2023
Item 2013- 14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23
Mean 9.4 5.8 4.9 4.5 3.6 3.4 4.8 6.2 5.5 6.7
Std. Deviation 1.3 1.5 0.7 1.0 1.2 1.1 1.8 1.1 0.9 0.7
Skewness -0.2 -0.1 -0.9 0.2 -0.2 0.1 0.5 -0.7 -0.1 -0.1
Kurtosis -0.5 -1.0 -0.1 -1.6 -1.0 -1.5 -1.4 -0.7 -1.0 -0.6
Median 9.5 5.5 5.0 4.3 3.4 3.5 4.3 6.5 5.6 6.7
Maximum 11.5 7.9 5.7 6.1 5.2 4.9 7.6 7.6 7.0 7.8
Minimum 7.3 3.3 3.7 3.2 1.5 2.0 3.0 4.1 4.2 5.7
Note: Skewness and Kurtosis are unit-free. Annual inflation is the average of the monthly inflation rates during the year and therefore, may vary
from the annual inflation calculated from the average index for the year.
Source: RBI Annual Report, 2022-23
3
Economic Research Division, Federal Reserve Bank of St. Louis
4
1958, Nov, Economica, Vol 25, Issue 100. A.W.Phillips, “The Relation Between Unemployment and the Rate of Change of Money
Wage Rates in the United Kingdom, 1861-1957”
5
Database of Indian Economy, Reserve Bank of India
6
Press Note on Provisional Estimates of National Income 2022-23 and Quarterly Estimates of Gross Domestic Product for the
Fourth Quarter (Q4) of 2022-23, Ministry of Statistics and Programme Implementation
7
2023, July. International Monetary Fund. World Economic Outlook Update Microfinance Industry Network | 15
CHAPTER 1
maximum in 2022-2023 going up to 7.8%. The were excessive heat in April 2022 and unseasonal
highest contributor of the continually raised price rains towards March 2023.
levels in FY 2023 has been food inflation, followed
by erratic fuel prices. Economic Output: World output grew at only 3.5%
in 2022 as opposed to 6.3% in 2021.8 Year-over-year
This can be seen in Figure 1.1 where, between the growth in world trade volume, which was 10.7%
onset of COVID-19 restrictions and March 2023, in 2021, declined to 5.2% in 2022. Introduction
food & beverages and fuel & light have remained of higher repo rates in India suppressed the
consistently above the upper tolerance level of consumption as well as investment demand in the
inflation as decided by the MPC. Other occurrences country. Despite these challenges, India’s economic
that contributed to soaring prices in the country performance has shown promise. Indian real
Figure 1.1: Domestic Inflation Across Major Components, FY 2013 – FY 2023

Note: Figures in parentheses indicate weight in CPI-Combined. April and May 2020 data were imputed by the NSO.
Sources: NSO and RBI staff estimates.
8
See footnote 1

CHAPTER 1
GDP growth in 2022-2023 stood at 7%, as noted Private final consumption expenditure (“PFCE”),
in Table 1.2, nearly double the rate estimated which had taken a sharp hit during the pandemic,
globally. Although the reported figure for 2021- showed a year-on-year growth of 7.3% in FY 2023.
2022 was higher, this rate of 9.1% represented More importantly, PFCE was the main factor
India’s recovery from the de-growth that was the driving growth in the Indian economy with a
outcome of the COVID-19 pandemic. In absolute share in GDP of 58.4% in the second quarter of FY
terms, India’s GDP reached an all-time high of Rs. 2023.10 Economic growth has also been aided by
160 trillion last year.9 significantly increased efforts from the government
of India. Figures 1.2 and 1.3 show the trend that
The first quarter of FY 2022-23 did not show any capex has followed in the last few years along with
lagged sign of economic contraction from the the increase in absolute amount in FY 2023. This
Omicron wave of January 2022. This was largely added to the annual fixed capital formation by
due to the combined effect of massive vaccination boosting the construction sector and providing
drives and eased restrictions on economic agents. the necessary push for crowding-in of private
The optimism hence induced in the economy gave investment.
a much-needed push to the aggregate demand.
Table 1.2: India: Real GDP Growth, 2018 - 2023
Growth (per cent)

Component
2018-19 2019-20 2020-21 2021-22 2022-23
I. Total Consumption Expenditure 7.0 5.0 -4.6 10.5 6.4
Private 7.1 5.2 -5.2 11.2 7.3
Government 6.7 3.9 -0.9 6.6 1.2
II. Gross Capital Formation 6.2 -6.0 -11.6 22.2 9.6

Gross Fixed Capital Formation 11.2 1.1 -7.3 14.6 11.2
Change in stocks 27.3 -58.7 -85.5 687.8 1.9
Valuables -9.7 -14.2 26.4 34.0 -14.8
III. Net Exports 11.9 -3.4 -9.1 29.3 11.5

Exports 8.8 -0.8 -13.7 21.8 18.8
Imports
IV. GDP 6.5 3.9 -5.8 9.1 7.0
9
Annual Estimates of GDP at Constant Prices, 2011-12 Series, Ministry of Statistics and Programme Implementation, GoI
10
Economic Survey, 2022-2023

CHAPTER 1
Figure 1.2: Increase in Capex by State and Central Governments, FY 2012 - FY 2022

₹

Source: Economic Survey, 2022-2023
Figure 1.3: Increase in Capex between April and November, FY 2018 – FY 2023
Capital Expenditure (Apr-Nov)

₹

Source: Economic Survey, 2022-2023
Others: Rural India started on a path of recovery months of July and November in 2022-2023 has
when the COVID-19 scare started dying down. fallen and is close to the count recorded in 2019-
The number of persons demanding work under 2020.11 An uptick has been seen in the sale of
Mahatma Gandhi National Rural Employment tractors and fertilisers which can be viewed as a
Guarantee Scheme (MGNREGS) between the sign of positive expectations in the agriculture
11
Economic Survey, 2022-2023

CHAPTER 1
and allied activities sector. Congruently, there has as “revenge tourism” – a major bounce-back in
also been a boom in demand for credit in the rural travel and tourism numbers after easing of strict
economy. However, the global shocks received imposition of pandemic regulations. Domestic air
mainly through surging inflation has subdued this passenger traffic in the first quarter of 2022-2023
process in 2022-2023. As an example, in terms of recorded a growth of 206.2% over the first quarter
real rural wage, the year-on-year growth in 2022- of 2021-2022. Growth over the same quarters being
2023 has been negative. Overall, the beaten-down compared in international air traffic has been
rural Indian economy has shown improvement 403.3%.12
from the pandemic era in 2022-2023 albeit at a
slow rate. On the production front, the index of industrial
production (“IIP”) recorded a growth of 5.1% in
Various other High Frequency Indicators (“HFI”) 2022-2023, largely propelled by manufacturing
for the Indian economy have trended differently. activities. A breakdown of year-on-year growth
On the consumption side, automobile sales in IIP by various types of goods manufactured is
have grown (year-on-year) moderately in the present in Figure 1.4. Non-food credit increased
urban economy and shown a sharp rise in the to 15.4%, higher than it has been in the last seven
sub-category of three-wheelers in rural India. years (Figure 1.5). This is indicative of how
Impressive surges have been witnessed in air traffic increased amount of credit is being extended by the
numbers and in hospitality industry. This can be financial sector for personal as well as productive
tied to the phenomenon that has now been termed (agriculture, industrial or services) purposes.
Figure 1.4: Growth in Index of Industrial Production, 2019 - 2023

12
RBI Annual Report, 2022-2023

CHAPTER 1
Figure 1.5: Contribution of Components to Credit Growth, 2015 – 2023

Outlook for India of output due to the pandemic between 2020 and
2021, GDP of India rebounded well, closer to its
Despite global headwinds, the Indian economy has projected trajectory than expected. Even as capital
fared well. Growth in India did not slump at par with outflows persisted, Indian Rupee depreciation
the global output. The domestic economy’s recovery remained within a range. Appropriate and timely
from the COVID-19 shocks and lockdowns has monetary policy measures implemented by the RBI
been impressive. Figure 1.6 demonstrates this as it have managed to contain the spiralling inflation in
shows the path of Indian GDP across quarters from recent months.
April 2018 to March 2023. After the plummeting
Figure 1.6: Real GDP of India, FY 2019 – FY 2023

Pre-COVID

INR Billion
level
National wide
lockdown

Second wave

Source: Indian Economic Outlook, July 2023, Deloitte

CHAPTER 1
Prospects of the Indian economy in the coming SDGs target of U5MR (<=25 by 2030): Kerala
times will be coloured by several domestic and (8), Tamil Nadu (13), Delhi (14), Maharashtra
global ongoings. Reforming various facets of the (18), J&K (17), Karnataka (21), Punjab (22), WB
financial sector has been one of the top priorities (22), Telangana (23), Gujarat (24), and Himachal
of the current Indian government. The push that Pradesh (24).
banking, finance and digitization of the same
have received through major initiatives such as Similarly, the maternal mortality ratio also declined
the “JAM trinity” (Jan Dhan-Aadhaar-Mobile) from 384 per 100,000 live births in 2000 to 97 per
and Unified Payments Interface (UPI) has been 100,000 live births in 2019. Kerala (19), followed
key in promoting financial inclusion. In late 2022, by Maharashtra (33), then Telangana (43) and
the RBI launched pilots of India’s Central Bank Andhra Pradesh (45), Tamil Nadu (54), Jharkhand
Digital Currency (CBDC) or the e-Rupee. This is a (56), Gujarat (57) and lastly Karnataka (69) have
move towards improving ease of customer’s access attained the SDG 2030 target.
to funds and increasing general security around The nutritional challenges among children have
financial system transactions in the coming years. shown improvements. 38.4% Children under-five
Continual efforts towards improving the quality years who were stunted (height-for-age) in 2015-
of capital vis-a-vis the lowering of Stressed and 16 have come down to 35.5% by 2019-21. Similarly,
Non-Performing Assets will help to turn around under-five wasting (weight-for-height) dropped
the banking sector performance and increase from 21% (2015-16) to 19.3% in 2019-21.
the optimism around investment in the country.
The boost that infrastructure development in In education, India has achieved near universal
the country has received through increased access at the elementary level of schooling and
government expenditure on the same promises 97% and 96.6% habitations have been covered with
growth across sectors over many years. primary and upper primary schools respectively.
Literacy rate increased from 48 per cent in 1991 to
The resistance that the Indian economy has shown 84.4 per cent for males and 71.5 per cent for females
to macroeconomic shocks in the recent years in 2021 (National Family Health Survey round five,
has favoured the positive outlook that is being NFHS-5).
maintained for India’s current financial year. The
IMF’s forecast of India’s economic growth in FY Households in India today have near universal
2023 – 2024 stands strong at 6.1%, as of July 2023. access to electricity, availability of drinking-water
Considering the structural reforms and policy source and sanitation facility as per NFHS-5. As per
measures introduced in the country as well as the NFHS-5, 96.8 per cent households have access to
heightened focus on economic development, India’s electricity, 95.9 per cent have improved drinking-
economic trajectory in 2023 is being pegged as water source and 70.2 per cent have an improved
promising, among major economies of the world. sanitation facility.
1.2 Human development indicators 1.2.1 Life expectancy at birth
Economic growth and Human Development go in Medical and healthcare advancements in the
tandem. India is poised to be in middle-income country have shown remarkable improvements
group in terms of per capita income and has already leading to increase in the life expectancy at birth,
moved from low to medium category in terms of as shown in Figure 1.7. It has improved by 20
the UNDP Human Development Index (HDI). years since 1975 and reached 70 years. The life
Between 1990 and 2020, the under-five mortality expectancy at birth for males and females is at
rate (U5MR) reduced from 126 to 32 (per 1,000 live 68.6 and 71.4 years respectively. The projected
births). Eleven (11) States/UT have already attained life expectancy for the year 2031-36 for males and
females is respectively 71.2 and 74.7 years.

CHAPTER 1
Figure 1.7: Life expectancy at birth

Source: Sample Registration System (SRS) Statistical Report 2020; #Estimate; *Projected
In Life expectancy at age 30 for bigger states/ (Figure 1.8). For Females, the highest life
UTs, NCT Delhi has the highest expectancy expectancy at age 30 is from Himachal Pradesh at
for males at 46.3 years and the minimum 50.3 years and minimum at 41.7 years for the state
for the state of Chhattisgarh at 38.6 years of Chhattisgarh.
Figure 1.8: Life expectancy at 30 for bigger States/UT

Source: SRS, Statistical Report 2020

CHAPTER 1
1.2.2 Per Capita Gross National Income – inching In rural areas, LFPR increased from 50.7% in 2017-
up with wide state differences 18 to 60.8% in 2022-23 while for urban areas it
increased from 47.6% to 50.4%. LFPR for males in
India’s per capita income (Base Year: 2011-12 at India increased from 75.8% in 2017-18 to 78.5% in
current prices) has recorded double-digit growth 2022-23 and corresponding increase in LFPR for
at rate of 10.50% since base year and reached INR female was from 23.3% to 37.0%.13
1,93,043 for the year 2022-23. Madhya Pradesh
grew at the rate of 13.17% followed by newly Similarly, in rural areas, WPR increased from
formed state of Telangana (13.13%), Karnataka 48.1% in 2017-18 to 59.4% in 2022-23 while for
(12.42%) and Jharkhand (12.09%). urban areas it increased from 43.9% to 47.7%. WPR
for males in India increased from 71.2% in 2017-18
Currently, NCT Delhi leads in the per capita to 76.0% in 2022-23 and corresponding increase in
income league table with Rs 4,44,768 in FY23, WPR for females was from 22.0% to 35.9%.
followed by Telangana (Rs 3,12,398), Karnataka
(Rs 3,01,673), Haryana (Rs 2,96,685) and Tamil In rural areas, unemployment rate (UR) decreased
Nadu (Rs 2,75,583), as depicted in Figure 1.9. from 5.3% in 2017-18 to 2.4% in 2022-23 while for
urban areas it decreased from 7.7% to 5.4%. UR for
On the other hand, large states UP and Bihar, which male in India decreased from 6.1% in 2017-18 to
together make up 25 per cent of the population, 3.3% in 2022-23 and corresponding decrease in UR
are at per capita incomes of Rs 83,565 and 54,111 for female was from 5.6% to 2.9%.
respectively.
In Urban areas, majority of work force is in regular
1.2.3 Employment and Unemployment- Increase wage/salary (male 47.1%, female 50.8%), whereas
mainly in Women LFPR in Rural areas 58.8% of male and 71% female are
There is an increasing trend in the Labour Force engaged in self-employment. The distribution
Participation Rates (LFPR) and Worker Population of work force between self-employment, regular
Ratio (WPR). wage/salary and casual labour among urban males
Figure 1.9: Per Capita Net State Domestic Product (Current Prices) 2022-23

Source: RBI, National Statistical Office (NSO)
13
Periodic Labour Force Survey (PLFS). “Annual Report 2022-2023”

CHAPTER 1
has been consistent since 2020-21. However, in accounts. All 12 parameters of the MPI have shown
case of rural females distribution, there is mobility marked improvements.
from casual labour and regular wage/salary to self-
employment (as own account worker) from 22% in Providing multidimensional poverty estimates
2020-21 to 28% by 2022-23. for the 36 States and Union Territories and
707 Administrative Districts, the Report states
1.2.4 National Multi-Dimensional Poverty Index that the fastest reduction in the proportion of
multidimensional poor was observed in the States
According to the NITI Aayog’s Report: ‘National of Uttar Pradesh, Bihar, Madhya Pradesh, Odisha,
Multidimensional Poverty Index: A Progress and Rajasthan – Table 1.3.
Review 2023’, a record 13.5 crore people moved
out of multidimensional poverty. During the 1.3 An analysis of banking sector credit flow
period 2015-16 and 2019-21, the share of India’s
India has been hailed as one of the fastest-growing
population who are multidimensionally poor has
economies of current times.14 In terms of current
declined 9.89 percentage points from 24.85% to
prices, India had the fifth highest GDP (USD 3,386
14.96%. It measured simultaneous deprivations
billion) in the world in 2022.15 Real GDP growth
across the three equally weighted dimensions of
rate for India in 2023 is the highest out of the major
health, education, and standard of living that are
economies.16 Theoretically, several growth models
represented by 12 SDG-aligned indicators. These
have posited that capital accumulation has a
include nutrition, child and adolescent mortality,
causal effect on economic growth. In Gregorio and
maternal health, years of schooling, school
Guidotti (1995)17, the authors considered data for
attendance, cooking fuel, sanitation, drinking
100 high-, middle- and low-income countries and
water, electricity, housing, assets, and bank
established positive causal effect of domestic
Table 1.3: States with fastest reducing multidimensional poverty
Headcount Ratio
(% of total population who are
Population multidimensionally poor and No. of people who escaped
Region
Share deprived) Multidimensional Poverty
2015-16 2019-21
Bihar 9.06% 51.89% 33.76% 2,25,11,679
Madhya Pradesh 6.21% 36.57% 20.63% 1,35,69,242
Uttar Pradesh 16.95% 37.68% 22.93% 3,42,72,484

Odisha 3.35% 29.34% 15.68% 62,62,852
Rajasthan 5.82% 28.86% 15.31% 1,08,16,230
All India 100% 24.85% 14.96% 13,54,61,035
Source: National Multidimensional Poverty Index: A Progress Review 2023, NITI Aayog.
14
The World Bank, “India Overview”
15
2023, IMF. “Data Mapper”
16
Ibid
17
1995, IMF. J.D. Gregorio and P. E. Guidotti. “Financial Development and Economic Growth, Vol. 23, No. 3”

CHAPTER 1
credit to private sector on average GDP per capita Personal loans have not only grown at a much
growth. A necessity for expansion of capital base is faster rate but also increased their share in overall
availability of investible funds. The global banking “Non Food Credit”. In March 2017, Personal
sector has historically taken charge to promote loans accounted for 22.84% of Non Food credit,
savings and turn them into investments for the which has increased to 32.12% by March, 2023.
economy through credit. In the Indian economy, Figure 1.10 shows the growth of various sectors for
banking sector development and economic the six year period.
growth were shown to Granger cause18 each other
by Tripathy and Pradhan (2014)19. Hence, for Bank credit has since nationalisation been directed
investible funds to be made increasingly available towards increasing the productive potential of the
to public and the government, the financial sector economy but in recent years dominance of personal
of a country must thrive. As of March 2023, INR loans begets an important policy question. The only
136 lakh crore was the total outstanding bank redeeming feature of this trend is that it includes
credit extended by the Scheduled Commercial personal housing loans. Are banks shying away
Banks in India.20 This amount is higher than the from the “real sectors” or it is a case of chasing higher
outstanding bank credit of March 2022 by 15%, a margins? Both scenarios require course correction
commendable figure compared to the growth rate for economic growth. Personal loan segment also
of 9.6% in March 2021 over 2020. has non-bank players, the so called fintech lenders
adding their bit. The last available report of fintech
Credit flow from Scheduled Commercial Banks lending21 shows that personal loans and consumer
(SCBs) is an important measure of economic loans account for 75% of their lending.
growth and importantly provides clues on sectors
where credit growth is happening. Focus on Micro & Small yielding results- still
way to go
Personal loans dominate over other sectors
In the MSME sector, considering the predominance
Data from the RBI on sectoral credit flow from of Micro and Small (~95% of MSMEs are Micro
SCBs analysed for last 6 years (2017 – 2023) reveals or Small) as well as their potential for inclusive
interesting points. First, while in this period, overall and decentralised development, Micro and Small
credit flow increased at CAGR of 10.22%, various has always been a focus area for the Government.
components grew differently with “Personal Loans” Various schemes of the Government since 2014
growing at highest CAGR of 16.67% as shown in starting with MUDRA and the latest being PM
Table 1.4. Vishwakarma scheme bear testimony to it. In
parallel, SIDBI -the apex bank for MSME has also
Table 1.4: CAGR of credit flow to various sectors
taken various steps/schemes like onlinepsb loans,
(2017-23)
Start-up India, Stand Up India, Udyamimitra etc to
Sector CAGR of credit flow bolster credit flow to the sector.
Agriculture 9.25% The six year data of credit flow to Micro and Small
Industry 3.72% by SCBs shows (Figure 1.11) that while their share
Services 12.27% in overall credit flow to Industry remained constant
Personal Loans 16.67% at around 13% for first four years, it is showing
Source: Handbook of Statistics on Indian Economy 2022-23, RBI incremental growth in last three years, with March
2023 share reaching almost 18%.
18
Granger causality is one of the statistical tests used to determine whether a time series can be forecasted using another time series (C.
Granger, ‘Investigating Causal Relations by Econometric Models and Cross-spectral Methods’, Econometrica, 1969)
19
S. Tripathy and R.P. Pradhan, ‘Banking Sector Development and Economic Growth in India’, Global Business Review, 2014
20
‘Sectoral Deployment of Bank Credit – March 2023’, 28 April 2023, RBI Press Release
21
Fintech lending trends H1 2022-23, Equifax

CHAPTER 1
Figure 1.10: Sectoral Credit Growth

Source: Handbook of Statistics on Indian Economy 2022-23, RBI
Figure 1.11: Credit to Micro & Small as % of Industrial credit

Source: Handbook of Statistics on Indian Economy 2022-23, RBI
Regional skew continues; South displaces West topping the list, followed by South, North, Central,
for highest share East and North East. The shares have more or less
remained similar in other regions between March
Data for last decade pertaining to regional credit 2018 and March 2023 albeit with South replacing
flow used to show a sharp skew in regional West as having the highest share of credit flow for
distribution of SCBs credit with Western Region last 3 years, as shown in Figures 1.12 & 1.13.

CHAPTER 1
Figure 1.12: Regional share of credit flow as of Public Sector Banks (PSBs) dominate despite
March, 2018 losing market share
Other than regional distribution, the share
of various agencies across this period shows
(Table 1.5) that Public Sector Banks despite losing
market share continue to dominate the financial
sector, followed by Private Sector Banks. RRBs and

SFBs put together account for <5% share.

Table 1.5: Share (%) of Agencies in credit flow

Entity type Mar-18 Mar-23

PSB 63.23 54.29

Private Banks 29.28 37.81
Foreign Banks 4.20 3.60
Source: Banking & Statistical Returns RRBs 2.91 2.96
Figure 1.13: Regional share of credit flow as of SFBs 0.38 1.34

March, 2023
Summing up
Overall, Indian economy shows positive outcomes
on both economic and social parameters. The
COVID shock has also been weathered and various
Northern economic indicators show a rebound. The key
Southern 21.41 North challenge in next few years will be sustaining the
30.13 Eastern
1.21 momentum, albeit accelerating it, while navigating
difficult global disruptions. For this, domestic
Eastern
7.77 demand and consumption will play an important
part. For this to happen, the role of financial sector
Central will be key in channelling funds to the productive
9.93
Western sectors and hitherto deprived regions. Microfinance
29.55
has to play a key part in this by taking financial
services to the excluded regions/population.
Source: Banking & Statistical Returns
Agencies regional share also broadly follow the All-

India pattern especially in case of PSBs and Private
sector banks, wherein South and West account for
~60%. However, in case of RRBs, there are some
marked differences as in case of RRBs, West has a
very low share of 6.43%.

CHAPTER 2
02
An overview of
financial inclusion in India
2.1 Role of financial inclusion in development education and other human development indicators
(Honohan, 200423; Demirguc-Kunt et al., 200824).
The role of financial development and deepening
of outreach in catalysing financial activity in the Such positive impact is also tautologically corelated
economy is widely accepted. Access to credit with reducing inequality and thereby promoting
encourages the borrowers at the bottom of the broad based growth. Growth with inequality can
pyramid to invest in entrepreneurial ventures have negative consequences. Inequality slows
or to strengthen their existing livelihood. Such growth, makes it more volatile and creates unstable
businesses offer them the possibility of earning conditions for a sudden slowdown in GDP growth
a higher income as compared to the alternative [Stiglitz, 201225].
option of employment at low wages (Banerjee Though Financial Inclusion has a broader
and Newman, 199322). Easier access to credit also meaning encompassing credit, savings, insurance,
helps newer segments of the population to avail the pension etc., most studies have examined the
services of formal financial institutions. Multiple causality between credit growth and GDP growth
research studies have established the positive establishing the link between Access to Finance
impact of credit availability on poverty reduction, and growth. Figure 2.1 shows the results of one
women empowerment, household health, children’s such study.
22
1993. Banerjee, A. V. and Newman, A. F. “Occupational choice and the process of development. Journal of Political Economy,
101(2)”.
23
2004, The World Bank. Honohan, P. “Financial development, growth and poverty: How close are the links?. In: Policy Research
Working Paper WP3203.”
24
2007. Beck, T., Demirguc-Kunt, A., Levine, R. “Finance, inequality and the poor. J. Econ. Growth 12 (1), 27–49”
25
2012. Joseph Stiglitz. “The Price of Inequality. London: Allen Lane. 414pp.”

