Small and medium NBFC-MFIs are hoping for an announcement of a credit guarantee fund in the Union Budget

The top 15-20 NBFC-MFIs account for about 85 percent of the portfolio of NBFC-MFIs | Photo credit: Getty Images

It may be pertinent to mention that Sa-Dhan and MFIN, the self-regulatory organizations (SROs) in the MFI sector, had made a pitch to the government in August 2025 asking it to introduce a ₹20,000 crore credit guarantee scheme. However, so far nothing has been heard from the authorities in this regard.

The above proposal was mooted as banks have become cautious in lending to small and medium NBFC-MFIs in recent years due to multiple factors including asset quality concerns, liquidity crunch, operational challenges, declining disbursements and lower customer retention.

Recycled loans

The delay in setting up the credit guarantee scheme has left small and medium-sized MFIs struggling as they do not have easy access to financing, said Jiji Mammen, executive director and CEO of Sa-Dhan.

“The disbursements from banks to these entities have stopped or are very limited. Whatever recovery these MFIs make, only that can be reused for granting new loans and repaying the loans taken from the banks. So in the end, there is not much more borrowing. That is why the overall MFI loan portfolio has declined. But now, slowly, a small turnaround is happening,” said Mammen.

Mammen underlined that the larger NBFC-MFIs have become active as raising capital and obtaining bank loans is no longer a problem for them. The top 15 to 20 NBFC-MFIs account for about 85 percent of the portfolio of NBFC-MFIs.

MFIN, in a November 2025 report, noted that it advocated the revival of the Credit Guarantee Scheme for MFIs (CGSMFI) and the establishment of a dedicated sector financing facility to address the inherent liquidity problem faced by NBFC-MFIs.

The microfinance sector’s outstanding loan portfolio (NBFC-MFIs: 94, Banks: 17, Small Finance Banks: 10, NBFCs: 99 and others: 65) shrank 15.5 percent year-on-year to ₹3,41,947 crore, as of end-September 2025, according to Sa-Dhan’s quarterly microfinance report (July-September). 2025).

Published on January 11, 2026