Explained: Road ahead for India’s microfinance sector

The microfinance industry (MFI) has seen an unprecedented growth over the past two decades. From setting up India’s first MFI in the form of the Self-Employed Women’s Association or SEWA in Gujarat which established the SEWA Bank in 1974 with a handful of players offering self-help groups and joint lending groups loans to a matured market, providing credit to over 6 crore borrowers, the industry has come a long way.

When the pandemic hit and the country had to put a break on virtually all activities, the microfinance industry was perhaps one of the worst hit with many of its customers losing jobs overnight. At a time when the Reserve Bank of India (RBI) is proposing a roadmap for converting small and payment banks into universal banks to push banking to the unbanked regions to achieve financial inclusion, does microfinance remain relevant?

Can smaller NBFC MFIs compete with deep pocketed banks with their vast reach? Can the industry grow when its customers are facing severe losses? To what extent are the government support schemes helping?