CHAPTER 2
Figure 2.1: Credit Growth and GDP Growth (Percent)

Source: Garcia-Escribano & Fei Han, 2015 [31 Emerging Markets*, 2003-2012]
Thus while credit is shown to be positively related On the savings side, the picture is much better with
to growth and reducing inequality, composite around 76 percent of people worldwide having
financial inclusion has emerged as the major policy an account either at a bank or similarly regulated
instrument in recent times. This is so because deposit-taking financial institution, including a
credit per se should not be used for meeting all mobile money service provider. Yet a regional
types of financial needs, such as medical expenses. or economy-level view of account ownership
Global development discourse now attaches equal shows wide variation. Among the 123 surveyed
importance to other financial services such as economies, account ownership ranges from just 6
savings. percent in South Sudan to universal ownership in
high-income economies such as Canada, Germany,
2.1.1 Global progress in financial inclusion and the United Kingdom.
Despite the progress made in improving financial Thus, while progress is being made across the globe,
inclusion, in 2021 only about 53 per cent of adults much needs to be done especially on the credit
worldwide reported borrowing any money over side. Importantly, “No Poverty” and “Reduced
the past 12 months (Global Findex Database Inequalities” are two keys goals out of 17 SDGs.
2021). In developed countries, borrowing from The emphasis on financial services is part of sub
formal sources was pre-dominant (Figure 2.2). goals with Digital finance and MSME finance as the
The percentage of adults borrowing from formal two key pillars of G20 financial inclusion plan.
sources in developing countries continues to be
low though it has increased from about 16 per cent
in 2014 to 23 per cent in 2021.

CHAPTER 2
Figure 2.2: Formal Borrowing Around The World
Adults borrowing any money from a financial institution or through the use of a credit card or
mobile money account in the past year (%), 2021
1-19
19-39
39-64
64-89
89-100
No data
Data forthcoming
in 2023
Source: Global Findex Database 2021
2.1.2 Indian scenario in financial inclusion and operational constraints, bank nationalization
was done in 1969. Interestingly, over last decade,
It is to the credit of policy makers in India as well as thematic focus change has also happened. For a
the regulators, that financial inclusion has remained greater part of 75 years, the emphasis was on credit
top priority since Independence. During the course and rural credit. Significantly, a decade back there
of 75 years, while the emphasis on channels and was a shift in the policy focusing on savings -bank
instruments has changed, the focus has remained. accounts as also insurance and broad based credit.
To narrate a few major policy mandates sequentially, The pivot of recent years push has been based on
focus on cooperatives, nationalization of banks, Jan Dhan-Aadhar-Mobile (JAM) trinity, which
Priority sector lending, Service Area approach, not only enables new fintech players to enter the
differential interest rates, formation of Regional inclusion space but also provides cost effective
Rural Banks (RRBs), formation of NABARD and solutions to established players.
SIDBI, SHG-Bank linkage programme, creation of
NBFC-MFI category, formation of Small Finance It is a decade and half years since the first national
Banks (SFBs), Banking Correspondents, PMJDY level report on accelerating financial inclusion
scheme readily come to mind. came out from the Committee on Financial
Inclusion in 2008 (headed by Dr. C. Rangarajan).
The priorities and instruments have changed with The committee’s report in 2008 noted that a) 51.4%
learning from the past. For example, in the initial of farmer households are financially excluded
years, when it was found that commercial banks from both formal / informal sources, b) 73% of
continued with urban focus, while cooperatives farmers have no access to formal sector credit and
were not able to expand due to their financial c) large skew in financial exclusion across regions,

CHAPTER 2
occupations and social groups. In line with the financial inclusion landscape in India, the sheer
times, the focus of the committee was on credit. energy that has been put behind the effort and the
seriousness with which providers and regulators
The second landmark report showcasing the have pursued this goal is impressive. However, it
real shift from credit to savings was “Committee is possible that it is this very energy that has been
on Comprehensive Financial Services for Small its key weakness as well, because it has propelled
Businesses and Low-Income Households (LIH)” highly engaged regulators and policy makers
headed by Dr Nachiket Mor and constituted by the to move from one big idea to another, each time
RBI in 2013/14. The report can be considered as convinced that they have finally found the key
a landmark because of two features – 1) it set out to financial inclusion, whether it be cooperative
aspirational targets across all dimensions of financial banks, nationalisation of banks, self-help groups,
inclusion – termed as six vision statements (Annex regional rural banks, or business correspondents.
A) and 2) it talked about key design features which While there is no question that there is a continuing
should guide India’s financial inclusion journey. need to explore new ideas; learn from the
For example, the first vision statement is related experiences of other nations; and benefit from new
to savings and bank accounts and it said – “By technologies; perhaps it is not the best regulatory
January 1, 2016 each Indian resident, above the age strategy to centrally pick one approach no matter
of eighteen years, would have an individual, full- how convincing it may seem and to push the entire
service, safe, and secure electronic bank account.” system in that particular direction to the exclusion
On design features, the committee noted “The of all others.”
four design principles that would inform financial While the focus of this report is mainly on
inclusion and deepening strategies discussed Microfinance, in order to present a broader
in the Report are: Systemic Stability, Balance- picture of financial inclusion, the report analyses
sheet Transparency, Institutional Neutrality, and the progress across outreach, savings, insurance
Responsibility towards the Customer”. The last and credit. This is followed by brief summary of
two design principles brought customer centricity microfinance progress and in the last part a few
and role of various channels in policy discourse. issue/challenges are discussed.
For any financial inclusion effort, clients have to
remain as the fulcrum and need to recognise that 2.1.3 RBI’s Financial Inclusion Index: Inching up
each channel – Bank, NBFC, NBFC-MFI, Business but need more elaboration
Correspondents (BC) etc. have a role to play in
solving these challenges for the clients. Policy bias Before delving into granular review, the overall
towards any channel is not conducive for a strategy progress as measured by the RBI needs to be seen.
trying to leverage comparative advantage. As an At present, there are two sources of seeing broad
example, while banks may be the prime choice based progress in financial inclusion; 1) World
for deposit mobilization, specialized credit like Bank’s global FINDEX, which shows progress on
microfinance is the forte of specialized agencies various parameters like bank account ownership,
like MFIs or even banks focused on microfinance. credit offtake etc but does not give a Country score
Though the design features enunciated are yet to be and 2) RBI’s financial inclusion index, which is
fully seen in policy [discussed later in the chapter], published annually.
quite a bit of work has happened in this sphere. RBI’s financial inclusion index has been constructed
One paragraph from the Mor Committee report is with three sub-indexes – Access, Usage and
worth remembering and the ecosystem including Quality. Access’ sub-index is further divided into
regulators must keep this in mind. Analysing past four dimensions, viz., ‘Banking’, ‘Digital’, ‘Pension’,
efforts, the Committee noted “As one examines the and ‘Insurance’, and reflects the efforts made on

CHAPTER 2
the supply side of financial inclusion and has 26 2.2 Sub dimensions of Financial Inclusion
indicators. ‘Usage’ sub-index is divided into five
dimensions, viz., ‘Savings & Investment’, ‘Credit’, 2.2.1 Outreach – Focus on BCs; sharp contraction
‘Digital’, ‘Insurance’ and ‘Pension’ and has 52 on BC outlets in 2022
indicators and measures demand side. ‘Quality’ Post nationalisation, the focus was on spread
sub-index has three dimensions, viz., ‘Financial of bank branches especially in rural areas. The
Literacy’, ‘Consumer Protection’, and ‘Inequality’ in push for branch banking was predicated on the
the distribution of financial infrastructure with 19 understanding that the welfare costs of exclusion
indicators. In total, there are 97 indicators. from the banking sector, more so for the poor
The progress as reported by the RBI is presented in are high and need to be addressed through
Table 2.1. state intervention. The massive regulatory push
towards it post 1969 yielded impressive results
While this is a useful index, its utility is a bit with “Between 1969 and 1990, bank branches were
reduced as methodological details on what goes opened in roughly 30,000 rural locations with no
in under various parameters with what weight as prior formal credit and savings institutions.”27
well as data used for the index is not available. It
limits its usability for researchers and practitioners. However, post 1991 realising the financial
For 2023, a press release has been issued26 as unviability of brick and mortar branches and the
“Index for the year ending March 2023 has since broader financial sector liberalisation policy, the
been prepared. The value of FI Index for March decade of 90s saw flexibility given to banks to
2023 stands at 60.1 vis-à-vis 56.4 in March 2022, rationalise their branch network. The policy has
with growth witnessed across all sub-indices. seen two basic shifts in the last 10 years. First is the
Improvement in FI Index was mainly contributed emphasis on Business Correspondents (BC) and
by Usage and Quality dimensions, reflecting second is the path breaking Pradhan Mantri Jan
deepening of financial inclusion.” but no further Dhan Yojana (PMJDY). While PMJDY progress is
details are available. covered later, the outreach through banking outlets
and BCs shows interesting trends in Table 2.2.
Table 2.1: RBI’s Composite Financial Inclusion Index
Year Access Usage Quality FI-Index

Mar-17 61.7 30.8 48.5 43.4
Mar-18 63.9 33.7 51.4 46.0
Mar-19 67.5 38.7 52.6 49.9
Mar-20 71.6 42 53.8 53.1
Mar-21 73.3 43 50.7 53.9
Mar-22 56.4
Mar-23 60.1
Source: RBI
26
2023, RBI. “Financial Inclusion Index For March 2023”. Accessed on 7th October, 2023
27
2004, Robin Burgess and Rohini Pande. “Do Rural Banks matter? Evidence from the Indian social banking experiment”.

CHAPTER 2
Table 2.2: Banking Outreach
Banking outlets in Mar-10 Dec-21 Dec-22

Villages-Branches 33,378 53,249 53,159
Villages>2000-BCs 8,390 15,18,496 13,83,569
Villages<2000-BCs 25,784 3,26,236 2,95,657
Villages - BCs 34,174 18,44,732 16,79,226
Other Modes 142 2,542 2,273
Total 67,694 19,00,523 17,34,658
Urban Locations
447 14,12,529 4,38,333
through BCs
First, the impact of RBIs two stage financial potential threat to the sustainability of new and
inclusion plan – stage 1 covering locations with struggling entrepreneurs like a Customer Service
more than 2,000 population and later <2,000 Point (CSP)”. Another concern has been voiced
with banking outlet clearly shows with 2,95,957 regarding BCs business being hit by banks offering
banking outlets even in pockets with <2000 their own mobile banking apps. The reason needs
population as on December 2022. It is also to be studied in detail and addressed as BCs have
seen that while bank branches have marginally been the main plank of outreach in recent years.
declined, BC branches show impressive increase
and much of the outreach is on account of 2.2.2 Account ownership- Giant leap forward
BC outlets [mentioned as banking outlets in In order to promote bank account ownership,
Table 2.2]. the Reserve Bank of India came up with the
But even in BC outlets, there is a sharp drop in last concept of “No Frills account’ in 2005 to provide
figures available as of December, 2022 with rural banking facilities to customers with low-income
BC outlets dropping by 9% and urban BC outlets backgrounds. No Frills Account is a type of bank
falling by a whopping 31% over December, 2021. account that requires an individual to maintain
Such a massive drop seems unexplainable and a negligible or no minimum balance along with
the RBI report mentions that this sharp dip is on following some simple KYC norms. Later, it was
account of the Private sector banks. Is it on account morphed as “Basic Savings Bank Deposit (BSBD)
of viability issues? Quite a few studies have observed Account” which will offer certain minimum
that and a 2019 study28 says “The financial analysis facilities, free of charge, to the holders of such
of the existing BCs with the existing products and accounts. Later in 2019, the RBI stipulated that
services in practice shows a very diffusive break- in the interest of better customer service, Banks
even of more than seven years. Such a long time are advised to offer the following basic minimum
taken to reach the break-even point can be a facilities in the BSBD Account, free of charge,
without any requirement of minimum balance.
28
2019. “Financial Modelling for Business sustainability - A Study of BC Model of Financial Inclusion in India (Sage)”

CHAPTER 2
• The deposit of cash at bank branch as well as Unfortunately, there is no data available on total
ATMs/CDMs transactions, which could provide information on
account usage.
• Receipt/credit of money through any electronic
channel or by means of deposit /collection of PMJDY progress – Launch of Pradhan Mantri Jan
cheques drawn by Central/State Government Dhan Yojana in 2014 aimed at covering all excluded
agencies and departments population with a bank account completely
• No limit on number and value of deposits that galvanised the banking scenario in the country. In
can be made in a month one year itself, 14.54 accounts were opened and has
reached 50.56 crore as of September 27, 2023, as
• Minimum of four withdrawals in a month, shown in Table 2.4.
including ATM withdrawals
Two striking features emerge from the numbers;
• ATM Card or ATM-cum-Debit Card.
one that share of female account holders under
Now, the progress under these accounts is reported PMJDY is more than males and secondly, the
by the RBI as BSBD accounts (Table 2.3). amount of deposits has swelled to nearly Rs 2 lakh
crore. However, though it is logical, it is not clear as
Nearly 2/3rd of BSBD accounts have been opened to whether PMJDY accounts are a subset of BSBD
by BCs in a total of 67.86 crore accounts. Though accounts or a distinct category. The giant push
the BCs predominate the number of accounts, the towards account ownership has propelled India
average value of money per account of BC is much into the category of countries of high bank account
lower at Rs.2,860 against branch opened accounts ownership (Figure 2.3) in World Bank’s Global
at Rs.4,573. This is understandable as BCs generally Findex report, 2021.
work with people from lower economic strata.
Table 2.3: Progress under BSBD Accounts
BSBDA ACs through Mar-10 Dec-21 Dec-22

Branches (No. in Lk) 600 2,712 2,704
Branches (Rs Cr) 4,400 1,18,625 1,23,653
BCs (No. in Lk) 130 3,919 4,082
BCs (Rs Cr) 1,100 95,021 1,16,777
Total (No. in Lk) 735 6,631 6,786
Total (Rs Cr) 5,500 2,13,646 2,40,430

CHAPTER 2
Table 2.4: Progress under PMJDY
No. of No. of
No. of Deposits
beneficiaries beneficiaries at
rural-urban\ Total No. of in
Bank type at rural/semi- urban metro
female beneficiaries Accounts
urban centre centre bank
beneficiaries (Rs Cr)
bank branches branches
Public Sector Banks 24.8 14.7 21.8 39.5 1,59,080
Regional Rural Banks 8.1 1.4 5.4 9.4 39,700
Private Sector Banks 0.7 0.7 0.8 1.4 5,703
Rural Cooperative 0.2 0.0 0.1 0.2 0
Banks
Total 33.8 16.8 28.1 50.6 2,04,483
Source: https://pmjdy.gov.in/account accessed on October 9, 2023
Figure 2.3: Account ownership rates across the world
Adults with an account (%), 2021
1-19
19-39
39-64
64-89
89-100
No data
Data forthcoming
in 2023
Source: Global Findex Database 2021

CHAPTER 2
Global Findex reports account ownership among analysis for the period March 2012 to March 2023,
adults in India at 78% in 2021 – a steep rise from shows some interesting trends.
35.2% in 2011. Further, it also notes that overall
account ownership does not vary from national Figure 2.4 is about annual growth in number of
percentage in case of women and poor adults – a accounts and it shows that under all three loan sizes
huge positive achievement. there is a downward trend as of March 2023, while
under Rs 25,000 accounts the time line shows high
2.2.3 Credit – an analysis of small value accounts volatility – sudden spike followed by sudden dip.
While Chapter 1, Section 1.4 is about the overall On a CAGR basis, loan accounts below Rs. 25,000
sector, for analysing the financial inclusion related and Rs.25,000 to Rs.2 lakh have grown by 3.40%
aspect, a deeper dive is necessary. One way could and 10.94% respectively in the 11-year period.
be to look at various segments of priority sector Loans below Rs. 25,000 though account for 19%
lending and the other way could be to look at loan of accounts below Rs.10 lakh, in value terms their
size wise distribution. The latter has been chosen contribution is mere 1.30%.
for analysis as under priority sector, purpose can
However, in absolute terms [if by some stretch
also include corporate/bigger loans but small
up to Rs.2 lakh loan account is considered as
loan sizes is a better and close proxy of financial financial inclusion account), SCBs contribution is
inclusion. People excluded from formal finance significant with 26.90 crore accounts having credit
normally start their journey with microfinance or outstanding of Rs.12 lakh crore as of March, 2023.
small loans from banks and the data on loan sizes While the small accounts penetration is significant,
is available on timeline basis from the RBI. the point to be noted is that it also includes 6.65
For analysis, three loan sizes have been chosen crore microfinance accounts of banks and Small
Finance Banks (SFB).
[<Rs.25,000, 25,000 to 2 lakh and 2 lakh to 10 lakh],
wherein the first two loan sizes are traditionally While these numbers show the credit accounts
termed as ‘Small Borrowal Accounts” or SBA. The coverage, another authentic data source -comes
Figure 2.4: Annual percentage growth in accounts of various categories of small loans by SCBs


CHAPTER 2
from All India Debt and Investment Survey29 Figure 2.5: Share of Institutional and Non
which shows incidence of indebtedness (IoI) Institutional debt in Andhra Pradesh
among rural and urban population as well as share
of institutional agencies and non-institutional

agencies. A time line comparison of figures as well
as state wise patterns shows interesting insights.

Examining the IoI shows that from 1991 to 2019,
All India level IoI increased from 23% to 35% in
rural areas, while for urban areas it increased
from 19% to 22%. It shows that in 2022, 35% of
households in rural India and 22% in urban India
had some debt. The state wise figures (Table 2.5)
shows that IoI decreased in Chhattisgarh across
both rural and urban population, while in Gujarat
and Maharashtra it decreased in urban. All other
major states saw an increase, with Andhra Pradesh,
Source: NSS Report no. 588, All India Debt & Investment
Telangana and Karnataka showing a marked rise in Survey 2019
rural IoI.
In supplement to IoI, the share of institutional In Andhra Pradesh, the share of non-institutional
and non-institutional sources in household debt is sources in rural household debt went up from 57.9%
more insightful in analysing the impact of policy – in 2012 to 64.2% in 2018, the period coinciding
as the stated policy objective has been to reduce the with stoppage of microfinance. In Telangana,
share of non-institutional sources or deepen the formed later, the share of non-institutional sources
reach of formal sector institutions. is equally high at 59%. This shows the importance
of microfinance in deepening the reach of formal
The review (Table 2.6) shows that while the sector and the adverse consequences of state
institutional share in increasing over the years, level one sided intervention. Luckily, the recent
non-institutional sources still account for 33.8% judgement of Telangana High court after 13 years
of rural households debt. In urban areas, the share
has ruled that in case of REs, RBI is the authority to
of non-institutional sources is a low 12.9%, which
regulate and not State Governments.
shows higher outreach of formal finance in urban
areas. Similarly, the positive impact of microfinance can
only seen in States like Bihar [Bihar is the state with
The state wise position has an important linkage
with microfinance. Post 2010, Andhra Pradesh highest share of microfinance portfolio]. In Bihar,
Money Lending Act wrongly covering RBI the share of institutional agencies jumped from
regulated entities also led to MFIs going into 22.2% in 2012 to 47.4% in 2019.
oblivion in Andhra Pradesh and later Telangana Thus, while credit inclusion is also inching up,
was formed out of it. In both these states, during the there is much scope left. The progress on credit side
period 2012-2018, the share of non-institutional is also seen in steady rise in India’s credit to GDP
sources jumped. While details are given in
ratio, which stands at 99.5% in 202230.
Table 2.6, Andhra Pradesh position is shown in
Figure 2.5.
29
Household Indebtedness in India, NSS 70th round,2013 and All India Debt and Investment survey, NSS 77th round, 2019. 70th
round of NSS included AIDIS.
30
BIS, Credit to GDP Trend

CHAPTER 2
Table 2.5: Incidence of indebtedness (IOI) (%)
Rural Urban
State
1991 2002 2012 2019 1991 2002 2012 2019
Andhra
35 42 54 63 31 30 40 45
Pradesh
Assam 6 8 10 19 6 6 18 20
Bihar 16 22 29 30 8 10 13 16
Chhattisgarh - 20 14 17 - 13 12 21
Gujarat 17 28 26 27 22 21 19 16
Haryana 28 27 24 32 10 16 13 20
Jharkhand - 12 18 21 - 7 12 17
Karnataka 28 31 46 48 20 19 27 23
Kerala 31 39 50 55 32 37 47 48
Madhya
21 26 25 39 14 18 15 20
Pradesh
Maharashtra 22 28 31 33 21 16 19 19
Odisha 23 26 26 41 15 19 19 21
Punjab 25 26 33 35 14 13 18 21
Rajasthan 30 34 37 43 14 17 23 22
Tamil Nadu 30 31 40 37 25 26 35 27
Telangana - - 59 67 - - 31 30
Uttar Pradesh 19 23 30 31 14 13 19 16
West Bengal 26 22 24 23 17 17 15 17
India 23 27 31 35 19 18 22 22
Source: NSS Report Nos. 570 & 588: Household Assets & Liabilities in India; National Sample Survey

CHAPTER 2
Table 2.6: Share of Institutional and Non-Institutional sources in household debt
2018 2012
Rural Urban Rural Urban

State
Non Non Non Non
Institu- Institu- Institu- Institu-
institu- institu- institu- institu-
tional tional tional tional
tional tional tional tional
Andhra
35.8 64.2 57.6 42.3 42.1 57.9 69.3 30.7
Pradesh
Assam 88.3 11.7 98.7 1.3 72.3 27.7 89.3 10.7
Bihar 47.4 51.5 77.2 22.5 22.2 77.8 70.7 29.3
Chhattisgarh 81.7 18.3 95.1 4.9 66.3 33.7 93.2 6.8
Gujarat 82.3 17.7 93.3 6.7 63.9 36.1 91.6 8.4
Haryana 71.0 28.9 88.0 12.0 52.4 47.6 93.5 6.5
Jharkhand 59.4 40.6 96.3 3.7 51.3 48.7 82.8 17.2
Karnataka 67.2 32.5 88.2 11.7 50.4 49.6 73.1 28.9
Kerala 86.8 13.2 84.1 15.8 77.9 22.1 88.5 11.5
Madhya
65.6 34.4 90.1 9.5 51.5 48.5 86.2 13.8
Pradesh
Maharashtra 86.1 13.8 96.6 3.4 73.4 26.6 95.8 4.2
Odisha 59.2 40.8 89.1 10.9 57.4 42.6 95.5 4.5
Punjab 71.5 28.3 89.2 10.8 64.1 35.9 80.9 19.1
Rajasthan 53.4 46.6 88.5 11.5 30.9 69.1 59.3 40.7
Tamil Nadu 72.9 27.1 87.2 12.8 61.5 38.5 77.5 22.5
Telangana 40.7 59.2 73.5 26.5 31.7 68.3 79.8 20.2
Uttar Pradesh 62.8 37.2 84.9 15.0 56.9 43.1 89.7 10.3
West Bengal 75.1 24.9 94.5 5.5 50.7 49.3 87.4 12.6
All-India 66.1 33.8 87.1 12.9 56 44 84.5 15.5
Source: NSS Report no. 588, All India Debt & Investment Survey 2019

CHAPTER 2
2.2.4 Insurance – Inching up but some way to go the dematerialisation of insurance policies,
product innovation through add-ons in motor
Insurance as a risk mitigation tool is an important insurance; proposal on the dematerialisation of
financial tool for a developing country like India to insurance policies.
protect against shocks of health and other risks like
natural disasters. It is routinely seen that a major • IRDA is also conceptualising “Bima Sugam”.
and sometimes even minor shock leads to frittering It’s an online platform where customers
away of economic gains made by the household can choose a suitable scheme from multiple
over years, if not decades. Absence of insurance is options given by various companies. All
thus counterproductive to sustainable economic insurance requirements, including those for
growth. Availability of insurance products is also life, health, and general insurance (including
key as in absence of it, people first use their savings motor and travel) will be met by Bima Sugam.
and then also borrow to meet their financial needs. This platform will also help in the settlement
Use of credit to meet expenses of health care or any of claims, whether it’s health coverage or death
other adverse event like crop loss often leads to claims, in a paperless manner on the basis of
indebtedness beyond capacity to repay. policy numbers.
Insurance regulator IRDA and Government of Commentators have described the recent flurry of
India have taken significant steps in recent years activities as “firing on all cylinders” on the insurance
to increase insurance coverage. While the list of front. IRDA in its press note of 7th April, 2022
various initiatives is long, a few key steps are: has set an ambitious goal for insurance coverage
by stating “when India celebrates 100 years of its
• PM Bima Yojana is available to people in the age independence in 2047, every Indian has appropriate
group of 18 to 50 years having a bank account life, health and property insurance cover and every
and has a life cover of Rs. 2 lakhs. enterprise is supported by appropriate insurance
• The government’s initiative for crop insurance, solutions.”
Pradhan Mantri Fasal Bima Yojana (PMFBY),
provides a comprehensive insurance cover Insurance penetration is traditionally measured as
against failure of the crop thus helping in ratio of premium in the country to GDP as also as
stabilising the income of the farmers. The insurance premium per capita. Both these measures
Scheme covers all Food & Oilseeds crops and fail to capture the percentage of population covered.
Annual Commercial/Horticultural Crops for Coverage under various schemes is available
which past yield data is available. like 44.6 crore persons were covered under PM
Suraksha Bima and PM Jeevan Jyoti Yojana during
• Pradhan Mantri Suraksha Bima Yojana the FY 22-2331, but accounting for duplication of
(PMSBY) provides risk cover of Rs.2 lakh for coverage etc in such isolated scheme wise numbers
accidental death and full disability and Rs. 1 is not possible. Plus, it does not allow for cross
lakh for partial disability. country comparisons.
• Ayushman Bharat (Pradhan Mantri Jan Arogya With this limitation, if we see insurance premium
Yojana) (AB PMJAY) aims at providing a health as a percentage of GDP and compare it with other
cover of 5 lakh per family per year for secondary countries (Figure 2.6) for 2022, the performance
and tertiary care hospitalization. of India on this parameter seems reasonable
• IRDA has set targets for micro insurance for compared to other BRICS countries other than
each insurance company, introducing use and South Africa. OECD bloc consists majorly of
file to usher in an age of product innovation developed economies and can only be used as a
in the industry, product innovation through benchmark. Notably, despite a slew of measures,
add-ons in motor insurance, proposal on the penetration ratio for India has moved from
3.8% in 2011 to 4.2% only in 2022.
31
2023, May. IBEF. “Insurance Industry Report”. Accessed on 9th October, 2023

CHAPTER 2
Figure 2.6: Insurance Penetration OECD and SDGs. Before getting into SDGs, the contribution
BRICS (China data not available) of microfinance to financial inclusion is briefly
discussed.

