Sa-dhan rolls out capacity-building programme to strengthen smaller MFIs

The initiative aims to improve governance and operations as smaller MFIs say access to bank funding remains constrained

Sa-dhan — the self-regulatory organisation (SRO) for microfinance institutions (MFIs) — has launched a programme to improve the standards of its members.

 

Its MFI Accelerator Program is expected to strengthen the institutional capabilities of MFIs by improving governance standards, operational efficiency, financial management practices, risk management systems, and technology adoption.

 

"We aim to build resilient, professionally managed, and digitally enabled institutions capable of delivering responsible and inclusive financial services," said Jiji Mammen, executive director and chief executive officer, Sa-dhan.

 

He added that the initiative is expected to contribute to the overall development of MFIs by promoting best practices, improving institutional sustainability, enhancing service quality for low-income clients, and creating a stronger ecosystem of well-governed and future-ready MFIs capable of supporting inclusive economic growth.

 

Sa-dhan's accelerator programme comes at a time when smaller MFIs have pointed to the government's ₹20,000-crore credit guarantee scheme not reaching them and said banks are not keen to lend to them, preferring better-rated MFIs instead.

 

"We have taken up the matter (funding of lower-rated MFIs) with the Ministry of Finance," said a source.

 

The MFI Credit Guarantee Scheme for Microfinance Institutions (CGSMFI) 2.0 was to act as a cushion against losses on loans extended by lenders — banks and financial institutions. It provides a cover of up to 80 per cent of the default amount for small MFIs, 75 per cent for mid-sized MFIs, and 70 per cent for larger ones.

 

Sa-dhan's capacity-building initiative is expected to move into its implementation and institutional transformation phase soon. Customised mentorship plans are to be finalised for each participating MFI based on the assessment findings, followed by the deployment of experienced mentors to provide structured handholding support aligned with institution-specific priorities.

 

On their part, MFIs have been increasingly preferring seasoned borrowers.

 

Crisil, in a report, said a rising share of new loans is now being extended to existing customers with a good repayment history. Around 66 per cent of assets as of March 2026 comprised loans to borrowers in their second cycle or beyond, compared with 53 per cent two fiscals earlier. Apart from this, the average ticket size of such disbursements has risen by around 15 per cent to nearly ₹59,000 since last fiscal. Additionally, as a prudent measure, many MFIs are increasingly covering their incremental disbursements under the Credit Guarantee Fund for Micro Units-3 scheme to mitigate potential credit losses. This, in turn, enables better control over portfolio quality while also enhancing lender confidence, thereby supporting improved access to funding.

 

Prashant Mane, associate director, Crisil Ratings, said: "MFIs are increasingly focusing on secured offerings, including gold loans, secured MSME loans, and loans against property, aside from individual loans. In the last one year itself, the share of such loans rose to 14 per cent from 6 per cent (over FY26 and FY25). We see this rising to 18 per cent by the end of FY27."

 

Policy measures have also supported this shift. The Reserve Bank of India, in June 2025, lowered the requirement for qualifying assets in total assets (net of intangible assets) to 60 per cent from 75 per cent. This enhanced the flexibility available to MFIs to expand into adjacencies and increased opportunities to cross-sell, paving the way for more diversified growth.

 

The latest National Bank for Agriculture and Rural Development's (Nabard's) rural economic survey flags a drop in the share of households relying only on formal sources of credit to 51.2 per cent in March 2026 from a peak of 58.3 per cent in November 2025. This is partly attributed to stress in the sector. Over this period, there has been greater dependence on informal sources, primarily friends and family. Taken together — a flight to safety, anecdotal carpet-bombing of the same set of customers, and banks' reluctance to lend to smaller MFIs — may accentuate the drop in the share of households relying only on formal sources, as highlighted in the Nabard survey.

 

The pain points

• Sa-dhan's MFI Accelerator Program is expected to strengthen the institutional capabilities of MFIs by improving governance standards, operational efficiency, financial management practices, risk management systems, and technology adoption. 
• Sa-dhan's accelerator programme comes at a time when smaller MFIs have pointed to the government's ₹20,000-crore credit guarantee scheme not reaching them and said banks are not keen to lend to them, preferring better-rated MFIs instead. 
• Crisil, in a report, said a rising share of new loans is now being extended to existing customers with a good repayment history.
• Around 66 per cent of assets as of March 2026 comprised loans to borrowers in their second cycle or beyond, compared with 53 per cent two fiscals earlier. Apart from this, the average ticket size of such disbursements has risen by around 15 per cent to nearly ₹59,000 since last fiscal. 
• Nabard's latest rural economic survey flags a drop in the share of households relying only on formal sources of credit to 51.2 per cent in March 2026 from a peak of 58.3 per cent in November 2025. This is partly attributed to stress in the sector. 
• Taken together — a flight to safety, anecdotal carpet-bombing of the same set of customers, and banks' reluctance to lend to smaller MFIs — may accentuate the drop in the share of households relying only on formal sources, as highlighted in the Nabard survey.