MFIs to play leading role in India's economic growth: Study

Microfinance institutions, which have acted as a financial support system to low-income households by offering credit access to six crore borrowers in the last few years, will play a leading role in the growth process of India, according to a study.

From February 2017 to June 2022, the MFI sector underwent several transformations in terms of inclusivity and expansion, said the joint study conducted by consultancy major PricewaterhouseCoopers (PwC) and the Association of Microfinance Institutions of India.

According to the report, the global market size of the MFI industry is expected to grow by $122.46 billion from 2021 to 2026 at a compound annual growth rate of 11.61%.

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Moreover, global development agencies and several governments have made concerted efforts to alleviate poverty through micro-credits, it said.

From 2017 onwards, the Indian MFI industry embraced the digital route by using online delivery channels, mobile banking and e-wallets, paving the way for the sector to adopt digitisation at a large scale.

The future course of the industry will be determined by the ability of MFIs to forge partnerships, develop new products and investment channels and leverage technology.

The challenges that the MFI sector will face are the diverse nature of customer segments such as small farmers, vendors and labourers.

“The consumer behaviour and loan requirements for different customers may require varied levels of services with financial products and digital literacy,” the study said.

It also said the dependence on physical modes of interaction poses a challenge for MFIs to reach last-mile borrowers, which has been evident during the pandemic when group gatherings could not be held.

Only technological integration will be able to assist MFIs in providing services as well as repayment collection processes.