The MFI model based on Joint liability groups has
gone through significant progress over the years,
both in terms of outreach as well as number of
players. While in 2010, NBFC-MFIs were the sole
REs active in this space, Banks, SFBs and NBFCs

have not down streamed to microfinance. The role

of RBI as regulator in promoting the sector has been
immense through various measures, culminating
with its new Microfinance regulations in March
2022, making microfinance rules applicable to all

sans difference in legal forms.
Source: OECD Stats, Insurance indicators (penetration)
As of March, 2023, MFI model catered to 6.6 crore
unique borrowers32 with a loan outstanding of Rs.
2.3 Role of microfinance 3.48 lakh crore as shown in Table 2.7. What is more
impressive is that the outreach is spread across 729
In last year’s edition of this report, the findings
districts in the country. Performance and future
of an econometric study by NCAER on
outlook are extensively discussed in Chapters 3 & 5.
contribution of microfinance to India’s GDP were
presented. Microfinance through both strands The other strand of Microfinance, SHG-Bank
besides economic contribution, has a significant Linkage Programme (SBLP) despite the churn from
contribution to achievement of SDGs. The following being NABARD led to NRLM led has 4.2 million
paragraphs link microfinance contribution to SHGs credit linked with total loans outstanding of
Rs. 1.88 Lk Cr as shown in Table 2.8.
Table 2.7: Overall status of portfolio, unique borrowers and loan accounts
31-Mar-22 31-Mar-23
Type of Active Active
Unique Portfolio Unique Portfolio
entity No. of loan No. of loan
Borrowers O/s Borrowers O/s
entities accounts entities accounts
(Cr) (Rs Cr) (Cr) (Rs Cr)
(Cr) (Cr)
NBFC-
84 2.7 4.2 1,00,407 82 2.9 5.1 1,38,310
MFIs
Banks 12 2.9 4.3 1,14,051 13 3.2 4.7 1,19,133
SFBs 9 1.4 1.8 48,314 9 1.6 2.0 57,828
NBFCs 58 0.7 0.8 19,698 69 0.9 1.0 29,440
Others 39 0.1 0.2 2,971 38 0.1 0.2 3,629
Total 202 5.80 11.3 2,85,441 211 6.6 13.0 3,48,339
Source: MFIN Micrometer/Equifax
32
UB means a borrower having more than one loan account is counted only once.

CHAPTER 2
Table 2.8: Highlights of the SHG-Bank Linkage Programme 2022-23
Particulars Physical (No. in Lk) Financial (Rs Cr)
Total number of SHGs saving linked with banks 134.0 58,893

as on 1 Mar’23, of which
52,455
Exclusive Women SHGs 112.9
37,425
Under NRLM/SGSY 82.0
3,547
Under NULM/SJSRY 7.4
Total number of SHGs credit linked during 43.0 1,45,200

22-23, of which
41.4 1,39,316
Exclusive Women SHGs
Under NRLM/SGSY 34.9 1,16,479
Under NULM/SJSRY
2.0 8,627
Total number of SHGs having loans O/s 69.6 1,88,079
as on 31 March 2023, of which
65.2 1,79,468
Exclusive Women SHGs
Under NRLM/SGSY 55.5 1,50,507
Under NULM/SJSRY
3.4 11,077
Source: 2023, NABARD. “Highlights of SHG Bank Linkage Programme”. Accessed on 9th October, 2023
Role in meeting SDGs women-led governance with gender equality and

women empowerment being some of the key
Against the backdrop of the 2030 Agenda for highlights.
Sustainable Development, both developed and
developing countries unanimously stand in pursuit CGAP @2016 paper on ‘Achieving the Sustainable
of the Sustainable Development Goals (SDGs), Development Goals: The Role of Financial
an urgent call for action to end poverty, protect Inclusion’ recognises that greater access to financial
the planet and ensure that all people enjoy peace services is a key enabler for SDGs. With the
and prosperity. With India assuming the G20 increasingly clear link between financial inclusion
presidency for the very first time in 2022, the focus and development, there can be a direct impact on
on SDG goals has further increased with digital outcomes such as health, education, and gender
transformation, low carbon economic model, equality and an indirect role in achieving broader

CHAPTER 2
goals such as inequality, growth, and peace, The industry’s role in meeting the goal through
building a strong case that financial inclusion helps building resilience to economic, social and
create the conditions that ultimately bring many of environmental shocks and disasters is well
the SDGs within reach. established. Whether it was demonetization
which affected the cash-dependent low-income
Microfinance has directly or through indirect households or COVID 19 which impacted rural
linkages been instrumental in achieving the SDG livelihoods, or the catastrophic impact of natural
goals. disasters like cyclones and floods, the industry
has always stood by its customers with additional
credit lines and on-ground relief support, building
Microfinance Providing a stronger and resilient borrower.
microcredit to 6.6 Cr women in
India An NCAER35 report found the present and potential
contribution of microfinance to the macroeconomy
As per the Global Multidimensional Poverty Index as significant, especially considering its focus
2022, in India 415 million people exited poverty on meeting the credit needs of the lower income
between 2005/06 and 2019/21, demonstrating households and smaller enterprises. Microfinance
that the Sustainable Development Goal target also complements the efforts of public policies
1.2 is possible to achieve, and at scale.33 Though aimed at overall development and poverty
there are multiple factors responsible for this, the reduction.
contribution of Microfinance in poverty alleviation
will remain significant as with access to financial
services, the poor can invest in income-generating
activities and improve their livelihood, build assets, Skilling, Upskilling & Financial
and cushion themselves against external shocks. Literacy
RBI’s Consultative Document34 on Microfinance Microfinance has been a driver of financial literacy
defines it as “an economic tool designed to promote in rural India. As access to credit became possible
financial inclusion which enables the poor and for those at the bottom of the pyramid, it was only
low-income households to come out of poverty, natural for microfinance institutions to invest in
increase their income levels and improve overall financial literacy to ensure that borrower interests
living standards. It can facilitate achievement of were protected, and credit was managed well.
national policies that target poverty reduction,
women empowerment, assistance to vulnerable Microfinance Institutions’ model of conducting
groups, and improvement in the standards of Compulsory Group Training (CGT) and centre
living.” meetings has proved to be an asset in spreading
financial awareness among the women borrowers.
About 6.6 Cr customers were benefitting from Basic financial literacy is provided during group
Microfinance loans with the industry having a formation process. This knowledge and interest in
Gross Loan Portfolio of Rs 3,48,339 Cr as of 31st financial services paved the way for digitalization,
March 2023. making the transformation journey easier for the
borrowers.
33
2022, UNDP. “Global Multidimensional Poverty Index”
34
9 2021, 14 June. RBI. “Consultative Document on Regulation of Microfinance”.
35
2021, NCAER. “Present and Potential Contribution of Microfinance to India’s Economy”

CHAPTER 2
Each Institution regularly holds skill training as part Lending for WASH purposes has
of its CSR activities, entrepreneurship development grown exponentially over the past
programmes and digital literacy training. The RBI decade. Microfinance institutions
under its DEA fund is also planning to support are playing a critical role in this
MFIN in conducting around 2100 DEA workshops
across more then 200 districts in India. regard by having a separate WASH product line
with financial support from specialised agencies
like Water.org.
Women in Microfinance are at Water.org plays a critical role in providing all
the core of its delivery model. required technical support to develop innovative
Microfinance services are primarily finance solutions to serve fast-evolving demand in
extended to women through JLG this space through their transformative solution
called WaterCredit. As the first solution to utilize
(joint liability group) and in doing so not only
microfinance tools for the water and sanitation
does the industry position her centre stage in her
sector, WaterCredit helps bring small loans to those
household but empowers her to run it.
who need access to affordable financing and expert
Microfinance enables poor women to engage resources to make household water and toilet
in income-generating activities that help them solutions a reality. It is a pay-it-forward system that
become financially independent, strengthening makes it possible to help more people in ways that
their decision-making power within the household will last.
and society. Consequently, microfinance has the
According to the World Bank, the current financing
potential to reduce gender inequality (GI).36
gap for achieving universal access to safely managed
ILO’s report says, “By increasing women’s access water and sanitation is $85Bn, necessitating the
to financial services, microfinance ultimately mobilization of household financing to meet
contributes to ILO core values of greater gender the need. Microfinance institutions have been
equality and non-discrimination.” It further collaborating with other institutions for extending
adds, “Microfinance has the potential to make a water and sanitation loans to address this deficit.
significant contribution to gender equality and
promote sustainable livelihoods and better working
conditions for women.”37 It is through microfinance that over
6.6 Cr women in India have been able
Besides equal rights to economic resources and to explore various livelihood options
financial services, the industry also promotes and decent work opportunities
empowerment of women through technology. resulting in higher incomes, raised
Access to credit and digital literacy go hand in self-esteem, and empowerment while building
hand in today’s technology-driven world. With their credit history with CICs.
the industry rapidly turning digital, women as its
last mile customers are equally adept at using this Microfinance allows them to invest in their business
technology for availing services. This revolution and purchase new equipment. Many entrepreneurs
of rural women owing mobiles, having access to have risen in scale to provide employment to others,
information and decision making is truly inspiring. leading to increased productivity and higher
income. These microenterprises drive the local
economy. To demonstrate the impact of collateral-
36
2027. Quanda Zhang and Alberto Posso. “Microfinance and gender inequality: Cross-country evidence. Applied Economics Letters,
Vol.24(20), pp.1494-1498;2017”
37
2008, ILO, Geneva. “Small Change, Big Changes: Women and Microfinance”

CHAPTER 2
free loans on small enterprises, MFIN has produced has played an important role in trying to end
a television commercial on women entrepreneurs, this financial and social discrimination by taking
their hardships, and the contentment they formal credit to rural hinterlands. It is through
experience with the improvement in their quality micro-loans that Microfinance has contributed to
of life. reducing the income disparity.
The Microfinance industry employs over 3 lakhs Microfinance has provided access to financial
people including loan officers who are the fulcrum services to marginalized communities, including
of the credit delivery model. Most loan officers are women, rural populations, and low-income
rural youth, who are provided fresh employment households, which has helped to reduce inequalities.
opportunities, sometimes immediately after they Various studies have documented the increase in
complete their senior secondary education or income and social parameters of microfinance
graduation. This access to decent work early-on clients.
in life builds their confidence and allows them to In addition to the direct impact on these SDGs,
manage their households, build their careers and microfinance also indirectly impacts other SDGs.
pursue further education simultaneously. The For example, work under SDG 6 enabling access
industry prides itself in this productive job creation to safe water and improved sanitation structures
and skilling of local youth, encouraging them to prevents water-borne diseases and thus contribute
play an active role in the economic development of to SDG 3: Good Health and Wellbeing.
their country.
2.4 A few policy Issues for furthering financial
NCAER study titled ‘Present and Potential inclusion
Contribution of Microfinance to India’s Economy’ The review presented in this chapter and issues
found that the sector created about 1.28 crore jobs discussed in other chapters, point towards a few
as a whole and 38.54 lakh jobs by the NBFC-MFIs policy issues. Issues like Qualifying Assets norms
alone, a significant contribution to the generation for NBFC-MFIs are discussed in detail in later
of employment. chapters and being too specific are not presented
Large rural populations have been here.
bereft of credit services which their Regional skew persists
urban counterparts have always Analysis of deposits and credit of SCBs shows that
enjoyed, putting them at a serious despite policy push, the credit flow has not taken to
disadvantage. Financial exclusion also keeps them the desired extent in eastern and central regions of
from experiencing social inclusion. Microfinance India (Figure 2.7).
Figure 2.7: Regional Share in Deposit and Credit of SCBs

Source: RBI

CHAPTER 2
While it is acknowledged that credit flow follows took the initial step in 2011 to seed a credit bureau
economic activity but still the role of finance to [now CRIF High Mark] and as a result as of today
spur economic activities cannot be underplayed. all REs active in microfinance report data to all four
bureaus. All microfinance clients KYC, past loan
It is important to note that in case of microfinance, details and repayment record is now available with
East and North East account for 35% of all India the bureaus totalling around 10 crore – both active
credit share. and dormant clients. To further strengthen credit
Hard look needed at BC Model underwriting, MFIN has moved beyond regulatory
norm of monthly data submission to bureaus
The fluctuating numbers with 2022 seeing a steep fall and asked its members to submit daily files. This
in number of BC outlets calls for a comprehensive is important as the sector deals with vulnerable
review of BC framework. Various reports have clients and higher time gaps in submission can lead
pointed to the unviable business structure and the to underestimating correct debt obligation and
same has been accentuated with banks’ proprietary thereby lead to over indebtedness. This has become
digital app. The fee paid by a bank to its BC has to more pertinent in the wake of new RBI regulations
cover the costs of running a BC outlet and ensure prescribing that loan repayment obligation should
a reasonable return to the BC. Population segment not exceed 50% of household income.
being catered to by BCs, sees them as extension of
banks and high turnover may lead to loss of faith in There are three critical areas of concern here. First,
the BC network. despite the Reserve Bank of India, in its circular on
Credit Information Reporting in Respect of SHG
Focus of SCBs lending needs to shift from Members, issued on 14th January, 2016, mandating
consumer loans all scheduled commercial banks including regional
rural banks to collect and report credit information
Starting from a small range of annual growth across
of individual SHG members to Credit Information
Agriculture, Industry, Services and Personal loans
Companies (CICs) beginning from 1st July, 2016,
till 2014 in SCBs credit composition, the growth
this is still to be implemented.
rates have now diverged widely. Personal loans
have not only grown at a much faster rate [CAGR of Secondly, the problem has got compounded with
16.67% between 2017 and 2023] but also increased so called “fintechs”, while their loan sizes are even
their share in overall “Non Food Credit”. In March, smaller than microfinance loans in most cases, they
2017 Personal loans accounted for 22.84% of Non report data under retail segment of credit bureau
Food credit, which has increased to 32.12% by and not microfinance loans.
March, 2023.
Both these issues put together lead to a substantial
The growth in consumption loans at the cost of chunk of portfolio being not present in microfinance
agriculture and industry is not conducive for India’s bureau, which can lead to over-indebtedness
growth story and the limits of consumption led despite bureau checks.
growth are being seen now. There is no substitute to
according high priority to productive sectors of the Finally, it is suggested that the RBI should mandate
economy; especially when they are credit starved. all REs active in microfinance lending to adhere to
daily reporting as monthly report is not ideal in case
Steps to increase robustness of credit of microfinance clients, where an amount of 50,000
underwriting of BOP clients not captured can make the difference between
responsible finance and over indebtedness.
Realising the importance of building a verifiable
credit history of microfinance borrowers, MFIN

CHAPTER 2
Channel neutrality – Fintech operating in mind their level of financial literacy. For an NTC
microfinance market sans regulation borrower, this literacy is acquired over a period of
time through experience with financial products,
RBI regulations define digital lending as “a remote peer-group discussions and regular interactions
and automated lending process, majorly by use of with the lender. Avoidance of these and lending
seamless digital technologies”. While the definition in same market gives rise to regulatory arbitrage
given by the RBI also makes MFIs digital lenders; and runs the risk of client over indebtedness. RBI
as client onboarding, credit bureau check, loan needs to review the whole digital market dynamics,
disbursement and repayment are all digital, the identify the overlap with microfinance and in such
reference here is to lenders who typically lend cases enforce microfinance regulation on them.
without physical presence based on apps. Industry
reports have pointed out that more than 60% of Stepping up Microfinance
digital lending through platforms and mobile apps
is to low-income, new-to-credit (NTC) borrowers, The role of microfinance in increasing the share
which is the microfinance segment as defined by of formal credit to the BoP is not only well known
the RBI [HHs having annual income less than Rs but also empirically proven through AIDIS date
3 lakh]. Lending to such customers using a remote presented in the chapter. In Andhra Pradesh,
and automated process is not only a potent mix, where microfinance operations were halted, share
it is also done without adhering to microfinance of informal sector grew substantially. In Bihar,
regulations like household income assessment and which has high microfinance portfolio, the share of
repayment capacity check. The use of surrogate formal sector has grown.
indicators is a poor replacement for in-person Policy support by way of a well-designed credit
interactions and runs the risk of nudging borrowers guarantee scheme and assured financial support
inadvertently into over-indebtedness. by way of a dedicated fund facility will further
Lending to NTC low-income borrowers has to strengthen the cause of financial inclusion.
operate as a ‘seller beware’ model, keeping in

CHAPTER 3
03
Microfinance industry –
a performance update
3.1 Outreach clients across 729 districts of the country, through
12.96 Cr active loans as shown in Figure 3.1. This
In the year 2022-23 microfinance industry indicates a ratio of 1.95 active accounts per UB
saw growth in portfolio outstanding as well as which has remained unchanged from last FY.
improvement in portfolio quality as compared
to last financial year – an ideal situation with Figure 3.1: No of accounts and unique
augurs well for the sector. The total portfolio of borrowers (Cr)
the microfinance industry as on March 31, 2023
was Rs 3,48,339 Cr of all Regulated Entities (REs

- NBFC-MFIs, Banks, SFBs and NBFCs) under
MFI Model. In addition, there is Rs 1,98,918 Cr38

under the SHG programme, which is not discussed
in this report. There has been a consistent trend of

growth in portfolio over the last 5 years barring the
COVID period. Last financial year saw a growth
of 22% in the outstanding portfolio of the sector,

indicating responsible growth and latent demand
of microfinance.

An important parameter of measuring outreach of

the sector is the number of clients served. As on
March 31, 2023, all REs collectively serve 6.64 Cr
Source: Equifax
38
Geographical Coverage under NRLM

CHAPTER 3
On a regional level the distribution of portfolio Overall share of East and Northeast came down
continues to show a declining trend of share of East from 37.7% as on March 31, 2022, to 34.9% as
and Northeast (Figure 3.2) while all other regions on March 31, 2023, despite the rise of Bihar as
(North, West, Central and Southern) have gained the top state in terms of portfolio outstanding as
in portfolio share. on December 31, 2022 and also Jharkhand which
has shown impressive growth. This growth in
Figure 3.2: Regional distribution of portfolio these two states was negated by the de-growth of
portfolio in Assam and West Bengal. Manipur due

to the ongoing strife may degrow further in coming
months.

It is also evident from the above figure that South
which used to be the hub of microfinance before
the Andhra Pradesh (AP) crisis happened, is fast

catching up with East and Northeast. South is
expected to grow further with the opening up of
opportunities in Andhra Pradesh and Telangana.
The growth pattern of the Top 10 states in terms

of portfolio outstanding over the last three years is
shown in Table 3.1.

Source: Equifax
Table 3.1: Portfolio growth in Top 10 states
CAGR YOY Growth

State Region Apr’20 to Apr’20 to Apr’21 to Apr’22 to
Mar’22 Mar’21 Mar’22 Mar’23
Bihar East & NE 13.2% 11.0% 22.1% 37.3%
Tamil Nadu South 7.5% -1.3% 14.7% 26.9%
Uttar Pradesh North 16.6% 18.0% 29.4% 41.3%
West Bengal East & NE 0.3% 23.0% -13.1% -5.0%
Karnataka South 10.5% 9.2% 16.0% 29.9%
Maharashtra West 10.5% 10.9% 18.2% 25.7%
Madhya Pradesh Central 9.3% 15.6% 10.5% 22.3%
Odisha East & NE 8.7% 11.7% 13.3% 20.1%
Rajasthan West 11.2% 20.0% 13.7% 24.5%
Kerala South 7.3% 3.2% 13.5% 21.4%
Source: Equifax

CHAPTER 3
3.2 Products – ticket size, tenure, frequency YoY increase of 6.3% in comparison to Rs 38,929
during FY 21-22. The CAGR of average ticket
The past year was the first financial year after size over the last three years (FY 19-20 to FY 22-
change in microfinance regulation. As per the new 23) has been 6.3%, and it is the >Rs 125K bucket
guidelines the limitations on number of loans, which has shown the highest CAGR of 6.9%. The
tenure for specific size of loans etc. are no longer YOY growth in >125K bucket has been the highest
applicable. These changes have ushered in a change across all regions except South. However, the YOY
in the product mix. In microfinance operations growth in average ticket size has been highest for
the product mix has three major components South at 13% followed by 10% for West, and in East
viz. ticket size, tenure and repayment frequency. & Northeast it has decreased by 1% as shown in
Following sub-section discusses the product mix Table 3.2.
shift in detail.
3.2.1 Ticket size Table 3.2: Region wise average ticket size (Rs)
As shown in the Figure 3.3, distribution of Region FY 21-22 FY 22-23 Growth

loans according to their ticket size shows that
there is a definite shift towards higher ticket size Central 36,761 39,765 8.2%
loans. Higher ticket size loans are operationally East & NE 40,879 40,615 -0.6%
more viable and profitable for the entities since
operational expenses are directly proportional to North 38,271 40,991 7.1%
the number of clients served irrespective of the
ticket size of the loans provided to client. This shift South 38,554 43,634 13.2%
has been observed in previous years as well but
seems to be more pronounced now. West 36,872 40,583 10.1%
The average ticket size for microfinance loans India 38,929 41,391 6.3%
disbursed during the FY 22-23 was Rs 41,391, a
Source: Equifax
Figure 3.3: Ticket size

Source: Equifax

CHAPTER 3
Proportion of loans (in volume terms) in less than 3.2.2 Loan tenure
Rs 30K bucket has fallen from 45% to 31% in the
last FY. A deep dive into the data reveals that all As per the new microfinance guidelines, the
regions have seen a drop in this bucket. However, restriction of loan tenure according to loan ticket
in East and Northeast region the Rs 30K to size is no longer applicable. Accordingly, each
Rs 50K ticket size and in Southern region the RE can now design their loan tenure as per the
Rs 50K to 100K has seen a sharp increase. Further repayment capacity of their clients, calculated
breakdown at state level for these regions reveals by Fixed Obligation to Income Ratio (FOIR).
that West Bengal witnessed a jump of almost 20% However, as per data available for FY 22-23, the
in Rs 30 to 50K bracket. Similarly in Southern industry seems to be sticking majorly (46%) to the
states, Kerala and Tamil Nadu saw an increase in Rs repayment tenure of 18 and 24 months for majority
50k to 100K ticket size loans. The region wise YoY of portfolio sourced but notably 30% of loans now
growth in ticket sizes in various buckets is shown have more than 24 months tenure
in Figure 3.4. Figure 3.5 shows a gradual decline in the percentage
of loan in the 0-12 months bucket. In line with the
Figure 3.4: YoY growth in different ticket size trend in FY 22-23, there is a decline in the share
buckets (%) of loan sourced in the lowest bucket that is 0-12
months. The 18-24 months tenure seems to be
the preferred option for the industry. Proportion
of loans in this bucket has gone up over the last 3
years. Viewed in conjunction with increasing ticket
size, the movement in loan tenure is well explained
to generate operational efficiencies.
3.2.3 Repayment frequency

Repayment frequency is the intervals at which centre
<30K 30k-100k > 100k meetings are held for collection of repayment. As
seen in Figure 3.6, there is a shift towards monthly
Source: Equifax
frequency of repayment amongst the microfinance
Figure 3.5: Loan tenure

Source: Equifax

CHAPTER 3
Figure 3.6: Repayment Frequency

Source: Equifax
players. This frequency seems to operationally As shown in Figure 3.7, in terms of leverage,
efficient for the institution as explained in Section the Debt-to-Equity ratio increased slightly from
3.2.1. In some geographies institutions have the last year figure of 3.6 to 3.7 signifying that
decided to go for weekly collections to ensure there is scope for further leverage and that the
that the amount to be collected is lower from each institutions are well capitalized. At an aggregate
centre. Digitalization of repayment collection can level, share capital makes up around 15% of the
potentially aid in such geographies by reducing the total equity with remaining part being accounted
cash handled by MFI staff and, hence reducing the by reserves and surplus. Similar to last year, total
risk. Refer to Section 5.2.4 for a brief on the HSBC equity continues to form 25% of on balance sheet
supported project on “Scaling up of payment portfolio. It is noteworthy that for the Small39 MFIs
solutions for enabling microfinance borrowers to this ratio was 32%, Medium MFIs at 26% and Large
repay digitally” which is an attempt by MFIN to MFIs at 24%. A snapshot of the equity deals during
pilot various channels for digitalizing repayment the year is shown in Box 3.1.
collection in microfinance.
Figure 3.7: Equity position (Rs Cr) and leverage
3.3 Financial strength (NBFC-MFIs) 3.7
The analysis in this section is based on the data 3.6
collected from MFIN Member NBFC-MFIs.
3.3.1 Borrowings and Equity
3.4
According to data of 49 NBFC-MFIs for Q4

FY 22-23, the total equity grew by 23% from
Rs 21,419 Cr at the end of FY 21-22 to
Rs 26,332 Cr as on March 31, 2023. The growth
signifies the positive outlook and incredible
potential microfinance sector continues to hold in
the investor community. Source: MFIN Micrometer
39
Member MFI with < Rs 500 Cr AUM is categorized as Small, between Rs 501 Cr to Rs 2,000 Cr as Medium and more than Rs 2,000
Cr as Large MFIs.

