MFIN seeks ₹20,000-cr credit guarantee from govt to boost NBFC-MFIs

MFIN seeks a ₹15,000-₹20,000 crore government-backed credit guarantee to encourage banks to lend to NBFC-MFIs, citing improved collection efficiency and liquidity needs

Microfinance Industry Network (MFIN) — a self-regulatory organisation for NBFC-MFIs — has sought credit guarantee support from the government to give banks greater comfort in lending to the sector. Additionally, MFIN is meeting bank chiefs to push for higher funding to NBFC-MFIs, following improved collection efficiency in the segment.

 

Alok Misra, Chief Executive Officer of MFIN, said they have written to the government seeking a ₹15,000–₹20,000 crore credit guarantee scheme for the sector, under which the government would guarantee up to 75 per cent of MFIs’ borrowings from banks. This, he said, would provide banks with the necessary assurance to lend to these entities.

 

 

He noted that a similar scheme was introduced in 2021 with a ₹7,500-crore corpus, which went unused as all MFIs repaid their dues. “It kick-started a virtuous cycle. It had no fiscal implications because of the guarantee. The entire money came back, and no one invoked the guarantee. But it will require a leap of faith. We are working on that, and on meeting with bankers. Both push and pull factors are at play. We are hopeful that in one to two months, we will see a solution to the liquidity issue,” Misra said.

 

He added that there is also a push factor for banks, as after the RBI’s liquidity measures — including a repo rate cut and CRR cut — they are sitting on significant funds and will need to deploy them into the sector.

 

Misra highlighted that the gross loan portfolio for all microlenders declined by nearly 17 per cent in April–June FY25 to ₹3.53 trillion, while the number of borrowers fell 6 per cent to 7.5 crore.

 

However, the sector has seen recent improvements, with loans overdue for over 90 days reducing to 3.2 per cent in June from 3.5 per cent in March 2025. Collection efficiency has also improved, with MFI collections rising to over 98 per cent from around 95 per cent in January 2025. 

Misra said the sector’s problems are neither cyclical nor structural, but were triggered by specific pressures that the industry acted to counter.

 

On concerns about high interest rates charged to borrowers, Misra said the weighted average lending rate was 23.66 per cent in June for member MFIs, and has been range-bound for the last few quarters. “Even the outlier MFI will not charge an interest rate of over 27.5 per cent,” he added.