Banks Exit Microfinance: Is Your Small Loan at Risk?

Big banks are pulling back from small microfinance loans, leaving NBFCs and specialist lenders in charge. If you rely on group loans or small credit for your livelihood, your options and interest rates may change soon.

Here's what happened: Banks' share of the total microfinance industry loan book has fallen sharply to around 21.8%, down from roughly 31.3% just one year ago, according to credit bureau data.. NBFC-MFIs (non-banking microfinance institutions) have tightened their grip on the sector, filling the gap left by banks and now holding the dominant share of small-ticket loans to low-income borrowers.. The retreat comes as banks manage rising stress in unsecured retail portfolios, pushing them to become more selective — microfinance, with its thin margins and rural concentration, is among the first segments they are trimming..

What you should do: Compare your current NBFC-MFI loan's effective annual interest rate against at least two other RBI-registered microfinance lenders before your next loan cycle begins — differences of 5–8% are common.. Check whether your existing microfinance lender is RBI-registered by visiting the RBI's official list of authorised NBFC-MFIs on rbi.org.in before accepting any new loan offer.. If you run a small or home-based business, explore Jan Dhan-linked overdraft limits or MUDRA Shishu loans (up to ₹50,000) through your bank as a parallel, often lower-rate alternative to group microfinance loans..

Under RBI's microfinance guidelines, no lender can charge a borrower more than the board-approved interest rate displayed on their website — ask your MFI for this rate sheet before signing any loan document.

For borrowers watching their score, our CIBIL score guide covers what impacts it and how to improve it.