CHAPTER 3
Box 3.1: Equity deals during FY 2022-23
During FY 22-23, 26 Members of MFIN reported fresh equity infusion worth Rs 2,602 Cr. Of these
nearly 26% was in convertible preference share and remaining 74% was in equity share. Individual
investors contributed 57.5% of total new equity invested, followed by institutional investors at 23.3%
and holding company at 16.7%. Promoters contributed 2.5% of share.
Some major deals which were closed in the year 2022-23 are as follows:
• A total of 18 different institutional investors were noted including Ambit Operations and
Management Services Pvt Ltd, Augusta Investments Zero PTE Ltd, Florintree Ventures Llp, Gojo
& Company, Greater Pacific Capital, M/s. Save Solutions Pvt Ltd, Manappuram Finance Ltd,
FMO N.V., Nipha Steels Ltd, Nordic Microfinance Initiative, Proparco, and Teachers Insurance &
Annuity Association Of America.
• Two holding companies invested in their NBFC MFIs – Arum Holding Limited Ltd and Svatantra
Holding Pvt Ltd.
Source: Data reported by Members to MFIN as part of Micrometer
Figure 3.8 shows the breakup of borrowing almost 70% of the borrowing and non-bank Entities
received during a year and compares it with contributed another 19.5%. Major change observed
growth in borrowings outstanding as on date. It during current FY is the decrease in borrowings
can be seen that there is a steady growth in both received from All India Financial Institutions
O/S borrowings outstanding as received during the (AIFIs). This can be explained by the fact that the
FY across all previous financial years with a sharp support from AIFIs to the microfinance sector
uptick in borrowing received in FY 22-23 which had increased during the COVID period under
indicates that funders also have shown confidence various government schemes like CGSMFI, Special
in the MFIs in their quest for growth. Liquidity Assistance (SLA) – with the closure of
these schemes the borrowings from AIFIs has
Figure 3.8: Borrowings (Rs Cr)
come down.
Figure 3.9: Break-up of Borrowings received
during FY 2022-23

Source: MFIN Micrometer

Figure 3.9 shows the composition of borrowing
received during FY 2022-23. The composition

has remained consistent, with banks contributing

CHAPTER 3
3.3.2 Financial ratios overcome. Apart from the resumption of business

at full scale after COVID, change in regulations
Table 3.3 below illustrates some of the key financial have also played its role in bringing sustainability
ratios based on self-reported data from 46 MFIN and profitability back on track. As per the new
member MFIs. These include 22 small MFIs regulations, MFIs can now price their loans based
that contributed 3.0%, 10 medium MFIs with on board approved pricing policy, while previously
8.2% contribution and 14 large MFIs with 88.8% there was a pricing cap due to which margins were
contribution of the total GLP of all MFIs that greatly squeezed. Effect of this change can be seen
reported data as on 31st Mar’23. The ratios suggest in improvement in Yield on portfolio which now
that the microfinance industry is now back to its stands at 21.23% as compared to 19.79% for FY
pre-COVID efficiency levels. 21-22. This increase in yield positively impacts all
The industry has gone through a tumultuous time in profitability ratios.
recent years. A look at the profitability ratios shows
that COVID related dent on profitability has been Definitions
Cost per borrower: Operating Expense/
Table 3.3: Key financial ratios
Total funding expenses/
Financial Cost Ratio
FY FY FY Average On-balance sheet
Parameter (FCR):
portfolio
20-21 21-22 22-23
Gross Non-Performing Assets/
Profitability Gross NPA (GNPA):
On Balance Sheet Portfolio
RoA 0.6% 1.2% 2.9% Stock of high quality liquid
Liquidity Coverage Ratio
asset /Total net cash flows over
RoE 2.5% 5.2% 14.7% (LCR):
the next 30 calendar days
OSS 104.7% 109.6% 124.9% (Gross NPA - Loan Loss
Net NPA (NNPA): Reserve) / (On Balance Sheet
Income Portfolio – Loan Loss Reserve)
Yield 21.0% 19.8% 21.2% Total Operating Expenses /
Operating Expense
Other income 2.4% 3.1% 1.9% Average On-balance sheet
Ratio (OER):
portfolio
Portfolio quality Financial Revenue less
Gross NPA 5.2% 5.6% 2.7% grants / (Financial Expense +
Operational Self-
Impairment Losses on Loans
Sufficiency (OSS):
Net NPA 1.9% 2.1% 0.9% + Operating Expense + Tax
Expense)
Liquidity
Other income to total Total other income / Total
LCR 394.3% 394.1% 227.8% income ratio: income
Cost efficiency Personnel Expense Ratio Personnel expenses / Average

(PER): Total GLP
PER 3.9% 4.3% 4.5%
Profit After Tax / Average Total
Return on Assets (RoA):
OER 5.6% 6.3% 6.5% Assets
FCR 9.4% 8.8% 9.3% Profit After Tax / Average Total

Return on Equity (RoE):
Equity
Cost/Borr. (Rs) 2,299 2,652 1,992 Interest income on loan
Yield on portfolio
portfolio / Average On-balance
Write-off ratio 2.0% 3.1% 3.2% (Yield):
sheet portfolio
Note: All parameters are depicted by weighted average ratios Write-off ratio: Write-off / Average Total GLP

CHAPTER 3
In cost efficiency ratios, Cost per Borrower has Figure 3.10: PAR trend
declined to Rs 1,992 from the high of Rs 2,652
while other ratios are still at a relatively high level
in comparison to last year. LCR of 228% in FY 22-

23 suggests that MFIs are keeping liquidity reserve
well beyond the mandated requirement but when
seen in conjunction with LCR of around 394% in

earlier years, there has been a massive drop due to

the new qualifying asset (QA) norm which requires
NBFC-MFIs to have 75% of total assets as QA,
which gets impacted by higher liquidity. Another
evident data point is that the Member MFIs have

cleaned their books by writing off NPAs. Hence
overall NPA numbers (GNPA and NNPA) are

better than FY 21-22.
3.4 Portfolio quality (Universe)
Source: Equifax
Portfolio quality as measured by Portfolio at
Risk (PAR) for all regulated entities is shown in of level of PAR>30 days of a portfolio originated
Figure 3.10. It was high in the last two FYs owing in a particular quarter after completion of certain
principally to the COVID crisis. However, there number of Months of Business (MOB). After
has been a gradual improvement in the portfolio Q4 21-22, the quality of the new portfolios has
quality since then. PAR > 30 which reached a peak shown marked improvement, for the same vintage
of 22.44% in June 2021 has come down gradually as compared to portfolios originated earlier.
and significantly to 10.5% in March 2023. For example portfolio originated in Q2 21-22
had a PAR>30 of 4.2% after 9 months while that
It is also worth mentioning that the new portfolio originated in Q1 22-23 had PAR>30 of much lower
created in the FY 22-23 has been performing 2.6% after 9 months.
significantly better. Table 3.4 shows an analysis
Table 3.4: PAR>30 after MOB buckets
Sourcing MOB
Qtr 3 6 9 12 15 18 21
Q4 22-23 0.4%
Q3 22-23 0.5% 1.3%
Q2 22-23 0.6% 1.3% 1.9%
Q1 22-23 0.7% 2.0% 2.6% 3.1%
Q4 21-22 1.2% 3.4% 4.8% 4.9% 5.7%
Q3 21-22 1.2% 2.8% 4.4% 5.3% 5.6% 6.4%
Q2 21-22 1.8% 4.0% 4.2% 4.9% 5.6% 6.1% 7.5%
Note: 3-MOB means, 3 months after origination of portfolio and so on. Source: Equifax

CHAPTER 3
Portfolio quality analysed at state level reveals number of clients handled by a branch and a
that among Top 10 states (shown in Table 3.5) loan officer. As mentioned in the sections above,
with microfinance operations, states from East institutions are moving towards higher ticket sized
and Northeast are still facing some challenges, leading to higher loan amounts being handled by
however for most other states with sizeable operating staff with relatively lesser incremental
microfinance portfolio, the portfolio quality has change in the number of clients handled. Both
improved. Assam continues to worsen in terms clients per branch and clients per loan officer have
of PAR>30 – from 39.4% as on 31 March 2021 it stabilized at 2,100 and 370 clients respectively
has declined to 48.7% as on 31 March 2023. It is (increase of 3% and 1% respectively from last FY)
also to be noted that the relief of Rs 291 Cr under but the portfolio handled by a branch went up
Assam Microfinance Incentive and Relief Scheme by 20% and portfolio handled by a loan officer
(AMFIRS) for Category 3 has been disbursed to 27 increased by 18%.
institutions by the Govt of Assam on September
23, 2023. The impact of this relief on new portfolio Figure 3.11: Staff productivity ratios
creation in Assam on performance remains to be
seen.

Table 3.5: PAR>30 days of Top 10 states

States Mar-21 Mar-22 Mar-23
Bihar 7.6% 7.0% 4.8%
Tamil Nadu 9.5% 12.0% 7.8%

Uttar
7.6% 6.7% 5.5%
Pradesh

Karnataka 7.7% 9.5% 7.3%

West Bengal 21.3% 22.9% 20.6%

Source: Equifax
Maharashtra 16.8% 14.6% 13.4%
With institutions moving from weekly to monthly
Madhya repayment frequency which will bring down
11.0% 12.9% 13.0%
Pradesh number of centre meetings to be conducted by each
loan officer, the operational efficiency numbers
Odisha 12.8% 11.9% 11.0% may go up in future. However, there is also a reverse
trend seen in individual cases, where institution
Rajasthan 6.7% 9.8% 10.4%
has decided to go back to weekly model. With the
Kerala 10.6% 14.2% 10.0% effect of pandemic wearing off, the ratio of clients
per loan officer will be an important parameter to
Source: Equifax
watch out for in coming years to assess whether
3.5 Operational efficiency (NBFC-MFIs) MFIs will choose to go aggressive on this or not.
Operational efficiency of MFIN member NBFC-

MFIs is presented in Figure 3.11. The analysis
presents key parameters such as portfolio and

CHAPTER 3
3.6 Human resource trends (NBFC-MFIs) Figure 3.13: Staff growth by position (FY 22-23)
This section presents the trends in Human Resource
for MFIN member NBFC-MFIs. Microfinance
being a high touch business, loan officers and field

staff are the pillars on which the industry rests.

As on March 31, 2023 the aggregated employee

strength of all MFIN member MFIs was 1,61,010
which is a growth of 16.2% over March 31, 2022.

Distribution of staff across various staff levels is

shown in Figure 3.12. Field staff constitutes 78.1%
of the employees. At an overall level 95.9% staff
are based at branch locations. The distribution has

remained steady across the last FY.

Figure 3.12: Staff distribution
The overall attrition rate during the period (31

March 2022 to 31 March 2023) was at 61.0%,
which has increased from 48.7% in the last
year. The position wise attrition rate is shown in
Figure 3.14.

Figure 3.14: Attrition rate by position (FY 22-23)


Figure 3.13 shows the category-wise growth in
staff across last financial year. As can be seen, field
officers (FO) have seen the highest growth of about

30% followed by branch managers at 10%. This
increase in staff strength corresponds well with the Source: MFIN Micrometer
increase of almost 16% in number of branches over
the last financial year. Others category includes
support staff/helpers which have grown by 57% but
their numbers are insignificant.

CHAPTER 3
3.7 Risks by merging different districts, microfinance

operations were concentrated in some geographies.
MFIN publishes monthly updates on various
This led to increase in the percentage of districts
parameters at a district level to monitor key risks
with higher concentration of FIs. Andhra Pradesh
– these include Density of Financial Institutions,
and Telangana which are hitherto less penetrated
Depth of Outreach and Geographical concentration.
(only 3 out of 46 districts with <6,000 HH per FI)
An analysis is presented in the sub-sections below.
are also opening up for expansion of microfinance
3.7.1 Density of Financial Institutions operations.
(‘000 potential HHs per FI)
Monitoring of growth in these states will provide
Figure 3.15 shows the density of financial insights into the expansion strategy followed
institutions in terms of number of potential by the FIs. Another reason for monitoring this
households (in ‘000) served by a financial parameter is that earlier due to margin pressures,
institution. A lower ratio indicates that households FIs were hesitant to enter new geographies due
of a particular district are being served by a higher to initial higher operating costs involved in such
number of financial institutions as compared to geographies. With flexibility in pricing of credit
another district where the ratio is high. Data shows as per new regulation, FIs may plan to expand
that almost 54% districts of the country have less operations in less served districts.
than 6,000 potential households per FI which is a
sign that institutions prefer to operate in districts 3.7.2 Depth of outreach
which already have presence of other microfinance (ratio of unique borrowers to potential HHs)
institutions. This is an indication of a higher The household level penetration at a district level is
concentration of FIs in these districts and therefore another important parameter to monitor risks. As
more competition and risk. the Figure 3.16 suggests, around 53% of districts
Figure 3.15: Density of FIs (As on March 31, 2023) have depth of outreach of more than 35%. This
indicates that in these districts have higher level of
penetration and further expansion should be done
with caution. More specifically, 38% districts in
>50% saturation bucket should be seen as a sign
of risk.
Figure 3.17: Depth of outreach (% of districts)

Source: MFIN analysis, Equifax

District mapping was revised by the bureaus in
the last financial year leading to an increase of

almost 100 districts with microfinance operations.
Less than 6,000 potential households per FI has

increased from 42% in the last financial year to
54% as on March 31, 2023, which indicates that Source: MFIN analysis
even within the districts which got split or created

CHAPTER 3
At the national level, the ratio is 33.17% as of 10 states contributed 86.96% of the total portfolio
March 2023, an increase by 4.4% in comparison to and 86.58% of total accounts, up by 4.8% and 4.2%
28.8% depth as of March 2022. Out of 729 districts, respectively from last FY. With new microfinance
329 (45.1%) have depth of outreach less than the regulations and new geographies opening up, this
country average. As discussed in Section 3.7.1, the concentration may ease in the coming years.
new districts formed by combining or splitting
some districts have shown a higher depth. Overall, Summing up, while the sector has rebounded post
there is sufficient scope of expanding the depth COVID in terms of funding, portfolio quality and
of outreach, but it is important that FIs identify client addition, there are few aspects which need
districts with lower outreach to do so. to be accorded priority. Foremost, is the issue of
expanding beyond higher saturation areas- the new
Table 3.6 presents geographical concentration regulations provide scope for it and not competing
of microfinance operations. Similar to the last in same geography for the same set of clients. The
year, microfinance operations continue to be other issue pertains to high level of staff attrition, at
concentrated in Top 300 districts and Top 10 states the current level, it is reaching a point where major
with this concentration of portfolio increasing focus of institutions will go in recruitment rather
in comparison to end of last financial year. It is than building capacities of staff. Finally, the debate
noticeable that depth of outreach in Top 10 states of repayment tenure is still on. The sector has seen
has increased from 43.33% to 53.38% this year that post COVID, centre meeting attendance due
indicating that there is significant increase in to focus on digital has come down alarmingly. The
depth of outreach in already highly penetrated sector needs to devise strategy to ensure that while
geographies. Along with that as discussed above, digital processes go on, client connect through
existing clients are being lent higher loans, which centre meetings is not diluted. Progress on these
compounds the risks. At the national level, Top three key aspects will underpin future growth.
Table 3.6: District level concentration of microfinance operations (As on March 31, 2023)
No. of AC Accounts (% Depth of

No. of districts GLP (Rs Cr) GLP (% of Univ.)
(Cr) of Univ.) outreach
Top 100 1,64,913 47.34% 5.99 46.20% 62.54%
Top 200 2,46,409 70.74% 9.03 69.72% 59.29%
Top 300 2,95,596 84.86% 10.90 84.15% 56.36%
Remaining 429 52,743 15.14% 2.05 15.85% 21.40%
Aspirational 112 48,770 14.00% 1.85 14.31% 50.66%
Top 10 states 3,02,928 86.96% 11.22 86.58% 53.38%
Universe 3,48,339 12.96 33.17%
Source: Equifax

CHAPTER 4
04
Life after amended
regulations for mF loans
With the new regulatory framework for 4.1 Compliance to regulatory changes
microfinance released by the RBI in Mar 2022, Some of the key changes required framing of new
a level playing field was created for all the REs or revised policies by the lender. A move away from
operating in the microfinance domain. To adhere the earlier prescriptive regulations placed enhanced
to the new regulations, REs were required to make responsibility on the REs to frame well-designed
material changes to their systems and processes. policies along with ensuring their implementation
This chapter details the role of MFIN in assisting on the field. A directive was released by the SRO
the industry in implementing the new regulations reiterating the lenders on implementation of RBI
in a short period of time. This required ensuring guidelines applicable from 1st Oct 2022.
uniform interpretation of the guidelines across the
industry and helping evolve ‘operational norms’ SRO facilitated quick adoption of the new
through widespread discussions. regulations through a campaign to increase
awareness of the changes through multiple
The new regulations from the RBI are a paradigm shift for the microfinance sector as it brings in
credit guideline harmonisation across entity types and also ability to price for risk & cost for NBFC
MFIs. This will usher in the next phase of growth as we seek to make “access to formal finance” a
reality to as many in the BoP as possible. The role of MFIN as the SRO becomes key in working with
the lenders to ensure compliance to the Code of Conduct.
Manoj Kumar Nambiar

Vice Chairperson, MFIN
Managing Director & Board Member, Arohan Financial Services Ltd

CHAPTER 4
channels viz. YouTube, LinkedIn, MFIN and MFI

websites. Posters capturing crisp information about Box 4.1: Keynote address by DG, RBI*
the new regulations and the concept of household,
Our intent in framing these guidelines was
microfinance client, maximum loan limit and credit
built around the idea of customer protection.
assessment were released in 9 languages including
To achieve, the framework has incorporated
Hindi and English.
five core principles, namely
To enumerate the steps required to be taken for
• Addressing regulatory arbitrage with the
complying with the regulatory changes, details
introduction of a lender agnostic and
were provided in terms of salient changes in the
activity-based regulation so that all the
regulations, revision of the Industry Code of
regulated entities engaged in microfinance
Conduct, new format of engagement with credit
pursue the goal of customer protection
bureaus and SRO compliances.
within a well-calibrated and harmonized
set-up.
• Protection of microfinance borrowers from
Salient Release of over-indebtedness caused by granting of
changes Industry loans beyond the repayment capacity of the
in the Code of borrowers which, then, can potentially get
regulations Conduct manifested into coercive recovery practices.
• Enabling the competitive forces to bring
down the interest rates by way of enhanced
Engagement transparency measures.
SRO
with Credit • Enhancement of customer protection
Compliances
Bureaus measures by way of strengthening them and
extending them to all regulated entities.
• Facilitating flexibility to design products/
4.1.1 Salient changes in the regulations services to meet the needs of microfinance
borrower in a comprehensive manner.
Applicability
This framework has been finalized after
The provisions of the new regulations are applicable extensive internal deliberations, issuance of a
to all the REs operating in the microfinance space. consultative document and after taking into
The structure of MFIN-SRO was revised accordingly consideration the feedback received.
with all the REs now required to become primary
*By Mr Rajeshwar Rao, Deputy Governor, RBI, at the launch of
members with associate membership being limited MFIN’s “India Microfinance Review”, at Mumbai on 4th Nov’22.
to the non-lending entities.
Definition of microfinance loan Household income
‘Microfinance’ is currently defined as a collateral As per the new regulations, the RE is required to
free loan given to a household with income up to have a board approved policy for assessment and
Rs. 3,00,000. ‘Household’ is defined as husband, calculation of household income. This household
wife, and their unmarried children. Collaterals level data is mandatorily required to be submitted
were developed for the loan officers as well as the to the credit bureaus as well.
customers to educate them on the new regulatory
changes in microfinance.
CHAPTER 4
While the regulations suggested an indicative income considering all outstanding loans
methodology, a draft guideline was released by (collateral-free microfinance loans as well as any
the SRO to facilitate REs develop their policies other type of collateralized loans) of the household.
on the household income assessment. Along with
the organization level polices, substantial effort A directive on reporting the loan repayment
was required to educate the loan officers on this obligations to income ratio of the borrower
aspect as they are responsible for proper income household was released. This data forms an
assessments. Several video messages, posters and important part of the quarterly report which MFIN
audio messages were also developed to educate the submits to RBI.
loan officers and customers. Pricing of loan
An advisory on household income assessment The interest rate of the microfinance loans should
was released advising the lenders to submit their be based on a policy with a well-documented
household income assessment framework to the interest rate model/approach clearly delineating
SRO – MFIN observations based on a field visits is the various components like – cost of funds, risk
provided in Box 4.2. premiums and margin in terms of quantum of each
component based on objective parameter. The range
of spread of each component for a given category of
Box 4.2: Study of HH income assessment customers along with a ceiling on the interest rate
implementation at field level and all other charges should be mentioned.
Field visits were conducted by the SRO to MFIN supported the lenders by providing guidance
understand the implementation of household notes to help evolve their policy for the pricing of
income assessment in the field. Following are microfinance loans. For enhanced transparency, a
few observations from the visits: directive was issued asking the members to submit
*Almost all the loan officers were found to the rate of interest, processing fees, internal rate
be aware of the new RBI regulations and the of return (IRR) and effective interest rate (EIR)
guideline on household income of up to Rs. 3 product wise on a quarterly basis to the SRO. They
lakhs and FOIR of 50%. were also advised to submit their pricing policy
with all the components to the SRO.
*Other parameters like availability of different
assets in the house were newly introduced in the This information also forms a part of the quarterly
HH income assessment process. The software SRO report submitted to the RBI.
used by the loan officers in their tablets/ mobile Qualifying assets criteria
phones included these aspects of assessment.
The Qualifying assets (QA) criteria for NBFC-
MFIs was revised to 75% of the total assets (from
Repayment Obligation 85% of the net assets as per earlier guidelines). The
QA limit for NBFCs was increased from 10% to
The repayment obligation of the borrower was a
25% of the total assets. Due to the change in the
new addition to the microfinance guidelines. A
denominator from ‘total assets’ to ‘net assets’, the
board approved policy by the lenders specifying
criteria became more stringent and reduced the
the cap on the outflows on account of repayment
scope for portfolio diversification. It also gave rise
of monthly loan obligations of a household as
to the possibility of breaches in case of events like
a percentage of the monthly household income
equity infusion, debt raise and Direct Assignment.
was mandated. This shall be subject to a limit of a
MFIN prepared a detailed note on the QA related
maximum of 50 per cent of the monthly household

CHAPTER 4
issues with illustrations for RBI’s consideration. The through display in the offices etc., disclosure
issue is discussed in more detail in Section 4.2.3. of interest rates on the website is a regulatory
requirement. As per the new regulations, each RE
Disclosures must display its maximum, minimum and average
Transparency in pricing through adequate interest rates on its website. SRO keeps track of all
disclosures continue to be an important part of the member’s websites for this information every
the framework. The focus of new regulation on quarter since the release of the new guidelines
transparency and disclosures includes few detailed and a substantive increase in the adherence to the
clauses on disclosures. guidelines by the lenders have been observed. To
ensure adherence to the RBI guidelines regarding
Fact sheet to the customers the display of interest rates on the website, a
directive was released by the SRO detailing the
Loan card/factsheet is a document which is given
display format (Table 4.1) of the interest rates on
to the microfinance borrowers at the time of loan
the website.
disbursement and remains with them throughout
the loan cycle. It has all the important loan related 4.1.2 Industry Code of Conduct
information and helps in keeping track of the
repayments made by the borrower. The primary focus of CoC has always been to
promote and advance responsible lending practices
The new framework captures the mandatory in microfinance. The new regulatory framework
information which the lenders should provide of microfinance necessitated the revision of the
in the loan card, given to the borrowers. The existing code to be in line with the regulations.
framework also contains an illustrative factsheet on
pricing of microfinance loans to be provided with The code was released with consensus from
the loan card. A directive reiterating this was issued industry associations - Sa-dhan, ASFBI and FIDC,
by the SRO. and was endorsed by SIDBI. Sign-up on the code
is a mandatory requirement for the REs to be
Website Interest rate display a member of the SRO. SRO pursued with all the
lenders to send their sign-up on the code as per the
In addition to disclosure of interest rates in the
suggested format along with the board resolutions.
loan documents, other literature (pamphlets,
information booklets) issued by the lender and
Table 4.1: Display format for interest rate disclosure on website
Av. interest rate

All Micro-finance Min Interest Max Interest Processing Fees
in last quarter/
loans Rate* (%) Rate* (%) (% of the loan)
month** (%)
Note:- Lenders are encouraged to share additional details like range of loan amount, loan tenor, product wise details etc., without
compromising on the above details.
*Interest rates are calculated on a reducing balance basis per annum
**Average interest rate: It is the ‘weighted average interest rate’ calculated for the loans disbursed in the last quarter/month. The loan amounts
are used as the weights. The weighted average is arrived at by taking the sum of each loan’s interest rate multiplied by the loan amount and
then dividing this sum by the total loan amount disbursed.Please specify the quarter/month for which the average interest rate is displayed on
the website.

