The microfinance institutions sector has emerged from a prolonged period of stress and is now returning to normalcy, according to K Paul Thomas, the newly appointed chairperson of industry body Sa-Dhan.
The microfinance sector had endured a difficult phase over the past three-four years due to an adverse credit cycle, but recent performance indicators suggest a significant improvement in asset quality and collections, the chief executive officer of ESAF Small Finance Bank told NDTV Profit in an interaction.
Thomas said loans disbursed over the past 18 months were demonstrating collection efficiency of about 99%, while portfolio-at-risk of 30 days and above had been contained at around 2%. He attributed the recovery partly to tighter oversight under the self-regulatory-organisation framework, which has introduced stricter guardrails for lenders.
As the chairperson of Sa-Dhan, Thomas said one of his key priorities would be ensuring adequate and appropriate funding for smaller microfinance institutions, many of which continue to face challenges in accessing capital. He said the government's credit guarantee scheme was expected to improve liquidity and funding availability for the MFIs.
Beyond funding, Sa-Dhan plans to focus on scaling up the sector and strengthening institutional capabilities. The industry body is currently working with 21 small MFIs through an acceleration programme aimed at enhancing operational capacity and growth prospects.
Thomas said the sector's broader objective remains expanding access to formal credit among underserved borrowers while bringing more first-time customers into the financial system. He is targeting more than 25% growth in both advances and deposits during FY27.
The comments come at a time when the microfinance industry is showing signs of stabilisation after a challenging period marked by elevated delinquencies and funding pressures, with lenders now banking on stronger collections, regulatory discipline and improved credit flows to sustain the recovery.
ALSO READ: Top Indian Banks Like SBI, HDFC, IDFC Are Spending Crores On Printing, Stationary
Essential Business Intelligence, Sharp Market Insights, Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories — On NDTV Profit.