CHAPTER 4
The Code has seven elements:
Fair Education & Grievance

Others
Interaction Transparency Redressal
Information Employee
Suitability & Privacy Engagement
The revised code encompasses all the critical new regulations, this was under discussion phase
areas to be focused by all the microfinance with certain challenges at the bureau level to create
lenders in terms of fair interaction, suitability, such a report.
education & transparency, information & privacy,
grievance redressal, employee engagement and However, the issues were taken up on a priority basis
others. Sections on governance and enforcement, due to the new regulatory requirement and both
disclosures, and suggestive format of adherence the credit bureaus- Equifax and CRIF Highmark
report on a specified frequency are included in the released their HH CCIRs. SRO facilitated the release
report. of the CCIRs to the lenders through specialized
webinars which gave a platform to understand
the specifics of the report as well as addressed the
The industry code of conduct was drafted in line queries/concerns.
with the new regulatory framework. Exhaustive
feedback was obtained from the lenders while Alignment of UCRF with the new regulatory
drafting the code. Webinars and polls were held requirements
to understand the consensus with appropriate
reasoning. To ensure that the reporting is done as per the
mandatory requirement, MFIN carried out
multiple engagements with the credit bureaus and
the members.
4.1.3 Engagement with Credit Bureaus
To align the industry with the requirements of
Launch of HH CCIR in collaboration with the new regulations, changes were made in the
Equifax and CRIF Uniform Credit Reporting Format (UCRF) for
An understanding of the customer’s household the MFI segment. Data fields for total monthly
and not just the customer is an important part family income, number of instalments, repayment
of the credit underwriting process post new frequency and instalment amount were made
regulations. To understand the credit obligation at a mandatory field in the data reporting format for
household level, Household Comprehensive Credit the MFI segment. The CICs were directed by the
Information Report (HH CCIR) is an important RBI vide its letter dated June 7, 2022 to reject the
product to have with the members. Prior to the records submitted with non-submission of these
fields from October 1, 2022 onwards.

CHAPTER 4
4.1.4 SRO compliance • Fields on number of instalments and instalment

amount was made mandatory for reporting to
SRO Dashboard the credit bureaus as this would offer valuable
The Quarterly SRO Dashboard is an important tool insights into borrowers’ debt burden and
which supports lenders to continuously improve overall financial health, enabling responsible
their processes in terms of data submission to lending decisions through FOIR analysis.
credit bureau and employee bureau, response to To drive daily submissions and improve the data
complaints raised through MFIN CGRM and submission quality, the logic for calculation of
performance of their own CGRM. the daily submitted files was revised and the daily
To align the SRO Dashboard with the new submission score in the SRO dashboard from Q1
regulatory requirements and improve the quality FY 23 -24 reflected the new logic. The details of
of data submission, its format was revised. The the change in logic were communicated to the
revised format was shared with all the members members on 7th July 2023.
on 25th Apr 2023 for implementation from Q4, FY The non-compliances/gaps identified in the data
22-23. The dashboard highlights indicators which collected on loan repayment obligation to income
require management’s attention and may be further ratio were taken up with the SRO governance
presented to their boards. Following were the committees (SROC and EC) to take further action.
revisions made with respect to the new regulations:
Quarterly SRO reporting to RBI
• Total monthly family income field was made
mandatory for reporting to the credit bureaus Quarterly reports are shared with the RBI by the
to enable accurate assessment of borrower’s SRO on various data points including operational
repayment capacity, ensuring responsible and financial data of the lenders. There is a format
lending and preventing over-indebtedness. specified by RBI in which the report is being
shared. The new regulations necessitated a review
Sample SRO dashboard

CHAPTER 4
of the quarterly SRO reports which are submitted in the overall process of credit lending. Therefore, a
to RBI. As required by the RBI, SRO submitted its system ensuring that the customer’s voice is heard,
suggestions on the new format of the Quarterly and their interests are protected is necessary.
SRO report which are in line with the harmonized
regulations. Based on the review and discussions MFIN’s CGRM provides a channel to customers
with the SRO, RBI communicated changes in the of MFIN-member companies who might not be
quarterly data collection tool to understand the satisfied with the response to their grievances from
implementation and impact of the new framework. the lenders. It also allows the customer to address
Based on the revised format, SRO started collecting and transparently resolve their complaint within a
the data on monthly obligation, household income reasonable timeframe. Although as per regulatory
and pricing information additionally from its requirements, all the REs already have a robust
members and submitting it to RBI every quarter. system for registering and resolving their customer
grievances, MFIN-CGRM serves as an additional
The new format was used for data collection from channel for the customers.
Q1, FY 22-23 onwards. To address members’
understanding of the reporting requirements, a MFIN’s CGRM is an independent system of linking
webinar was conducted in Jan 2023. The webinar the customers of MFIN-member companies with
was well attended by over 70 participants and easy-no-cost access to the SRO, who seek support
provided a platform for discussion and learning. in addressing their grievances. As per a directive
issued by MFIN, all the member companies are
The Microfinance sector in India is in an evolving mandatorily required to mention the MFIN toll
phase with more market opportunities, product free number in the loan cards of the customers. The
diversification and streamlined processes along details of the structure of CGRM at MFIN is listed
with areas of innovation with the new regulatory Box 4.3.
framework. The removal of interest rate caps will
promote stronger risk-based credit underwriting. Box 4.3: Structure of CGRM
The amendment is helpful in encouraging healthy
competition amongst various lenders. The new Receiving/capturing Complaints (MFIN Toll
free Number: 1800 102 1080)
regulatory framework will also scale the industry
further, enable better risk mitigation and drive Incoming calls on MFIN Toll free Number:
financial inclusion. It is also expected to protect the Monday to Saturday from 9:30 am till 5:30 pm.
customer’s interests with better responsible lending Calls received from all states. Executives can
practices. speak 12 languages - English, Hindi, Odia,
4.2 Some key initiatives of MFIN as the sector Bengali, Marathi, Punjabi, Assamese, Gujarati,
body Malayalam, Kannada, Telugu, and Tamil.
4.2.1 MFIN CGRM All the calls landing up in the toll-free no

helpline get recorded.
Customer Grievance Redressal Mechanism Additionally, the customers can also
(MFIN-CGRM) is an integral component of reach out to MFIN through an e-mail id
customer protection mandates that customers - customercomplaint@mfinindia.org and
have access to adequate complaints handling and register their complaints. The customers are
redress mechanisms that are accessible, affordable, reached by via phone in case all the adequate
independent, fair, accountable, timely, and efficient. details are not received by e-mail.
Given the educational-social-economic Currently, the calls are categorized into 10
background of microfinance customers, they can categories and more than 30 sub-categories.
be susceptible to being misinformed and influenced

CHAPTER 4
The details of calls and complaints received in Figure 4.2: Complaint Categories (FY 22-23)
MFIN CGRM over the last 8 years is shown in
Figure 4.1.
Processing of complaints is done through a CRM

software. TAT is defined for each process with
escalations and reminders and it serves as a second
port of escalation, except for severe complaints.

Figures 4.2 & 4.3 show category wise and state

wise distribution of complaints received in MFIN

CGRM in FY 22-23.
Figure 4.1: MFIN-CGRM YoY Call details

Figure 4.3: State wise calls (FY 22-23)
20%
18%
9%
7% 7%
6%
5% 4%
4% 4% 4%
3%
BH UP TN MP RJ WB MH AS HR OR PB KA

CHAPTER 4
Resolution and closure of complaints: Complaints under nine attributes – Accessibility, Seamlessness,
closed only after obtaining feedback from the Proactive communication, Cost-effectiveness &
customer. There is provision to relook into the timeliness, Personal data protection, Objectivity,
issue if the customer is not satisfied with the Independence, Accountability and Capacity
resolution provided. In few cases where due to building.
lack of evidence, it is difficult to establish the
The study finds that the MFIN-CGRM
exact issue and the complaint cannot be closed
demonstrates an incisive understanding of the lived
satisfactorily, the escalation of the complaint to the
context of its user base. The study recognised the
RBI Ombudsman is facilitated and the complaint
provision of simple, costless, multilingual, toll-free
is closed as ‘disputed’ in the MFIN CGRM
phone-based channels to access the CGRM. The
system. Figure 4.4 shows the status of complaints
registration process was considered uncomplicated
resolutions in FY 22-23.
as it did not ask for excessive data. Complaints
Figure 4.4: Turn Around Time of complaint were accepted regardless of the date of registration.
resolution in FY 22-23 MFIN’s CGRM was found to expend a sizeable
effort in familiarising users with the procedure
while maintaining provisions to fast-track critical
complaints.
Employee complaints: As toll-free numbers were
widely disseminated, the employees of the lenders
too started reaching out for resolution of some
≤
grievances they had. With the increase of such calls,
the SRO started taking up the employee complaints
with member institutions to obtain adequate
CGRM update from member companies: MFIN responses for resolution/closure. Although the
member NBFC-MFIs shares the quarterly update number of such complaints is less, this has added
on calls/complaints received on their own CGRM up to the scope of CGRM and helps to understand
with the SRO. The member NBFC-MFIs40 reported the employee level challenges/issues within the
receiving a total of 5,30,566 calls and 31,985 industry.
complaints in FY 22-23.
4.2.2 LeadEdge
Quarterly reporting to RBI: As per the mandate
by the RBI, SRO shares a quarterly report to the ‘LeadEdge’ is an exclusive management
RBI and details of complaints – member wise as development programme designed by MFIN in
received. collaboration with XIM University (erstwhile
Xavier Institute of Management), Bhubaneswar. It
CGRM Study: To gain insights on customer’s is a 3-day residential programme conducted at the
experiences of navigating the MFIN-CGRM to XIM campus and is targeted at mid to senior level
further enhance its effectiveness, MFIN partnered microfinance professionals who are in leadership
with Dvara Research Foundation to undertake a and managerial roles in the organization. This
study. Dvara deployed a methodology comprising a programme has been designed to impart essential
mix of a primary survey of over 300 users, stakeholder skills to ‘manager of managers’ using simulation
interviews and desk research to understand the games, situational analysis, role plays etc.
user- centricity of MFIN-CGRM and mapped the
40
Panel of NBFC-MFIs is largely same but not exactly same for all the quarters

CHAPTER 4
MFIN SRO worked closely with the MFIN HR response. The modules covered important topics
Working Group and XIM University to develop like companies Act and other corporate laws; the
and customize the programme. The topics covered duties, responsibilities, and liabilities of directors;
under the programme includes negotiation skills, aspects of improving corporate credibility and
time management, leadership, managing teams governance standards; enhancing effectiveness and
effectively, review & feedback, stress management, accountability; Internal audit; and microfinance.
dealing with public officials, crisis management,
handling ethical issues at work, managing team etc. 4.2.4 Online datahub
The participants are also given an understanding of MFIN has been collecting data from various
the evolving microfinance industry. sources for its publication, reporting to regulator
The program received an enthusiastic response and advocacy efforts since FY 2012-13. The data
from the industry. Three batches with 30-32 points collected includes self-reported operational
participants each have participated in the program and financial data by MFIN member MFIs and
so far. Participants from 24 organisations have as well as bureau sourced aggregated data. Apart
attended the program. from these sources, MFIN also receives compliance
related data from bureaus, field level data from an
ADEPT 15, a psychometric analysis test tool in-house application named RADAR, from studies,
developed by AON was introduced for assessing evaluations, audits, CGRM helpline database and
the work-related behaviours of the participants in incidental data collected for specific purposes.
the 3rd batch. The initiative was much appreciated
by the participants. All these data are currently used for the specific
purposes for which they were collected. However,
4.2.3 Masterclass for Directors on Board since all these data are housed in separate folders
with their separate data owners, at times it becomes
The 2-day programme of the customised masterclass difficult to get a comprehensive view of industry
for directors was conducted on 21st and 22nd Feb or a particular institution. In addition, the data
2023 at Gurgaon. Designed in association with the collected in all these years has become large and
Institute of Directors (IOD) for the Board Directors there is a need to manage this data in a systematic
of Microfinance lenders, the program got a good database so as to provide consistent picture to users.

CHAPTER 4
The vision is to: ‘reputation collateral’ in a credit reporting system

is a very important asset. For lenders and the
• Provide quick, secure and customised access of industry, credit information improves transparency
data for different user types (MFIN Secretariat, in financial transactions and accuracy in credit
Members/Associates, others) decisioning. In the context of above, it is important
• Provide a unified view of MFIN Members of that customer data is accurately and timely updated
their own data and vis-à-vis industry and peer with the Credit Information Companies (CICs)
benchmarks and lenders use Credit Information Report (CIR),
which is accurate and updated for lending decision.
• Fulfil the ongoing MFIN’s data needs for
reporting, advocacy, surveillance, analytics etc. The Credit Information Companies (Regulation)
Act (CICRA) was enacted in the year 2005 with
The online datahub is near completion and will be a view to regulate CICs and to facilitate the
opened up for Members in FY 2023-24. efficient distribution of credit. With a view to
4.3 Policy issues – work in progress streamline the process of data submission by the
financial institutions to the CICs, standardized
The new regulations have addressed the major data formats for furnishing of credit information
policy challenge faced by the sector but there are to Commercial, Consumer and MFI credit bureaus
still some policy issues that are creating bottlenecks were adopted. The formats are known as Uniform
in terms of compliance. In addition to these issues, Credit Reporting Formats (UCRF). The financial
there are some efforts required to nurture the new institutions are required to submit the credit
players as well as have tools to protect the REs and information to the CICs in timely manner. The
their borrowers from shocks. The sub-sections credit institutions (CIs) submit the information
below discuss these issues and solutions. on daily, weekly or monthly frequency using the
standard reporting formats.
4.3.1 Credit bureau
MFIN actively engages with all the stakeholders
For micro-credit customers who lack physical
to build a robust credit bureau ecosystem, which
collateral and regular income/cash flows to
includes lending institutions, credit Information
demonstrate repayment capability, developing

CHAPTER 4
companies, and the regulator. MFIN represents Review of issues pertaining to the credit information
the voice of the microfinance industry during the reporting system
meetings of the technical working groups of the
RBI. These discussions serve as forums for driving To facilitate the plugging of gaps in the credit
necessary policy changes. The developments related information reporting system and improve the
to the credit bureau in the last year are described data quality of the CICs, a TWG Subgroup was
below (in addition to the HH CCIR Alignment advised to deliberate on issues pertaining to the
of UCRF with the new regulatory requirements credit information reporting system.
discussed in Section 4.1.3). The CIs are currently using the Secure File Transfer
Review of the technical formats issued by CICs for Protocol (SFTP) mechanism for data submission
obtaining credit information from CIs to CICs. It was observed that data upload through
SFTP is a time-consuming process and delays
The usage of different catalogues and data the overall data submission. The group discussed
submission formats by different lenders often automation of the data submission process and
raises disputes, therefore there is a need to have a CICs are working on the common data portal
standardized catalogue for consumer, commercial framework in a long-term approach.
and MFI. There is a need for standardization of the
data correction format so that if a customer makes It was felt that in cases where the data correction
a complaint, it can be shared with all CICs in the sought by the customer has been declined by a
same format for correction. CI, they need to give reasons for the denial of the
data correction to the CIC to onward submission
The data validation rules applied by the CICs for to the customer. In many cases, it was observed
accepting the data are not uniform across the CICs. that CIs decline the data correction in the CIR
This leads to a difference in the data acceptance citing “no change in reported information”. It was
by different CICs. There is a need to implement a felt that if the customers are made aware of the
common set of rules for validating all data fields reasons why the CI has not modified the data, they
in the UCRF to ensure the overall quality of the can take suitable measures to resolve the pending
data. To address the above issues, group discussed grievances. A list was collated, with the scenarios
on standardization of technical formats used for and exhaustive reasons received from all the CICs
data submission be CIs to CICs and common and CIs. The final ‘list of reasons’ will be shared
validations rules across CICs. A comprehensive with all the CI. Any CI rejecting the consumer
review of the technical formats (consumer, grievance will be required to give the reason from
commercial and MFI) issued by CICs for obtaining this exhaustive list, which will be further shared by
credit information from CIs, was undertaken by CIC to consumers.
the technical working group. The current technical
formats, populated with the field validation of The details of the assignment/ transfer of loan from
whether it is mandatory, optional, or conditionally one lender to another lender or any entity, are not
required, were thoroughly analysed and submitted captured in detail in the CIR of the borrower. This
with the remarks to the group. leads to grievances from the borrower including
raising the dispute about the ownership of the
The group also critically reviewed the presence tradeline in CIR. To address the issue, CICs shared
of microfinance loan fields like Microfinance – a process document and reiterated the process to
Business Loan, Microfinance – Personal Loan, and ensure everyone is calibrated.
Microfinance – Housing Loan in the consumer
bureau. Currently, there is no monitoring mechanism for
the CIs on the data submitted by them to CICs. The

CHAPTER 4
introduction of a dashboard for monitoring the TWG Sub-group on digital lending

quality of data submission was a part of discussions.
RBI asked the group to discuss on whether the
Preparation of a draft on the Data Quality Index mobile number/ email ID fields in the reporting
for microfinance format can be made mandatory immediately or a
phased approach may be adopted. The participants
The RBI directed that the TWG shall deliberate and of the group highlighted that many consumers do
prepare a draft DQI for the MFI segment and submit not have mobile numbers and therefore mobile
the same to RBI for consideration. A common Data numbers cannot be made mandatory and timelines
Quality Index (DQI) will assist CIs in determining cannot be given, CICs should not reject records
the gaps in their data submitted to CICs and move submitted without mobile numbers, mobile
towards improving their performance over a numbers cannot be collected for legacy accounts.
period. CIs would also be able to rank their own
performance against that of their peers and identify Considering that the database of CICs are currently
their relative position. adequately/reasonably populated, TWG was asked
to deliberate if intimation to borrowers can start
As a follow-up to the TWG discussions, the RBI has immediately. The group highlighted the real-world
come out with a notification on DQI on September issues like legacy submission, same mobile number
20, 2023. As per the notification, all the CICs would shared amongst household members, frequent
publish a data quality index in form of a numeric change of mobile numbers by borrowers, low
score to all the member CIs. contactability, DND numbers.
A common national identifier for KYC Other CIC issues
TWG Subgroup was formed for deliberation on Submission of data to the CICs in Non-standard
mandatory submission of CKYCR number by file formats: CIs have been submitting data
CIs to the CICs as a common national identifier files to CICs in various types of formats, which
in a separate field in the technical formats. It was include single and multiple files in CSV, Excel,
highlighted that CKYC penetration is still very low and various other file formats. The submission
although it started in 2017. On point of checking of data in non-standard formats by these lenders
the rate of CKYC generated for MFI customers often results in errors during the file conversion
with CB, MFIN highlighted that JLG/SHG loans process. This process has proven to be iterative
are exempted from the process of CKYC. The group and often requires manual intervention. In order
discussed taking PAN as an alternative and working to establish a seamless, error-free data flow with
on refining the process with PAN. Feasibility of no-touch data integrity and to advance toward a
PAN was discussed, PAN penetration being low streamlined straight-through process, it is required
in rural areas other alternatives will be required, that lenders adhere to a standardized file format
for KCC or crop loans PAN is compulsory but for when submitting their data.
other products like personal loan it is mandatory
in rural branches also. MFIN told the group that Timely Submission of the data files to the CICs:
VID penetration is highest in MFIs with Ration Timely data submission of monthly, weekly, and
card dominating in few areas like Tamil Nadu. daily files by the CIs to all the CICs is still lacking.
MFIN also suggested that any identifier like PAN/ Lapses and delays in the submission of data to the
VID must be authenticated with UID to establish CICs are informed to MFIN members on a regular
uniqueness. The possibility of using Udyam basis. This communication serves as a reminder
number as a unique identifier in the future was also of the importance of timely data submissions and
discussed. highlights the entities submitting data with a delay.
MFIN will continue its efforts to institutionalize
the submissions to the CICs.

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4.3.2 Aadhaar as the unique identifier levels and repayment capacity of clients instead of
number of lending relationships. This means that
While, the TWG had discussed about the MFIs are required by regulations to ensure that
possibility of CKYCR and Udyam No. as the for each client’s HH income level and repayment
national identifier, in MFIN’s opinion Aadhaar obligations are captured and are within prescribed
number is the best suited as a unique identifier for limits. This can only be ensured by access to a CIR
microfinance borrowers. which has accurate details.
MFIs take KYC IDs of their prospective client Proposed solutions
as part of the sourcing of loan and report the
demographic details and the ID taken to the CICs • CICs be allowed to receive, store and use
for generation of a CIR of the client. These KYC Aadhaar – Aadhaar is the best possible option
IDs and demographic details are used by CICs to for KYC IDs which can enable CICs to perform
identify each client uniquely (deduping). For most dedupe with negligible chances of overlaps or
part of last decade, MFIs had been using 2 KYC IDs missing out of records.
(Voter ID and Aadhaar). Use of these IDs suited
the microfinance business since most microfinance • NBFC-MFIs be allowed to use Aadhaar
clients do not have PAN number. For this clientele for client verification and CIC reporting
Aadhaar was a perfect fit since it was available purposes as was the case before the Judgement
ubiquitously and provided complete certainty of of Honorable Supreme Court. To ensure
uniqueness. However, post Honourable Supreme security of Aadhaar data, mechanisms may be
Court’s judgement on Aadhaar, MFIs were unable explored where client provides her Aadhaar
to take Aadhaar as a KYC and had to resort to details and consent directly to the CIC using
taking only voter ID as the KYC document. biometric verification/ OTP based verification
to processing query and generation of CIR. In
Issues in deduping this method, the Aadhaar details are directly
passed on to the CIC without locally storing
An accurate CIR necessarily requires an individual any data in the loan origination system of the
client to be identified uniquely which in turn MFIs. Thus, the issues related to availability of
needs unique identifier to be populated in all adequate IT security infrastructure at MFI end
lending relationships. As mentioned above, due to will not arise. MFIs can continue to take voter
unavailability of Aadhaar, Voter ID is the only KYC ID for their KYC compliance purposes.
document which is available with microfinance
clients but this ID is not unique. Cases have been 4.3.3 Digital lending
reported where a client was in possession of multiple
voter IDs. At times due to slight change in name There are several regulatory gaps and concerns
(pre marriage name and post marriage name for that can be seen in the domain of digital lending
example) or other demographic detail and different – though as per guidelines microfinance is also
Voter IDs, identification of all transaction records digital lending. From the data available in the public
of a unique client doesn’t happen. As such, lack of a domain the following can be noted in respect of
true unique identifier can result in multiple lending digital/fintech lenders:
and over indebtedness of a microfinance client. a. Share of non-collateralized loans (reported as
Another noteworthy issue is change in microfinance personal loans to the credit bureaus)41: 72% of
guidelines from March 2022 wherein microfinance GLP and 83% of number of loans.
loan definition was linked to household income b. Share of lending to individuals with annual
income <INR 3 lakhs42: 61% of value
41
2023, Equifax. “Fintech Lending Trends FY 2022-2023”
42
2022, March. “Fintech Lending Trends from FACE members, Issue 1.”

CHAPTER 4
c. Maximum interest rate charged42: From 30% to A closer examination will show this similarity
60% and avoid regulatory arbitrage.
d. Maximum processing fee charged42: From 2% 4.3.4 Qualifying assets
to 10%
The concept of QA (or microfinance loans) was
e. Low Average Ticket Size41: INR 12,989 introduced by the Malegam Committee as a
f. Low tenure of the loans41: 88% of GLP rationale for classifying certain types of NBFC as an
constitutes of loans with <6 months tenure. NBFC-MFI. The hypothesis was based on a study
of 9 large and 2 small MFIs and concluded that a
Based on the above data, the following can be
surmised: NBFC that has microfinance loan (QA) of not less
than 90% of their total assets excluding cash and
a. Most of the loans given by Fintech lender bank balances and money market instruments
qualify as microfinance loans as per the current should be classified as NBFC-MFI while other
regulations. NBFCs can have QA not exceeding more than 10%
b. These loans remain out of the current of total assets.
microfinance regulations.
However, based on feedback for need to diversify,
c. These loans are reported to the consumer the QA requirement was prescribed as “Not less
bureau as personal loans (or as STPL) and than 85% of its net assets” in the RBI master
not as microfinance loans in the microfinance directions of 201143 to operationalize the Malegam
bureau. Committee recommendations. At that time the
d. These loans are given at high interest rates/ aggregate size of the NBFC-MFIs (and effectively
processing fees. the microfinance industry as they were the only
Based on the above, the following solutions were providers) was Rs 17,264 Cr (MFIN Micrometer
proposed to the RBI as the field issues related to it Q4 2011-12) and the QA norms were pertinent
and gets conflated with strongly regulated NBFC- in helping them focussing on providing financial
MFIs. services to the microfinance target segment as
defined by QA.
a. That these Fintech lenders/banks who have tie
up with them should be required to comply The growth of the sector led to few issues with the
with the MF regulations. Not doing so, leads to QA norms:
weak underwriting and customer protection.
• With years of obtaining microfinance and the
b. The data should be reported to Mf bureau and improved livelihood opportunities, the credit
not Retail bureau requirement for many borrowers diversified
c. RBI should take a look at their interest rates and increased beyond the microfinance limits.
and recovery practices It became important for NBFC-MFIs to offer
d. Also suggest that such institutions should products that cater to their various lifecycle
be asked to be part of the well-established requirement. MFIN had conducted an analysis
Microfinance self-regulatory organization to which showed dependence of such borrowers
contribute to and learn from the ecosystem on NBFC-MFIs despite that they had the
which has evolved over the last few decades. capability to graduate to the next level of
financial institutions for their credit needs.
e. They are basically microfinance lenders as per
microfinance regulation albeit with focus on • One of the reasons for such a behaviour was
consumer loans over income generating loans. that mature MFI clients have higher level of
43
2011, 02 December. RBI. “Circular DNBS.CC.PD.No. 250/03.10.01/2011-12”

CHAPTER 4
comfort with MFIs and have an already proven total assets in comparison to 10-12% as per earlier
relationship with them. If MFIs can diversify norm. This is leading to NBFC-MFIs being not able
and introduce more products to their clients, to lend to their old clients who have moved out of
they will have easier access to credit and other traditional microfinance and drying up of mid-size
financial services. MUDRA loans, leaving such clients without access
to formal finance. This is happening at a time, when
• However, the requirement of having 85% MSME financing is a national priority.
qualifying assets as a proportion of net assets
restricted the ability of MFIs to innovate, Additionally, as NBFC-MFIs cut staff and MSME
as effectively the MFIs did not get the full portfolio to comply with the new norm, it being a
advantage of the 15% spread to create non- static concept, any new infusion of debt or equity
qualifying portfolio to offer other credit leads to QA breach. This happens as the money
products required by the clients. This is because received sits as cash and can only be disbursed
many assets such as deposits, fixed assets, gradually as loans. It did not happen earlier as
advanc e taxes, intangible assets, interest cash and liquid assets were excluded in seeing
accrued but not due, sundry debtors etc. get compliance. In such cases, each institution has to
treated as non-qualifying assets. approach the RBI for condonation, which increases
work for the RBI and uncertainty for the Institution.
MFIN, through its representations to RBI had
advocated that the QA criterion be modified and The solutions seem to be in reducing the QA limit
linked to ‘on balance sheet portfolio’ and not “net further from 75% of total assets or link it to the
assets” to allow scope of portfolio diversification on-balance sheet portfolio of NBFC-MFIs – any of
and enable MFIs to cater to various credit needs these changes will meet the larger policy objective
of the microfinance borrowers. After consultations of ensuring that NBFC-MFIs remain focussed on
with the industry, RBI released the new44 master microfinance
directions microfinance loans with revised
4.3.5 Credit guarantee
definition of QA as below:
Credit Guarantees (CG) are the “Access to Finance”
• 75% of total assets for NBFC-MFIs – changed
mechanisms provided as a risk sharing instrument
from 85% of net assets in the earlier guideline.
for lenders and are aimed to improve flow of credit
• 25% of total assets for NBFCs – increased from in borrower segments which are normally perceived
10% in earlier guideline. to be risky by lenders. Credit guarantee mechanism
involves three main participants - borrower,
It is understood that while the thought process of guarantor and lender. Guarantee is a traditional
reducing the QA limit & linking it to total assets was method of assuring the lender about the safety of
to allow greater scope to NBFC-MFIs to diversify his money lent to a given borrower. A guarantor
and making it congruent with the norm for NBFCs, (here, the credit guarantee organisation) assures
the new QA norm in reality has become stiffer. The to make good a proportion of the borrower’s debt
issue is that in the earlier QA norm of 85% of net to the lender in case of default [NABARD, 202245].
assets, the NBFC-MFIs had a scope of diversifying At a global level, public credit guarantee schemes
their loans to the extent of 15% of net assets are a common form of government intervention to
(equivalent to around 10-12% of total assets). By unlock finance for small and medium enterprises
changing the norm from Net Assets to Total Assets, (SMEs). More than half of all countries in the world
and despite reduction of absolute % of QA from have a CGS for SMEs and the number is growing
85% to 75%, the minimum scope for NBFC-MFIs [World Bank46].
to diversify their loans has been lowered to ~5% of
44
2022, RBI. “Master Direction, Regulatory Framework for Microfinance Loans”
45
2022, NABARD. “Rural Pulse – Nabsanrakshan Foundation Day Special Issue”
46
2016, The World Bank. “Principles for public credit guarantee schemes for SMEs”.
CHAPTER 4
In India, there are two CG organisations to NCGTC is a private limited company, established
provide guarantee in respect of the credit facilities by the Department of Financial Services (DFS),
(term loan and/ or working capital assistance), Ministry of Finance (MoF), in March 2014 as
extended by the lending institutions without any a wholly owned company of the GoI, to act as
collateral security and/ or third party guarantees a common trustee company for multiple credit
to the new or existing Micro & Small Enterprises guarantee funds. NABSanrakshan Trustee Private
(MSEs) – Credit Guarantee Fund Trust for Micro Limited, a wholly owned subsidiary of NABARD
and Small Enterprises (CGTMSE) and National established in November 2020 as a Credit Guarantee
Credit Guarantee Trustee Company Ltd (NCGTC). Company is dedicated to serving agriculture and
CGTMSE was jointly set up by Ministry of rural sector.
Micro, Small & Medium Enterprises (MoMSME),
Government of India (GoI) and Small Industries The CG schemes implemented by CGTMSE
Development Bank of India (SIDBI) in July 2000 and NCGTC that are of some relevance to the
to catalyse flow of institutional credit to MSEs. microfinance sector are captured in the Table 4.2.
Table 4.2: CG schemes for MSMEs
Schemes
CGS I for Banks: It is for the credit facilities (fund based &/or non-fund based) with
primary security by the way of term loans and/or working capital (WC) facility extended
by scheduled commercial banks to MSEs. The guarantee ceiling is Rs 500 Lk, with slab
based annual fee ranging from 0.37% (Rs 0-10 Lk slab) to 1.35% (above Rs 2-5 Cr slab) and
guarantee cover ranging from 75% to 85% (for marginalized groups).
CGTMSE
CGS II for NBFCs: For unsecured credit facilities (terms loans/WC) extended by NBFCs
registered by RBI to MSEs and meeting minimum threshold limits for CRAR, profitability
and net owned funds based on vintage (up to & more than 3 years), with guarantee ceiling
of Rs 200 Lk. The annual fee is based on the risk rating of the NBFC by the external rating
agencies empanelled by CGTMSE & the cover is 75% of the guaranteed amount.
Credit Guarantee Fund for Micro Units (CGFMU): Provides guarantees for loans up
to the specified limit (currently Rs 10 lakh) sanctioned by Banks/ NBFCs/ MFIs/ other
financial intermediaries engaged in providing credit facilities to eligible micro units in
manufacturing/services sector, collateral free loans between Rs 10 to 20 Lk to SHGs/JLGs
and up to Rs 10,000 overdraft facility sanctioned under PMJDY. Fee ranges from 0.25% to
1% of sanctioned amount.
Emergency Credit Line Guarantee Scheme (ECLGS): It provides 100% guarantee
coverage to Member Lending Institutions (MLIs) on Guaranteed Emergency Credit Line
NCGTC
(GECL) of up to Rs 5 lakh crore to eligible MSMEs. The scheme was a specific response
to the unprecedented situation arising out of COVID-19 to provide much needed relief to
the MSMEs by incentivizing MLIs to provide additional credit to meet their operational
45
2022, NABARD. “Rural Pulseand
liabilities – Nabsanrakshan Foundation
restart their Day Special Issue”
businesses.
46
2016, The World Bank. “Principles for public credit guarantee schemes for SMEs”
Credit Guarantee Scheme for MFIs (CGSMFI): It was launched by DFS, GOI on 15th
Jul’21 to provide guarantee coverage to eligible lending institutions for the funding
provided by them to NBFC-MF or MFls for on-lending to eligible small borrowers in the
context of Covid-19.
Source: CGTMSE & NCGTC websites

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Of all the schemes, the CGSMFI was the most In Union budget 2011-12, the Government had
useful and impactful for the mF sector. The scheme created India Micro finance Equity Fund (IMEF)
provided the much-needed boost to the sector with initial corpus of Rs 100 Crore with SIDBI.
with over Rs 7,200 Cr disbursed to 38 MFIN The corpus was enhanced to Rs 300 Crore in FY
member MFIs and 99% of that on-lent to almost 2013-14 for extending equity or any other form of
17.75 Lk microfinance borrowers. The CGS I and capital to Tier – II and Tier – III NBFC MFIs, with
II schemes have hardly been used by the REs due a focus on smaller socially oriented MFIs with the
to unfavourable terms and conditions including objective of poverty alleviation and achieving long
annual fee. term sustainability of operations in unserved and
underserved parts of the country. As per SIDBI
Similarly, CGFMU has not been used by majority annual report 2022-23, the balance in the fund is
of REs except a few NBFCs (including one NBFC- Rs 310.8 Crore as on March 31, 2023. For a brief
MFI) and a couple of SFBs. One of the major period the fund was managed by MUDRA and the
concerns is the higher guarantee fee for loans entire fund was transferred back to SIDBI in April
provided to micro units of JLG borrowers in 2022.
comparison to SHGs, despite both being group base
models for facilitating credit to micro units of low- The scheme was re-launched in November 2022
income borrowers, which is a deterrent for MFIs with the aim to provide Equity/Quasi equity (sub-
to take benefit from this facility. ECLGS 1.0 was debt) to Tier II (50,000 and 250,000 borrowers)
opted by mostly banks and SFBs with microfinance and Tier III (<50,000 borrowers) NBFC-MFIs &
loans but faced some issues at the time of claim all Non NBFC-MFIs. However, it seems that there
settlement due to a guideline on uploading limit has been no utilization as the fund balance remains
of 100 per day for supporting documents which the same level as on March 31, 2022, which may
created a backlog for interim claims. This was later be due to the stiff criteria for equity support which
resolved by NCGTC. the small MFIs are unable to fulfil. Some of the key
issues and solutions related to IMEF scheme are as
Credit guarantee is a very important tool which below:
can be used by REs for mitigating credit risk. It is
evident that the schemes that are available have not • The quantum of support under IMEF is up to
been designed keeping the microfinance players Rs 3 crore per MFI (may go up to Rs 5 crore in
and their borrowers in mind. In this context, deserving cases). The amount of investment is
CGTMSE is designing a scheme for MFIs which is small, and will not make any material impact
expected to have a much lower guarantee ceiling, on the company. As of Mar’23, the average
lower lock-in period and single tranche settlement total equity of 12 MFIN Member MFIs with
at a reasonable fee. MFIN is actively involved in borrowers base less than 50,000 is Rs 14.8 Cr.
providing inputs to CGTMSE. For these MFIs an investment of Rs 3 Cr in
equity would be a decent 20%. But the average
4.3.6 India Micro finance Equity Fund total equity of 124 MFIN Member MFIs with
The ability of NBFC-MFIs to borrow from banks borrowers’ base between 50,000 to 250,000 is
depends on their capitalization. For smaller MFIs Rs 49.3 Cr and the max investment of Rs 3 Cr
mobilizing equity has also been a main challenge would be about 6% of total equity. Within this
as a result of which they are unable to access low- group there are 2 MFIs whose total equity is in
cost debt from banks which has a spiralling effect the range of Rs 100 Cr and for them the max
on their sustainability, growth and in fulfilling the investment of Rs 5 Cr (deserving cases) would
credit needs of their clients. be ~ 5% of total equity. SIDBI should consider
enhancing the limit of Rs 3 Cr (& 5 Cr for

CHAPTER 4
deserving cases) for quantum of support, for it at least for the last three years. Out of 26 eligible
to be meaningful for the MFIs. MFIN Members MFIs, 18 have operations/
existence of more than five years. Thus, this
• As a practice, SIDBI also nominates a director criterion would make 8 Members ineligible.
on the Board which may not be acceptable to The second criteria of demonstrated track
the MFI unless the investment is substantial. record of mF operations of at least 3 years is
There should be a minimum threshold of more inclusive and should be adopted. All
investment (say, SIDBI investment as a ratio of remaining 8 Members, fulfil the criteria of mF
existing Equity of an MFI), for eligibility for a operations of at least three years.
nominee director on MFI’s Board.
Summing up, while a more tuned policy taking
• Qualitative eligibility criteria on MFIs operating into account the practical realities, will make
in un/under served areas and outreach to poor IMEF attractive, but because of the conditionalities
are difficult to measure. It is not clear how such mentioned above, the flow from IMEF has been
areas are defined. There could be underserved paltry. Similarly, there needs to be a parallel fund
areas/pockets within more prosperous districts for equity support to REs in NABARD.
as well. This is important for an MFI to know as it
is one of the eligibility criteria for consideration The 26 eligible members of MFIN had an equity
of support under IMEF. Similarly, how does base of Rs 811 Cr and on-balance sheet loan
one define poor? As per RBI new regulations, portfolio of Rs 2,674 Cr as on 31 March 2023.
a household having income less than Rs 3 Lakh In order to grow at around 20% (as per industry
per annum is a microfinance client and the CAGR), they would need to borrow around
same norm should be used. Rs 3,000 Cr for which an additional capital of
around Rs 600 Cr would be required. MFIN had
• Stiff grading/rating criteria which makes requested Honourable Finance Minister to enhance
MFIs ineligible to apply. In addition there is IMEF to Rs 1,000 Cr so that the equity needs of
confusion between grading and rating – the small and mid-sized players are met effectively.
scheme mentions minimum MFI grading
norm of Beta+ of M-CRIL, however, grading
During the Covid period, with the decline in
is always shown as M1 to M8 while Beta+ is a
base rate of banks and RBI’s interest rate cap
M-CRIL rating sign, not of mainstream credit
formula which factored it, the margins of small
rating agencies. So, if the eligibility is rating, MFIs were squeezed to a level that they were not
the norm of min Beta+ is quite stringent. Small even able to cover their operating costs. New
MFIs usually do not achieve such a high rating. RBI regulation has brought much needed relief
Of the 26 eligible MFIN Member MFIs under to small MFIs as they can now price their loans
IMEF, 7 MFIs have a rating of Beta+ or better, sustainably.
14 MFIs have ratings below this level and 5 are
unrated and therefore would become ineligible However, the key concern of small MFIs ability
to obtain funds at lower costs still remains and it
for support under IMEF. However, a grading
is directly linked to their capitalisation. Relaunch
(or Harmonized COCA grade) of M4 or better
of IMEF is welcome as its focus is to provide
is a more relevant indicator and should be
equity support to small MFIs. If SIDBI relaxes
adopted. 23 MFIs have a grade of M4 or better
some of the norms of support under IMEF it will
and 3 are ungraded. go a long way in catapulting small MFIs to the
• Stiff criteria of at least five years of existence next level.
for MFIs and its demonstrated track record of Gyan Mohan
running a successful micro-credit programme Director & CEO, Adi Chitragupta Finance Ltd

CHAPTER 4
4.4 Expanded role of MFIN as a representative voluntary acceptance of CRL by the REs and other
body for the sector microfinance providers was a very important step
and signalled a consensus across the microfinance
MFIN as an industry association within the sector about the approach to be followed for
landscape of microfinance in India, serves as a customer-centric issues such as transparency and
crucial bridge between regulatory authorities, guarding against over-lending. This was a critical
MFIs, and other stakeholders, fostering growth, initiative in ensuring that microfinance achieved
promoting ethical practices, and ensuring its intended objectives in a responsible manner and
sustainable development of the sector. MFIN supported the economic and social progress of its
since its inception, has played a pivotal role in customers.
representing the microfinance industry in India.
Its work in policy engagement, facilitating market In less than a decade, the industry saw a ten-fold
infrastructure, notably credit bureaus, setting increase and graduation of some large NBFC-MFIs
standards, capacity building, knowledge hub, into Bank/Small Finance Banks (SFBs) and many
research, compliance, enforcement, and customer Banks/NBFCs ventured into micro-credit through
protection, has nurtured and steered India’s micro- direct lending and Business Correspondent (BC)
credit sector. However, recent regulatory changes partnerships. Alongside the above developments,
necessitated an expansion of its role to include equally important shifts were happening in the
all microfinance lenders as members, positioning larger financial inclusion ecosystem, driven by
MFIN as the go-to body for microfinance in the both policy and business push. With regular
country. Its collaborative leadership in addressing follow-up and feedback by MFIN Secretariat on
microfinance challenges in Assam further the consultative document on uniform regulations
strengthened this claim. for the microfinance industry, the RBI released the
harmonized guidelines for microfinance loans on
Regulations for the micro-credit sector came in 14th March 2022. The new guidelines ushered in a
Nov 2011 with the introduction of a new category new era for the microfinance sector where a common
of NBFC-MFIs. These regulations focused on regulatory framework was applicable to all REs of
customer protection (caps on pricing, multiple RBI. The regulations created a level playing field for
lending, indebtedness with emphasis on fair all regulated entities in the microfinance space and
interaction, disclosures, grievance redressal, strengthened the vision of various working groups
among others) to give a robust foundation to and task forces of MFIN, to reimagine MFIN as the
India’s micro-credit industry, unparallel by global unified body for microfinance in India and make
standards. The specific customer protection and the necessary structural changes to achieve this
business regulations (limits on customer segments, vision.
multiple/over-lending, pricing, loan sizes, tenure
etc.) only applied to the NBFC-MFIs. Recognizing the evolving needs of the microfinance
sector, MFIN embarked on a transformative
In 2014, MFIN started its Associate program to journey to expand its role and structure. In the
engage with the financial inclusion stakeholders Board meeting on December 20, 2022, the Board
besides the NBFC-MFIs. As different types of REs unanimously supported the idea of “Unified
were governed by different regulatory frameworks MFIN”. With the reorganization of MFIN as
in the microfinance sector, the Code for Responsible Microfinance Industry Network, a representative
Lending (CRL) was also released in September 2019. body for the sector, MFIN now allows all regulated
CRL was sector-specific and entity-agnostic and entities (not only NBFC-MFIs but also the banks,
included the most critical elements required to be SFBs, NBFCs etc.) with on-book microfinance
adopted by REs while delivering microfinance. The portfolio to become its primary Member. The

CHAPTER 4
governance structure is also calibrated to ensure programs to enhance the capacity of member
the representation of all the entity types. institutions. With its expanded membership base, it
has access to data and insights from a diverse set of
This inclusive approach ensures that the entire entities. This enables it to conduct comprehensive
spectrum of microfinance entities is represented research on the sector, leading to data-driven
and can collaborate on issues of mutual concern. policy recommendations and enhanced research
With its expanded membership, MFIN is now capabilities.
better positioned to advocate for the interests of
the microfinance sector as a whole. It acts as a The expanded role of MFIN as a representative
unified voice to engage with regulatory authorities, body for the microfinance industry in India is a
policymakers, and other stakeholders, providing significant step forward for the sector. MFIN’s
valuable insights and feedback on policy matters. inclusive approach and its commitment to
responsible lending practices, positions it as a vital
MFIN plays a significant role in disseminating force for the sustainable growth and development
industry-specific knowledge and best practices. of microfinance in India.
It organizes workshops, seminars, and training
MFIN has always been instrumental in steering the microfinance industry as a balanced and responsible
sector lending to the bottom of the socio-economic pyramid. With the growth opportunities along
with harmonized guidelines, MFIN is poised to play an even bigger role in the development and
growth of the overall microfinance industry.
MFIN, in its new avatar, will continue to lead the industry in a stronger position while protecting
the interests of borrowers, financial institutions and all other important stakeholders. The benefit
of industry best practices, knowledge sharing, latest cutting-edge technology and digital adoption
would be leveraged so as to ensure the best credit service experience for all concerned.
Chandra Shekhar Ghosh

Founder, MD & CEO of Bandhan Bank

CHAPTER 5
05
The future of
microfinance – a summary
5.1 Industry progress against potential growth of microfinance since March 31, 2012 to
March 31, 2023 and the contributions of various
The new regulations have guided the strengthening regulated entities. Overall, the sector has grown by
of governance in microfinance operations and more than 20 times from Rs 17,264 Cr in March
underlined the importance of responsible lending 2012 to Rs 3,48,339 Cr in March 2023.
and client centricity for enabling a secular growth of
the sector. Barring the need to calibrate and refine a As on 31 March 2023, 211 entities were active
few policy guidelines detailed in the above sections in the microfinance space. NBFC-MFIs (82) are
and which are under discussions and should get the largest provider of micro-credit with a loan
addressed in the near future, the new regulations amount outstanding of Rs 1,38,310 Cr, accounting
have helped overcome the policy related bottlenecks for 39.7% to total industry portfolio. Banks (13)
and lay the ground for the future growth of the hold the second largest share of portfolio in micro-
sector and evolve the role which different REs will credit with total loan outstanding of Rs 1,19,133
play in promoting financial and digital inclusion. Cr, which is 34.2% of total micro-credit universe.
SFBs (9) have a total loan amount outstanding of
One of the most evident impact has been the Rs 57,828 Cr with total share of 16.6%. NBFCs (69)
repositioning of the regulated entities involved account for another 8.5% and Other MFIs (38)
in microfinance. For the first time since Mar’19 account for 1.0% of the universe. Box 5.1 shows
when the Banks, SFBs and NBFCs had full- the overall market size of microfinance in India
fledged microfinance operations, NBFC-MFIs including both Joint Liability Group (JLG) & Self-
have regained the tag of the largest provider of Help Group (SHG) models.
microfinance – it is to be noted that till March 2015
they were the sole providers. Figure 5.1 maps the

CHAPTER 5
Figure 5.1: Growth of microfinance portfolio (Rs Cr) since 2012

Source: MFIN Micrometer; Equifax, data from Mar-19 onwards based on portfolio originated after Feb-17
(detailed estimation method provided in Annex

Box 5.1: Size of microfinance universe D) – it was predicted that the sector would reach
a portfolio size of Rs 3.35 Lk Cr by March 2023
Apart from MFIs, National Rural Livelihood
against a potential demand of Rs 11.42 Lk Cr and
Mission (NRLM) also contributes significantly
Rs 5.43 Lk Cr against a demand of Rs 16.96 Lk Cr
to the microfinance universe through its SHG
by 2022-26, on a conservative side. With a more
Bank Linkage Programme (SBLP). As of
conducive regulatory environment and therefore
March 2023, around 83.4 lakhs SHGs had an
higher growth expectations, the sector will have a
outstanding portfolio of Rs 1,98,918 Cr with
potential demand of Rs 24.63 Lk Cr, on a liberal
them [https://daynrlmbl.aajeevika.gov.in].
estimation. Table 5.1 summarizes the estimation of
Considering SHG outreach, the overall size of market size and reach.
the universe in terms of GLP as on 31 March
The sectoral progress during FY 22-23 shows
2023 is roughly Rs 5,47,256 Cr.
that the estimated GLP of the sector, number of
Unique Borrowers (UB) reached and % of demand
In the last edition of this report, MFIN had covered have been over-achieved. The average loan
estimated the potential microfinance market size outstanding per UB has decreased (in comparison
and demand. Based on Compound Annual Growth to the estimate) mainly because of addition of
Rate (CAGR, for the period 2018-19 to 2021-22) of several new to credit (NTC) customers who usually
three factors – No. of potential HHs47, average loan get small value loans in the initial cycles. As the
outstanding per UB and depth of outreach (which is vintage of these new borrowers increase, the credit
number of potential HHs served by microfinance)
47
Assuming that 70% of total HHs in rural locations and 50% in urban/semi-urban locations would be potential clientele for microfinance
and extrapolating the growth in number of HHs (CAGR of 2.1% for rural HHs and 3.8% of urban HHs) based on Census 2001 to 2011
to the present & future years.48 2016, The World Bank. “Principles for public credit guarantee schemes for SMEs”

CHAPTER 5
Table 5.1: Estimated market size & reach
22-23 23-24 24-25 25-26

A Potential HHs, Cr 20.83 21.37 21.91 22.48
B Unique Borrowers, Cr 6.12 6.46 6.82 7.20
C Av. loan O/s per UB, Rs 54,797 60,969 67,837 75,478
D=A*C GLP demand, Rs Lk Cr 11.42 13.03 14.87 16.96
E=B*C GLP of the sector, Rs Lk Cr 3.35 3.94 4.63 5.43
F=E/D % of demand covered 29.4% 30.2% 31.1% 32.0%
Source: MicroMatters: Macro View - India Microfinance Review 2021-22
demand will also increase in future years. Figure 5.2 5.2 Sector futureproofing initiatives
revisits the estimation of market size and coverage
of the sector by March 2023 and compares it with This year has been sort of a landmark year for the
the actual position. microfinance sector with changes in operational
approach of REs particularly in terms of HH level
So, at the current growth rate of various parameters, credit assessment and underwriting & tackling
and with the achievement of FY 22-23 estimations, the evolving group dynamics, in the credit bureau
the industry is well poised to reach (or exceed) ecosystem to facilitate compliance with the new
around Rs 5.5 Lk Cr portfolio outstanding against regulations and rise of MFIN as the representative
a potential market size of around Rs 17 Lk Cr by body for all REs in the microfinance space. MFIN has
2025-26. been involved in various activities to ensure that the
microfinance sector continues to lend responsibly,
Figure 5.2: Achievement Vs estimate (2022-23) keep pace with technological developments, have
mechanisms to mitigate risks and provide voice
and solutions to low-income household and is able
to sustain such efforts for a long period of time.
Some of the main developments during the year
are summarized in the sub-sections below:
5.2.1 Loan officer certification program

The microfinance industry mostly hires young
professionals, the majority of whom have no or
minimal experience. They also have limited skill
set as per the demand of the jobs. This, along with
changes in the business process and environment,
means a continuous need to train the people.
Developments in technology infrastructure and
greater accessibility of smartphones helps to
ascertain that the training can happen through
digital/online means for them. Digital training
Source: MFIN estimation; Equifax

CHAPTER 5
programs offer consistent quality and innovative MFIN members. The Third-Party Evaluations
content, flexibility, customisation, and monitoring (TPE) are conducted by independent external
at lower costs on a scale. agencies empanelled by MFIN. Clauses from the
RBI’s new regulatory framework, Industry CoC
To cater to the training needs of frontline officers
and other industry best practices are included as
and the branch managers, MFIN SRO is in the
indicators in the framework. Disclosures to the
process of developing an online certification
customers is an important aspect which is captured
program. This would be on the lines of JAIIB and
while conducting the evaluations.
CAIIB by the Indian Institute of Banking and
Finance and it is aimed to develop this program Four agencies were finalized for empanelment to
as an industry benchmark which the lenders conduct TPEs. Methodology and framework of the
can leverage to complement their own training evaluation along with the scoring model, sampling
program. methodology and report format was prepared by the
SRO. Evaluations for 5 lenders were completed with
5.2.2 Employee Bureau
visits to their head office, branches, and customers
Employee Bureau is a platform created by Equifax to holistically understand the policy, process and
in collaboration with MFIN for the microfinance practices adopted for smooth implementation of
industry to share employee details (personal the regulatory compliances. It involves interviews
information and employment history) for greater with management, employees and customers and
efficiency and integrity in hiring. Such a platform Inspection of documents.
provides deterrence to employees for appropriate
5.2.4 Natural catastrophe insurance
professional behaviour. MFIN has mandated its
members to submit data to the Employee Bureau Various natural catastrophe events that have
through a directive and encourages its use for the happened in the last few years, have proved beyond
hiring process to support the initiative. Currently, doubt that it impacts the livelihoods of low-
the Employee Bureau has a database of over half income households and that there is a clear need
a million microfinance employees, with 72 lenders for financial solutions to enable them cope better
using it to submit and to verify the candidates’ with such situations. The project team explored
credentials with more than 40,000 average monthly options within both parametric and indemnity-
enquiries. With a focus on quality and timely based products and came to the conclusion
submission, the Employee Bureau has become a that for the low-income households served by
critical building block in the recruitment process microfinance, parametric solutions would be most
of lenders. As more lenders onboard, the Employee suitable considering the need for swift payouts
Bureau will become an even more powerful tool to for immediate support to borrowers to tackle the
improve the trust and integrity of the recruitment income loss due to natural perils. Box 5.2 illustrates
process. The efficacy of the employee bureau will be the key differentiators and benefits of parametric
further strengthened with contribution and usage insurance product for microfinance borrowers.
of employee data by all the microfinance lenders.
This may require a regulatory backing, going Parametric insurance operates on a unique
forward. mechanism distinct from traditional insurance
models. One of its standout features is its higher
5.2.3 Third Party Evaluation frequency of payouts to policyholders. This is
primarily because its compensation structure
An important component of self-regulation is is anchored on pre-set triggers, such as specific
evaluation of policies and processes related to weather conditions or natural disaster metrics,
responsible lending and customer protection of rather than on individual loss assessments.

CHAPTER 5
Box 5.2: Why parametric insurance?

a. Generally, insurance policies cover either physical property or persons. This is the first time a
product was conceived & designed to cover income loss due to a catastrophic event for which loan
EMI is the proxy.
b. NatCat product provides cover for the insured event, without any requirement of assessment of
property damage or personal injury. This also saves cost incurred on surveys. Claim computation
is done by Insurers based on the data from an independent source without seeking claim bill from
the insured members.
c. The benefit table is simple to understand which clearly describes how a catastrophe event is
recognized and what amount would be payable based on severity of the trigger.
d. Multiple pay-outs are possible under the product for the perils covered during the insurance period
of 12 months, unlike other policies where only one pay-out is possible. For example if triggers for
both cyclone and flood is hit, and the total claim amount is up to number of EMIs covered, the
payout will be for both the events.
e. No need for the cumbersome process of claim intimation, claim document submission etc. by the
Insured members. Therefore, quick and swift pay-outs – better liquidity with clients (as they don’t
have to worry about EMIs) to successfully recover after a disaster strikes. Moreover, clients remain
eligible for further loans as their existing loan remains standard and does not turn NPA.
f. For MFIs this assumes even greater significance in the context of the RBI circular in which NPAs
are to be recognised at day-end processes and once a loan turns NPA it cannot be categorized
as standard until entire overdues are paid off. Additionally, since EMIs are taken care of, the
provisioning requirements would reduce. The product will also enable expansion to difficult
(NatCat prone) areas where MFIs are reluctant to go & ensure access to finance (A2F) to household
based there.
g. Since the pay-out is to the MFIs (the master policyholder) they have the choice to ask the borrowers
not to pay the no. of EMIs for which the pay-out has been received or to pass on the money to
clients for their immediate needs.
h. In a way, the product will also help loan officers maintain good quality of portfolio of their clients
in a catastrophe event - one of the key KPAs of their job.
A notable aspect of parametric insurance is its of payouts, parametric insurance often proves to
area-based approach. When a predefined event be a more economically sound choice for many
occurs, affecting a particular region or area, all scenarios, especially when considering the balance
policyholders within that zone receive payouts between premium costs and the likelihood of
simultaneously. This collective compensation can receiving a payout. Therefore it is essential to
give the impression that parametric insurance approach parametric insurance with a distinct
is pricier compared to other insurance forms. lens, understanding its unique value proposition.
However, a deeper analysis reveals a different Directly comparing its premium rates with other
perspective. Given the predictability and regularity insurance types, such as life or health insurance,

CHAPTER 5
might not capture the full spectrum of its benefits for digital payments has not gained momentum
and operational nuances. due to lack of savings habit.
With this background, a product was developed MFIN had conducted a pilot program with HSBC’s
under IRDAI’s regulatory sandbox and trialled in support in 2018-19 to test digital repayment models
three districts of Odisha. The trial ended in May across eight states, covering around 15,000 clients
2023 and MFIN embarked on an initiative to and the results were quite encouraging with a total
rigorously test and refine the product through a full- of 9,269 digital transactions worth Rs 1 Cr, using
scale pilot to enhance its design, implementation Aadhaar Pay, UPI payments and debit card swipe.
approach, and overall utility for both MFIs and Around 84% clients covered by the pilot attempted
their borrowers. The Asian Development Bank digital payment and feedback from implementing
(ADB) has come forward to support this initiative partner MFIs was also encouraging.
through a Technical Assistance (TA) project titled
“Microinsurance for Climate Change and Disaster Taking into account the experience of the pilot
Resilience: Capacity Building and Implementation and lessons learned, HSBC is again supporting
Support” from July 2023 to June 2026. The project MFIN for the scale-up phase of the project, which
aims to cover at least 4 states to create awareness visualizes
among 1 million microfinance borrowers (across (a) Promoting saving habits among microfinance
176 branches of about 12-15 partner financial clients and
institutions, PFIs) on parametric insurance product
that covers multiple perils (cyclone, earthquake, (b) Enhancing their awareness of digital payment
flood, draught & extreme heat/cold) by around methods for scaling-up of such practices for
1,000 trained staff of PFIs, leading to product repayment of loans and making microfinance
enrolments by around 0.45 million borrowers. operations more efficient and transparent.
5.2.5 Digitalisation of repayment collections To achieve this, MFIN along with its implementation
partner MicroSave India Consulting Pvt Ltd (MSC)
Microfinance loan disbursements have become will be undertaking the following interventions,
largely cashless48 with almost 99% of disbursements some of which are currently underway.
directly into the bank account of the borrowers but
the repayment collections are still predominantly • Testing & scaling-up of digital payment
in cash and there is growing realization on need for solutions like Unified Payment Interface (UPI),
digitalising collections. The pandemic exacerbated IVR-based UPI 123PAY, UPI AutoPay and
this requirement as digital repayment is safe, Bharat Bill Payment System (BBPS). Client
transparent and convenient. facing application will also be developed that
will have payment features enabled. Suitable
Microfinance clients are typically women from Technical Support Providers (TSPs) have been
low-income households in rural locations. identified for carrying out these activities.
Microfinance has been considered a tool of
empowerment for these women and for promoting • Training of IT staff and other senior resources on
financial inclusion. However, their inclusion into recent developments on digital financial services
mainstream banking services remains elusive. was conducted at Institute for Development
Empirical evidence and feedback from clients show and Research in Banking Technology (IDRBT)
that their accounts are mainly used for disbursing covering the latest trends in fintech, such as
the loan and withdrawing of the loan amount for artificial intelligence, blockchain, and cloud
further utilization. However, use of these accounts computing. Representatives from all partner
MFIs attended this training.
48
Micrometer Q4 FY 2022-23

CHAPTER 5
• MFI field staff training to ensure that the District Forum meetings and the State chapter
staff are aware about the digital payments meetings are facilitated by MFIN and are held every
themselves. A suitable Capacity Building quarter. At these meetings, the sectoral growth,
Service Provider (CSPs) will be identified quality, compliance and industry best practices are
for conducting training of trainers (TOT) deliberated. Consensus on way forward on some
of partner MFIs. These trainers will further of the issues and challenges faced are also finalised
impart the training to the field staff and equip and implemented. The gist of discussions held, and
them with training materials and collaterals for the consensus arrived at are hosted on the RADAR.
awareness generation of borrowers.
The RADAR Application is an in-house tool
• Awareness generation for MFI borrowers designed to provide member institutions with
through innovative awareness materials, secure and well-organized access to detailed field-
campaigns etc. level information generated by MFIN district
forums. Launched in July 2021, RADAR digitally
The overall goal is to provide cost effective, captures four vital parameters: Negative Areas,
seamless and user-friendly repayment options to Risky Areas, Ringleaders, and External instigators,
microfinance borrowers using digital methods all of which can cause disruptions in microfinance
of payments, in partnership with 8 to 10 selected operations. This micro-level data, both in qualitative
NBFC-MFIs covering around 0.4 million and quantitative terms, serves as a critical resource
microfinance clients across 200 branches in 10 for identifying “early warning symptoms” that
states/5 regions over two and a half years (October empower microfinance institutions to take timely
2022 to March 2025). action and prevent potential crises.
5.2.6 RADAR application RADAR is equipped with REST API support and an
Risk is intrinsic to the Microfinance sector and the open architecture, ensuring effortless integration
quantum of risk is open-ended as loans are offered with external applications and customizations. As
collateral free to the low-income band, whose of October 2023, RADAR boasts an active user
sources of income are largely on contractual/ base of 11,164 District Officers, 2,091 State Heads,
daily wages. Against this backdrop, any field level 2,060 RADAR Single Points of Contact (SPOCs),
intelligence pertaining to gaming of the lending 630 Lead District Coordinators, 100 Trainers, and
model by the existing or potential customers will 240 CXOs (CEO, COO, CRO), representing various
be critical to the MFIs. Sharing of this stand-alone microfinance institutions. An update on RADAR is
information gathered by one with other operative provided in Figure 5.3.
MFIs in the region would immensely help CROs in
Figure 5.3: RADAR Update as of October 2023
carving out mitigation strategies and minimise the
hitherto unquantifiable risk. Thus, understanding
the risks and dynamics of the field situation is of
immense importance for microfinance institutions.
Collaboration and information sharing are

paramount aspects of mitigating the business risk
for the MFIs. MFIN has been providing three such
platforms – District Forum Meetings, State Chapter
Meetings and a web-based tool titled ‘RADAR’
to the members for effective collaboration and
information sharing of the field intelligence.

CHAPTER 5
5.3 Opportunities and challenges • NBFC-MFIs raised Rs 3,010 crores in equity

capital in the first 9 months of FY 22-2350 which
This section discusses the future opportunities is twice the amount raised in the same period
to enable secular growth of the sector. Some of in the earlier two years.
the challenges which the sector needs to work
together to overcome are highlighted in Chapters On the debt side, an analysis of the funding pattern
3 & 4. A few other pertinent points not necessarily over the last 8 quarters shows little change in the
challenges are discussed below. contribution of the different sources of funding:
AIFIs & Banks provide around 70% of funds and
A dominant proportion of MSME lending (greater non-bank entities contribute about 20%. In terms
than 60%) is in rural and semi-urban areas. These of instruments, term loans with a share of 76% and
areas have shown a YOY growth in disbursement of debentures with 16% provide the bulk of funds.
22.3%, which is nearly double that of urban areas. Diversification of funding sources continues to
In terms of new originations, rural and semi-urban be a challenge for NBFC-MFIs. However, as seen
geographies contribute a 59% share49. One in every during Covid times, bank funding is the first to
2 NTC borrowers in the micro enterprises segment dry up for NBFCs in case of any adverse external
begin their journey with a short-term unsecured shock. While during Covid RBI came to the rescue
loan with 61% availing a loan with a ticket size of by instituting special lines of credit, for future a
<Rs 1 Lk. With a clear focus on these geographies dedicated line of credit for microfinance is the need
and segments, microfinance is the right fit and of the hour as discussed in Sections 4.3.5 and 4.3.6.
offers exciting possibilities for future growth.
Though this is also as per national policy objective, Co-lending is an opportunity which is increasingly
MFIs find themselves constrained to fulfil the credit being explored. Such arrangements allow the
requirement of this segment due to new norms of smaller MFIs to have access to lower cost funds
qualifying assets as discussed in Section 4.3.4. and at the same time help banks meet their priority
sector lending obligations. This is a new method
Funding of lending and engagement norms between banks
The consistent performance of the MF sector in and non-deposit taking lenders are evolving. In
terms of growth over the last decade and the robust FY 2022-23, Rs 25,000 was disbursed using the co-
recovery from the impact of COVID has led to lending mechanism (CLM)51. This was nearly five
increased interest from the equity investors and times the amount disbursed in the previous year
wholesale lenders. through CLM. The sudden rise in disbursements
coupled with other concerns have led the RBI to
• The IPO of Fusion Microfinance in Nov 2022 initiate a review. Revision in the guidelines can be
received a good response. It is heartening to expected because of the review.
note that CRISIL has revised the rating of the
MFI upwards twice since the IPO. Microfinance GLP growth mirrors increased
economic activity
• Utkarsh Small Finance Bank had a successful
IPO in July 2023. Economic activity and credit feed on each other:
the relationship is bi-directional. An increase in
• The IPO pipeline over the next few quarters economic activity leads to an increased demand for
consists of ESAF SFB and, Jana SFB. credit. At the same time, increased supply of credit
gives an impetus to economic activity.
49
2023, July. CIBIL. “Credit Market Indicators”
50
2023, 26 April. Hindu Businessline. “Microfinance industry to record 25% growth in FY24 on surge in disbursements”
51
2023, 23 April. Hindu Businessline. “Under the lens. RBI looks askance at co-lending arrangements”

CHAPTER 5
To ensure that the credit risk is managed robustly, Figure 5.4: GLP growth Vs. electricity equirement
and over-indebtedness of borrowers is avoided, growth (Top 10 states)
an increase in the microfinance portfolio should
be evaluated against the growth in economic

activity and incomes. Microfinance is targeted at
the informal sector: a better interpretation of mF

GLP growth can be obtained by comparing it with

measures of economic activity for this sector. This

is a challenge due to the limited availability of such
data. In such situations, proxy variables provide us

a useful estimate of economic activity: electricity
consumption is one such widely used indicator. As

noted by Ranjan and Singh (2017), based on NSSO
data, the preferences of poor households with
regards to using electricity change with income

in a continuous manner. This makes electricity
consumption a good proxy for measuring improved
economic activity and higher incomes for such
households.
The growth in microfinance GLP is plotted against

electricity consumption for the Top 10 states (in Figure 5.5: GLP growth Vs. electricity growth
terms of MF GLP). Figure 5.4 shows the % increase (next 10 states)
in electricity consumption (vertical axis) against
the % microfinance GLP growth (horizontal axis).
Figure 5.5 shows the same graph for next 10 states.
The size of the bubble indicates the relative size of
the portfolio in the state. The charts put the GLP
growth, relative size of the total portfolio and the

increase in economic activity in perspective and

provide clues to understand if the growth in MF

portfolio is supported by increased economic

growth.

Uttar Pradesh is a good case study. It has the 3rd
highest GLP after Bihar & TN. Its GLP has also

shown a rapid growth of 41% in the last FY. This
is much higher than the industry growth of 22%.

Does it point to problems in the future? The higher-
than-average growth in electricity consumption
in UP at 13% points to an increase in economic
activity which supports the growth in MF GLP. A AP - Andhra Pradesh, AS - Assam, BH - Bihar, CH - Chhattisgarh, GJ -
similar relationship is seen for states like Bihar and Gujarat, HR - Haryana, JH - Jharkhand, KA - Karnataka, KER - Kerala,
Rajasthan. MH - Maharashtra, MP - Madhya Pradesh, OD - Odisha, PB - Punjab,
RJ - Rajasthan, TEL - Telangana, TN - Tamilnadu, TRI - Tripura, UK -
Electricity consumption gives useful insights when Uttarakhand, UP - Uttar Pradesh, WB - West Bengal.
used alongside other variables and qualitative

CHAPTER 5
inputs. In the case of West Bengal, a higher-than- As such, Aadhaar seems to be the most suitable
average growth in electricity consumption is not unique identifier for the microfinance borrowers.
reflected in GLP growth, in fact the GLP growth The solution is to allow CICs to receive, store and
is less than zero because of portfolio quality use Aadhaar. Similarly NBFC-MFIs can be allowed
concerns. A similar observation explains the to use Aadhaar for client verification and for CIC
opposite observation in Karnataka – a high MF reporting purposes. Mechanisms can be thought
GLP growth despite little increase in electricity of in which Aadhaar details are not stored in MFI
consumption. The credit behaviour in Karnataka systems and a microfinance borrower provides
has been traditionally good and encouraged lenders her Aadhaar details and consent directly to the
to increase their exposure. CIC using biometric verification/ OTP based
verification to processing query and generation of
Adopting digital lending processes and the CIR.
search for a unique identifier
Microfinance helps in correcting the imbalance
As a result of rapid adoption of digital technologies in credit-deposit ratios across states
in customer data acquisition, underwriting, loan
disbursement and increasingly in repayments It is a well-established fact that increased access
and other processes, MF companies today have a to credit leads to an increase in economic growth.
model with an optimum mix of touch and tech. At As a corollary, states with lower per capita GDP
the same time, it is interesting to note that more should have access to more credit to help them
than 50% of digital lending through mobile apps close the gap with the richer states. But an analysis
and platforms would qualify as microfinance as per of the share of the states as a % of All India Credit
the borrower profile. Platforms like Open Credit and Deposits shows that the flow of credit is in the
Enablement Network (OCEN) offer a quick way reverse direction. The poorer states (with lower
for a lender to plug and lend. Few MF lenders per capita income) contribute more to the national
have started exploring completely digital modes pool of deposits as compared to their share in the
of lending – starting with relationship customers. credit. On the contrary, the share of poorer states
As the comfort with such processes grows, this in the disbursal of microfinance loans is higher
channel would offer an opportunity to acquire new as compared to the richer states. A larger and
customers also. robust microfinance has an important role to play
in correcting the imbalance between savings and
Accuracy of automated underwriting depends credit distribution and narrowing the income gap
on accurate identification of the borrower so that among the states.
her credit history can be retrieved from the credit
bureau. In retail bureau, using a PAN card (which The data published by RBI in the Basic Statistical
is linked to an Aadhaar number) or Aadhaar Returns shows the quantum of credit, which
authentication provides a robust solution. In the includes all types of loans (retail, commercial,
MF segment, the penetration of PAN card is limited. microfinance), and deposits of Scheduled
Most NBFC-MFIs are at various stages of adopting Commercial Banks. At the national level, the
the Aadhaar authentication process. Currently, credit-deposit ratio after increasing from 2017
Voter ID is the de facto standard KYC document (73.8%) to 2019 (78.3%) declined to 71.7% by
used for MF loans. Since the Voter ID is not linked 2021 due to COVID. Since then, it has recovered
to Aadhaar or any other ‘unique document’, it to 75.9% by Mar 2023. 3 southern states: AP, TN &
is often possible to have multiple Voter IDs. In Telangana have a CD ratio of more than 100%. At
such a scenario, there is a possibility of beating the other end of the spectrum, among the bigger
the search algorithms of the credit bureau. This states, we have Bihar, W Bengal & UP which have a
has implications for the efficiency of the automate CD ratio of less than 50%. South, West, and North
underwriting process for such clients. regions having a higher share in credit (by 5.4%,

CHAPTER 5
2% and 1.6% respectively) as compared to their The RBI regulations of Mar 2022 have provided
contribution to deposits. The remaining regions an impetus to the growth of the MF sector. The
consume a lower share of credit from the national lenders can price the risk and operational expenses
pool and contribute comparatively more to the in reaching out to newer segments and geographies
deposits. The gap is at -4.8%, -3.5% and -0.7% for as well as recover from the mishap of COVID.
East, Central and North-East regions. Investors have a positive outlook, MFIN has
restructured to bring the industry together and
Microfinance reaches difficult to penetrate
thus the building blocks have been put in place for
geographies. Its widespread growth is deepening
growth.
financial inclusion by bringing new borrowers to
the fold of formal financial services. Its focus on What lies ahead?
lending to the informal sector helps in directing
The report highlights the financial inclusion
credit to poorer states. Figure 5.6 shows the
landscape and the challenges. Data of banking
difference in the % contribution of credit and
credit, AIDIS survey as well as other sources
deposits of a state to the national pool on the
clearly demonstrates that microfinance lending is
vertical axis against the % of share of the state in
reaching the excluded sections of the society and
microfinance loans.`
its contribution to equitable growth is significant.
Figure 5.6: Microfinance corrects the credit- On policy front, the RBI regulations of Mar 2022
deposit imbalance in states have provided an impetus to the growth of the
MF sector. Investors have also shown confidence

in the improved governance practices and growth
potential- SFBs & MFIs have had successful IPOs
and some are in the pipeline.

While the foundations for growth are in place,

there are a few policy and practice imperatives
to ensure that the growth remains on course.

On policy front, availability of Aadhar to CICs
for deduping, having a credit guarantee scheme

suited to the sector, dedicated financing facility

for the sector and a relaxation of qualifying assets
norm for NBFC-MFIs are the key needed support
measures. Practitioners on their side need to spread

their operations to virgin or less penetrated areas,

strictly adhere to the RBI regulatory framework and

Industry CoC and directives in letter and spirit and
take proactive steps to strengthen group meetings
A negative reading on the vertical axis denotes that
and arrest staff attrition.
the state contributes more to the national deposit
pool as compared to its share in the credit disbursed. MFIN in its new avatar as all-encompassing body is
As we move towards right, this gap increases. Not geared to increase the efforts to ensure no one is left
surprisingly, the poorer states are clubbed in the behind and India has equitable growth.
negative zone. It is interesting to note that the share
of microfinance loans disbursed is high in the states
with a higher deposit/credit gap – as the share of a
state reduces in overall credit disbursed, MF steps
up and tries to correct the imbalance.

ANNEXES
Annex A
Mor Committee
vision statements
The six vision statements are: sub-sector) of the economy would have a Credit
to GDP ratio of at least 10 per cent. This ratio
1. Universal Electronic Bank Account (UEBA): would increase every year by 10 per cent with
By January 1, 2016 each Indian resident, the goal that it reaches 50 per cent by January 1,
above the age of eighteen years, would have 2020.
an individual, full-service, safe, and secure
electronic bank account. 4. Universal Access to a Range of Deposit and
Investment Products at Reasonable Charges:
2. Ubiquitous Access to Payment Services and By January 1, 2016, each low-income household
Deposit Products at Reasonable Charges: By and small-business would have convenient
January 1, 2016, the number and distribution access to providers that have the ability to offer
of electronic payment access points would be them suitable investment and deposit products,
such that every single resident would be within and pay reasonable charges for their services.
a fifteen minute walking distance from such By that date, each District would have a Total
a point anywhere in the country. Each such Deposits and Investments to GDP ratio of at
point would allow residents to deposit and least 15 per cent. This ratio would increase
withdraw cash to and from their bank accounts every year by 12.5 per cent with the goal that it
and transfer balances from one bank account reaches 65 per cent by January 1, 2020.
to another, in a secure environment, for both
very small and very large amounts, and pay 5. Universal Access to a Range of Insurance and
reasonable charges for all of these services. At Risk Management Products at Reasonable
least one of the deposit products accessible Charges: By January 1, 2016, each low-income
to every resident through the payment access household and small business would have
points would offer a positive real rate of return convenient access to providers that have the
over the consumer price index. ability to offer them suitable insurance and risk
management products which, at a minimum
3. Sufficient Access to Affordable Formal Credit: allow them to manage risks related to: (a)
By January 1, 2016, each low-income household commodity price movements; (b) longevity,
and small-business would have convenient disability, and death of human beings; (c) death
access to formally regulated lenders that have of livestock; (d) rainfall; and (e) damage to
the ability to assess and meet their credit needs, property, and pay reasonable charges for their
and offer them a full-range of suitable credit services. By that date, each District would have
products, at an affordable price. By that date, a Total Term Life Insurance Sum Assured to
each District and every - significant sector (and GDP ratio of at least 30 per cent. This ratio

ANNEXES
would increase every year by 12.5 per cent with be required to give informed consent she will
the goal that it reaches 80 per cent by January 1, have the right to seek legal redress if she feels
2020. that due process to establish Suitability was not
followed or that there was gross negligence.
6. Right to Suitability: Each low-income
household and small-business would have a
legally protected right to be offered only suitable
financial services. While the customer will

ANNEXES
Annex B
Chronology of relevant
policy and regulatory
developments
Reserve Bank of India April 19, 2022: Loans and Advances – Regulatory
Restrictions - NBFCs: In the circular on “Scale
April 1, 2022: Master Circular on SHG-Bank Based Regulation (SBR): A Revised Regulatory
Linkage Programme – In order to enable Banks Framework” for NBFCs issued on October 22, 2021,
to access all information related to SHG-Bank certain regulatory restrictions on lending were
Linkage Programme at one place, RBI issued this introduced in respect of NBFCs placed in different
master circular which incorporates all existing layers. Detailed guidelines in this regard are placed
guidelines/ instruction as an annexure. as Annex to this circular. These guidelines shall
April 11, 2022: Compliance Function and Role become effective from October 01, 2022.
of Chief Compliance Officer (CCO): Framework April 19, 2022: SBR for NBFCs: Capital
for Compliance Function and Role of Chief requirements for Non-Banking Finance
Compliance Officer in Non-Banking Finance Companies – Upper Layer (NBFC-UL): According
Companies in Upper layer and Middle Layer. to this circular the NBFC in NBFC Upper Layer
April 19, 2022: Disclosures in Financial as per Scale Based Regulation are required to
Statements- Notes to Accounts of NBFCs - NBFCs maintain Common Equity Tier 1 capital of at least
are required to make disclosures in their financial 9 per cent of Risk Weighted Assets. The circular
statements in accordance with existing prudential provides detailed guidelines in this regard.
guidelines, applicable accounting standards, April 19, 2022: Large Exposures Framework
laws, and regulations. The additional disclosure for Non-Banking Financial Company - Upper
requirements for NBFCs in accordance with the Layer (NBFC-UL) – The circular provides detailed
SBR framework are outlined in the Annex of this guidelines on Large Exposure Framework (LEF)
circular. These disclosures are in addition to and prescribed for NBFCs in the Upper Layer. These
not in substitution of the disclosure requirements guidelines are aimed at addressing the credit risk
specified under other laws, regulations, or concentration associated with large exposure for
accounting and financial reporting standards. More NBFCs. A large exposure is defined as an exposure
comprehensive disclosures than the minimum which is greater than 10% of the NBFC-UL’s eligible
required are encouraged, especially if such capital base.
disclosures significantly aid in the understanding
of the financial position and performance.

ANNEXES
April 29, 2022: Guidelines on Compensation of May 19, 2022: New Definition of Micro, Small
Key Managerial Personnel (KMP) and Senior and Medium Enterprises – Clarification
Management in NBFCs – These guidelines provide
broad guidance to NBFCs and their Nomination June 6, 2022: Provisioning for Standard assets
and Remuneration Committee (NRC) to design by Non-Banking Financial Company – Upper
compensation policy. The circular outlines the Layer – The circular outlines the rate at which
constitution, powers, function, duties and mandate provisioning has to be maintained for NBFC-UL in
of the NRC. It also provides detailed principles for respect to standard assets. A summary of the rate of
designing of compensation including fixed and provisioning applicable for different asset classes is
variable pay, bonus and clawback option. mentioned below:
Category of Assets Rate of Provision

Individual housing loans and loans to Small
0.25 per cent
and Micro Enterprises (SMEs)
2.00 per cent, which will decrease to 0.40 per cent after
Housing loans extended at teaser rates 1 year from the date on which the rates are reset at
higher rates (if the accounts remain ‘standard’)
Advances to Commercial Real Estate –
0.75 per cent
Residential Housing (CRE - RH) Sector
Advances to Commercial Real Estate (CRE)
1.00 per cent
Sector (other than CRE-RH)
As stipulated in the applicable prudential norms for
Restructured advances
restructuring of advances
All other loans and advances not included
0.40 per cent
above, including loans to Medium Enterprises
Those NBFCs which are calculating impairment Disclosures to borrowers, Grievance Redressal,
allowance as per IndAS presently, the circular Assessing the borrower’s creditworthiness, Cooling
specifies that these NBFCs will continue with the off/look-up period, Due diligence and other
calculations in the same manner. Above rate of requirements with respect to LSPs. The circular
provisions will form the floor for the impairment also provides guidelines on collection, usage and
allowance calculation. sharing of data with third parties, storage of data,
comprehensive privacy policy and technology
September 2, 2022: Guidelines on Digital Lending standards. In terms of reporting to CICs – the
– Subsequent to the Recommendations of the circular specifies that all lending irrespective of
Working Group on Digital Lending, RBI issued channel used, secured/unsecured, tenure etc needs
the detailed guidelines on Digital Lending. This to be reported to all CICs and how the loss sharing
guideline covers the entire spectrum of activities of arrangements in case of defaults will work.
digital lending including Loan Disbursal, Servicing
and Repayment, Collection of fees and charges etc.,

ANNEXES
September 7, 2022: Review of Prudential Norms 2022. Provisions contained in this circular will not
– Risk Weights for Exposures guaranteed by be applicable for classifying an NBFC in the Upper
Credit Guarantee Schemes (CGS) – In the Layer.
Master Circular on Basel III Capital Regulation
dated April 1, 2022, banks are permitted to apply December 13, 2022: Data Format for Furnishing
zero percent risk weights in respect of claims on of Credit Information to Credit Information
Credit Guarantee Fund Trust for Micro and Small Companies and other Regulatory Measures –
Enterprises (CGTMSE), Credit Risk Guarantee RBI issued these guidelines mandating submission
Fund Trust for Low Income Housing (CRGFTLIH) of credit information to CICs even for cases under
and individual schemes under National Credit NCLAT and NCLT.
Guarantee Trustee Company Ltd (NCGTC). In Government of India
order to bring homogeneity in regulation RBI has
now made this clause applicable to all REs’ which May 6, 2022: Ministry of Micro, Small and
are eligible MLIs under any scheme which satisfies Medium Enterprises extended the deadline of
all necessary conditions enlisted in this circular. registration of MSMEs’ to June 30, 2022.
October 11, 2022: Multiple NBFCs in a Group: June 6, 2022: Jan Samarth Portal was launched
Classification in Middle Layer – As per this which provides access to 13 credit linked
guideline, the classification of an NBFC in government schemes to citizens.
the Middle Layer will be determined by the
January 2, 2023: Relief under category II of
consolidated asset size of all group entities and
AMFIRS was rolled out by Chief Minister of
hence if at the group level asset size is greater than
Assam Dr. Himanta Biswa Sarma. A total of
Rs 1,000 Cr, all NBFC-ICC, NBFC-MFI, NBFC-
5024 beneficiaries of Gohpur, Behali, Sootea and
Factor and NBFC-MGC will be considered in the
Biswanath received their cheques at a programme
Middle layer irrespective of their individual asset
held at Biswanath.
size. These guidelines are effective from October 1,

ANNEXES
Annex C
Steps by the MFIN - SRO
for customer protection
Implementation of the revised Industry Code indebtedness. This data forms an important
of Conduct part of the quarterly report which MFIN
submits to RBI.
The 4th edition of the Code of Conduct (CoC)
was released in Oct 2022. The primary focus of the • Directive on transparently advertising the
CoC is to promote responsible lending practices interest rates charged by the lender. This
and customer protection. The members signed the requires the lenders to prominently display
CoC to express their willingness to follow these the minimum, maximum and average interest
standards. rates charged on microfinance loans on their
respective websites.
Directives and Advisories
• Directive on information to be provided in the
To support the members in evolving policies
loan card/factsheet to ensure inclusion of all
and processes to adhere to the new regulations,
the information mentioned as mandatory in
following directives were issued:
the regulatory framework.
• Directive on implementation of RBI guidelines
Compendium of MFIN Directives and Advisories
from 1st Oct 2022 regarding implementation of
Regulatory Framework for Microfinance Loans, The revised and updated compendium of MFIN
Recognition of NPAs and CIC reporting. Directives and Advisories approved by the SRO
governance committees (SROC and EC) was
• Directive on reporting loan repayment
released to the members on 15th Feb 2023. The
obligation to income ratio of a household.
existing compendium was reviewed in lieu of
This requires proper assessment of borrower
the new microfinance regulation and updated
household income and its loan repayment
accordingly.
obligations to understand the level of

ANNEXES
Letter on third-party products (TPE) are conducted by independent external

agencies empanelled by MFIN. TPE assesses
A letter was issued by the SRO reiterating the adherence to the RBI’s regulatory framework and
directive on the sale of third-party products (TPP). Industry code of conduct.
This was done after 2 customer surveys conducted
by MFIN-CGRM indicated instances reported Customer complaints received in MFIN Toll free
by the customers of TPP being bundled with the No
primary credit product and its purchase made
mandatory. MFIN SRO manages a call centre which provides the
facility to attend to incoming calls from borrowers
Third Party Evaluation of MFIN members in 12 languages. MFIN took up
nearly 1800 complaint cases received in the MFIN
An important component of self-regulation is Customer Grievance Redressal system during FY
evaluation of policies and processes related to 22-23 with the respective lenders for resolution
responsible lending and customer protection of and necessary actions. 82% of the complaints were
MFIN members. The Third-Party Evaluations resolved within a TAT of 15 days.

ANNEXES
Annex D
Estimating microfinance
market size & demand
The estimation of microfinance market size and However, not all HHs have an annual income
demand is a factor of three major variables, of Rs 3 Lakh, so a better way to estimate is to
look at existing average microfinance loan size
a) No. of households (HHs) that fall into
per HH and average loan outstanding per HH.
eligibility category of annual income below Rs
3 Lakh as per new RBI guidelines. This change For the FY 2021-22 the average loan outstanding
from the earlier norm of Rs 2 Lakh annual HH per unique borrower (UB)52 was Rs 49,249 as on
income in urban and semi urban areas and March 31, 2022. During the period 2018-19 to
Rs 1.25 Lakh in rural areas has substantially 2021-22, the CAGR of average loan outstanding
increased the potential microfinance customer per UB was 10.7%.
base. While data is not available on this
parameter, in our estimate 70% of total HHs in c) Depth of outreach, which means the number
rural locations and 50% in urban/semi-urban of potential HHs served by microfinance. As on
locations would fall in this category. March 31, 2022 about 5.80 Cr unique borrowers
(or HHs) were covered by microfinance
Extrapolating the growth in number of HHs providers which is around 28.5% of total
(CAGR of 2.1% for rural HHs and 3.8% of potential HHs (of 20.32 Cr mentioned in point
urban HHs) based on Census 2001 to 2011 to a above). During the period 2018-19 to 2021-
the present year, the total number of rural HHs 22, the CAGR of depth of outreach was 2.9%.
comes to 20.25 Cr and urban/semi-urban HHs
to 11.27 Cr as of March 2022. Therefore, the Using these three factors and actual growth rates,
total potential microfinance HHs in India as of MFIN had estimated that as of March 2022 the
March 2022 is 20.32 Cr. total microfinance market size in terms of GLP
will be Rs 10 Lk Cr. Considering the same CAGR
b) Average credit demand of microfinance of increase in No. of potential HHs, average loan
HHs. The new regulations allows maximum outstanding per UB and depth of outreach, the
50% Fixed Obligation to Income Ratio (FOIR) potential market size will reach Rs 17 Lk Cr by
which means that the maximum indebtedness March 2026. Table 5.1 in Section 5 of this report
of a household from all sources at any point shows the estimations.
in time cannot be more than Rs 1.5 Lakh.
52
As a thumb rule, it is well accepted that microfinance is provided to one member of a HH, usually a women member. So, is fair to
assume that a unique borrower is representative of a single HH.

ANNEXES
Annex E
Microfinance
in news
Role of Microfinance Institutions in India’s Growth Story and women empowerment
Microfinance institutions (MFIs) play a pivotal role in India’s development by providing financial services
to underserved populations. They empower individuals, especially women, with access to credit, savings,
and insurance, fostering entrepreneurship and poverty alleviation. MFIs promote financial inclusion,
boost economic growth, and enhance livelihoods in rural and urban areas. This inclusive finance model
empowers marginalized communities and contributes to India’s overall socio-economic progress.
According to PwC, the global market size of the MFI industry is expected to grow by USD122.46 billion
from 2021 to 2026 at a compound annual growth rate of 11.61 per cent. Moreover, global development
agencies and several governments have made concerted efforts to alleviate poverty through micro-credits.
https://www.forbesindia.com/article/take-one-big-story-of-the-day/lending-to-the-bottom-of-the-
pyramid/75701/1
https://timesofindia.indiatimes.com/blogs/voices/how-microfinance-can-help-in-the-emergence-of-
india-as-an-economic-superpower/
https://economictimes.indiatimes.com/industry/banking/finance/mfis-to-play-leading-role-in-indias-
economic-growth-study/articleshow/96990049.cms?from=mdr
https://www.outlookhindi.com/business-and-economy/policies/microfinance-a-major-factor-in-women-
empowerment-75044

ANNEXES
RBI Revamped Regulatory Framework for Microfinance

Extremely comprehensive, RBI’s harmonized regulations ushered in a new era for the microfinance sector
where a common regulatory framework will be applicable to all Regulated Entities (REs) of the RBI.
Besides creating a level playing field, the framework will address issues of over indebtedness and multiple
lending which were of paramount concerns for the sector.
https://www.businessinsider.in/finance/news/customer-protection-guiding-light-of-revamped-
microfinance-regulations-says-rbi-deputy-governor/articleshow/95352941.cms
https://www.moneycontrol.com/news/business/customer-protection-at-core-of-rbis-regulations-for-
microfinance-says-deputy-governor-rajeshwar-rao-9462141.html
https://www.financialexpress.com/opinion/ensuring-consumer-safety/2582775/
https://www.financialexpress.com/business/banking-finance-various-rates-emerging-for-different-
products-customer-segments-alok-misra-ceo-director-mfin-2517899/

ANNEXES

ANNEXES
Microfinance and Financial Inclusion

Microfinance loans are gaining momentum due to their inclusive nature. By offering small, accessible
loans to low-income individuals and entrepreneurs, microfinance institutions empower communities.
These loans fuel entrepreneurship, address financial disparities, and foster economic growth, making them
a vital tool in promoting financial inclusion. Additionally, microfinance incorporates financial literacy and
entrepreneurial training, equipping borrowers with the skills needed to manage their finances effectively
and grow their businesses. This knowledge transfer enhances their ability to navigate the formal financial
system over time.
https://www.thehindubusinessline.com/opinion/microfinance-is-broadening-and-deepening-financial-
inclusion/article66235482.ece
https://www.financialexpress.com/business/banking-finance-co-lending-pacts-between-nbfcs-gaining-
traction-3012409/
https://timesofindia.indiatimes.com/blogs/voices/empowering-msmes-how-mfis-drive-financial-
inclusion/

ANNEXES
SIDBI to revamp the microfinance equity fund scheme to support the small and medium sized
micro lenders
SIDBI (Small Industries Development Bank of India) is set to revamp its microfinance equity fund
scheme, reinforcing its commitment to bolstering small and medium-sized micro-lenders. This initiative
underscores SIDBI’s dedication to empowering grassroots financial institutions, promoting financial
inclusion, and driving economic growth across India.
https://economictimes.indiatimes.com/industry/banking/finance/banking/sidbi-likely-to-revamp-
microfinance-equity-fund-scheme/articleshow/95357454.cms?from=mdr
https://bfsi.economictimes.indiatimes.com/news/banking/sidbi-likely-to-revamp-microfinance-equity-
fund-scheme/95358725

ANNEXES
Acquisitions and Mergers

Year 2022-23 promised some exciting changes. Banks looked to acquire microfinanciers to get their
lucrative high-yielding loan book and tap into the under-banked customer segment. There was Kotak
Mahindra Bank that acquired Sonata Finance. News came that Yes Bank was considering acquiring smaller
entities, especially from the microfinance segment.
Chennai-based Inditrade Microfinance announced the takeover and merger of the Kolkata-based
Janakalyan Financial Services however the same was called off as it failed to get regulatory approval. The
highlight of the year was the acquisition of Ananya Birla’s Chaitanya India Fin by Svatantra MFI. The
acquisition made Svatantra the second largest MFI in the country.
Kotak Mahindra Bank acquires microfinance institution Sonata Finance for ₹537 crore
https://www.moneycontrol.com/news/business/banks/yes-bank-open-to-acquiring-microfinance-entity-
as-1-1-billion-fundraise-gains-pace-md-says-8946091.html
https://www.businesstoday.in/latest/story/ananya-birlas-svatantra-microfin-to-acquire-sachin-bansals-
chaitanya-india-fin-cred-for-rs-1479-cr-393314-2023-08-08
Svatantra Microfin acquiring Sachin Bansal’s Chaitanya is a positive news both for the microfinance
sector and Svatantra. Based on March, 23 figures, the acquisition will catapult Svatantra Microfin to
second spot amongst NBFC-MFIs with AUM of around Rs.12,500 crore. The acquisition is synergistic
as it gives Svatantra strategic outreach in South India. From the Sector viewpoint, while Birla Group’s
Svatantra is known for its efficient operations and responsible lending, higher size will further strengthen
it as also contribute to higher efficiency through economies of scale.
Dr. Alok Misra,

CEO & Director, Microfinance Industry Network (MFIN)

ANNEXES
Funding
Light Microfinance, an Ahmedabad-based micro finance institution, raised Rs 196 crore in a Series B
funding round led by British International Investment, the UK’s development finance institution and
impact investor. All three of the company’s existing investors, Nordic Microfinance Initiative, Triple Jump
BV, and Incofin IM, also participated in this round. Belstar Microfinance raised equity of Rs 275 crore. US
Development Finance Corp lent USD 35 mln to CreditAccess Grameen to support women entrepreneurs,
and many more. MFIN’s Micrometer shows that during Q3 FY 22-23, NBFC-MFIs received a total of Rs
15,951 Cr in debt funding, which is 22.5% higher than Q3 FY 21-22.
https://yourstory.com/2022/09/light-microfinance-rs-196-cr-series-b-british-international-investment
https://www.freepressjournal.in/business/belstar-microfinance-raises-equity-capital-of-rs-275-cr
https://www.aninews.in/news/business/us-development-finance-corp-lends-usd-35-mln-to-indias-
creditaccess-grameen-to-support-women-entrepreneurs20221019094711/
https://yourstory.com/2022/06/funding-alert-satya-microcapital-japan-based-investor-gojo-and-
company
IPOs
It was a proud moment for the industry to see microfinance institutions go for an IPO. News of IPO of
Fusion Microfinance made news while also that of Muthoot Microfin.
https://www.outlookindia.com/business/muthoot-pappachan-group-plans-rs-1-800-crore-ipo-for-mfi-
arm-news-235906
https://indianexpress.com/article/business/market/fusion-micro-finance-ipo-all-you-need-to-
know-8244139/

ANNEXES
Microfinance Growth
The sector’s performance has been closely followed by media, analysts, and investors. The sentiment for
the larger part of the year was upbeat. It was reported that the growth in microfinance lending in the
rural market outpaced that of urban markets according to data from CRIF High Mark. Microfinance
loan portfolio went up 22% to Rs 3.48 trillion in FY23. It was interesting to note that non-bank lenders
surpassed banks in microlending segment. It is predicted that Microfinance industry is to record 25%
growth in FY24 on surge in disbursements.
https://www.thehindubusinessline.com/money-and-banking/microfinance-industry-to-record-25-
growth-in-fy24-on-surge-in-disbursements/article66781904.ece
https://economictimes.indiatimes.com/industry/banking/finance/non-bank-lenders-surpassed-banks-
in-microlending-segment-in-september-2022-report/articleshow/97703891.cms?from=mdr
https://www.businessinsider.in/personal-finance/news/microfinance-lending-shows-strong-growth-in-
2022-nbfc-mfis-dominate-the-market/articleshow/99112629.cms
https://www.business-standard.com/finance/news/microfinance-loan-portfolio-rises-by-22-to-rs-3-48-
lakh-cr-in-fy-23-123061300913_1.html
https://www.financialexpress.com/industry/sustaining-mfis-growth-momentum/2962344/

ANNEXES
New Launches – MFIN Launches the Code of Conduct, 4th Edition and India Microfinance
Review 21-22
Code of Conduct
The 4th Edition of the Code of Conduct was jointly launched with Small Industries Development Bank
of India (SIDBI), Association of Small Finance Banks of India (ASFBI), Sa-Dhan and Finance Industry
Development Council (FIDC).
The CoC was released at the hands of Mr Sivasubramanian Ramann, Chairman & Managing Director,
SIDBI and Mr. J P Sharma, Chief General Manager – Department of Regulation, Reserve Bank of India
(RBI), at an online event attended by microfinance institutions of the sector.
https://www.aninews.in/news/business/business/microfinance-industrys-code-of-conduct-4th-edition-
released-by-sidbi-cmd-and-cgm-department-of-regulation-rbi20221007161235/
https://www.thehindubusinessline.com/money-and-banking/microfinance-industry-body-releases-
fourth-edition-of-code-of-conduct/article65969764.ece
India Microfinance Review FY 21-22
India Microfinance Review FY 21-22 was launched by Deputy Governor of the RBI, Shri M. Rajeshwar
Rao in the presence of Mr Sivasubramanian Ramann, CMD-SIDBI.
The report presented a snapshot of the microfinance sector, microfinance regulation – a new paradigm of
asset-based regulation, resilience of microfinance, initiatives for future proofing at the sector, institution
and client level and the progress along with opportunities and challenges.
The launch event was held in partnership with HSBC Bank, M-SWASTH by M-insure, a technology-
driven company focusing on digital health inclusion and Craft Silicon, a leading financial and technology
solutions provider.
https://www.apnnews.com/mfin-releases-2nd-edition-of-india-microfinance-review-fy-2021-22/
https://www.livemint.com/news/india/rbi-deputy-governor-says-customer-protection-core-of-
microfinance-regulation-11667808429968.html
https://www.financialexpress.com/business/sme-msme-fin-microfinance-82-of-loan-portfolio-
concentrated-in-10-states-only-says-rbi-deputy-governor-2781113/

ANNEXES
NOTES

ANNEXES
NOTES

ANNEXES

ANNEXES
About MFIN
Microfinance Industry Network (MFIN) is an industry association of Microfinance

entities and an RBI-recognized Self-Regulatory Organization (SRO). MFIN Members are
RBI regulated entities comprising the Non-Banking Financial Companies - Microfinance
Institutions (NBFC-MFI), Banks, Small Finance Banks, NBFCs, Banking Correspondents,
Credit Bureau, Fintech companies, among several others.
Keeping the larger objective of financial inclusion in mind, MFIN focuses on creating an
enabling policy and business environment for its members to pursue responsible finance
with the highest standards of customer protection and corporate governance. Towards this
objective, MFIN works closely with the microfinance providers, regulators, Government
and other key stakeholders across 36 states and union territories, spanning 729 districts to
ensure that credit reaches the low-income households.
The impact of Microfinance on borrowers can be gauged by the fact that over 70 million
women are at present being reached through these small, easily serviceable, collateral free
loans, impacting as many as 300 million families. As a result, a vast unbanked and unserved
population of India today has access to formal credit even in the remotest districts of India.
For more information about MFIN and its work, please refer to
www.mfinindia.org
4th Floor, Emaar Palm Springs Plaza

Sector 54, Golf Course Road, Gurugram 122 003, Haryana
T +91 124 457 6800 | E contact@mfinindia.org
www.mfinindia.org
Microﬁnance Industry Network (MFIN) MicroFinance Industry Network
mﬁn_india MFIN

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CHAPTER 3

Microfinance Industry Network | 1

2 | India Microfinance Review FY 2022-23

First published in November 2023 by

Copyright will be with

MICROFINANCE INDUSTRY NETWORK

4th Floor, Emaar Palm Springs Plaza

BC Business Correspondents CIR Credit Information Report

BSBD Basic Savings Bank Deposit COC Code of Conduct

CAD Current Account Deficit Cr Crores

CAIIB Certified Associate of Indian CSP Customer Service Point

CBSP Capacity Building Service DFS Department of Financial

CCIR Company Credit Information DQI Data Quality Index

6 | India Microfinance Review FY 2022-23

ECB External Commercial Borrowing HR Human Resource

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LIH Low-Income Household NCGTC National Credit Guarantee

MoF Ministry of Finance OECD Organisation for Economic Co-

MSC MicroSave India Consulting Pvt OSS Operational Self-Sustainability

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PSB Public Sector Banks SME Small Medium Enterprises

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Message from the

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Figure 1.1: Domestic Inflation Across Major Components, FY 2013 – FY 2023

     

­       

          

Source: RBI Annual Report, 2022-2023

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Table 1.2: India: Real GDP Growth, 2018 - 2023

Growth (per cent)

II. Gross Capital Formation 6.2 -6.0 -11.6 22.2 9.6

III. Net Exports 11.9 -3.4 -9.1 29.3 11.5

IV. GDP 6.5 3.9 -5.8 9.1 7.0

Source: RBI Annual Report, 2022-2023

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Source: Economic Survey, 2022-2023

 Capital Expenditure (Apr-Nov) 

Source: Economic Survey, 2022-2023

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Figure 1.4: Growth in Index of Industrial Production, 2019 - 2023

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Source: RBI Annual Report, 2022-2023

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Figure 1.5: Contribution of Components to Credit Growth, 2015 – 2023

Source: RBI Annual Report, 2022-2023

Figure 1.6: Real GDP of India, FY 2019 – FY 2023

Source: Indian Economic Outlook, July 2023, Deloitte

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1.2 Human development indicators 1.2.1 Life expectancy at birth

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Figure 1.7: Life expectancy at birth

Figure 1.8: Life expectancy at 30 for bigger States/UT

 ­     ­   

Capital Expenditure (Apr-Nov)

of 22% in the outstanding portfolio of the sector,