Informal borrowing among microfinance customers dropped sharply to just 1 per cent in FY25 from 46 per cent in 2011, even as the sector recorded full digitalisation of loan disbursements and rising reliance on income-generating activities, according to a survey by the Micro Finance Industry Network and the National Council of Applied Economic Research.
The findings show that 100 per cent of loan disbursements are now digital, while 12 per cent of repayments are made through digital channels. More than 75 per cent of loans are used for income generation, with a significant proportion of borrowers repaying from business income. Borrower confidence in the sector also remains strong, with nearly 98 per cent reporting positive staff interactions and 88 per cent indicating willingness to return to the same lender.
The nationally representative survey, conducted in 2025 across 10,342 borrowers in 10 states and covering 19 regulated entities, points to a structural shift towards formal, regulated sources of credit. Microfinance institutions have increasingly replaced high-cost informal lenders, whose annualised rates typically range between 97 per cent and 178 per cent, while borrowers perceive formal sector rates as competitive.
Around 78 per cent of borrowers contribute to household income, and over half depend on income generated through loan-funded activities for repayments. The study also underlines the sector’s reach among underserved segments, with nearly 46 per cent of borrowers having low or no formal education. Most borrowers fall in the 26–45 age group, and 76.1 per cent of households are nuclear, with state-level variations reflecting differing socio-economic conditions.
Borrowing patterns remain within prudent limits, with a fixed obligation-to-income ratio of 18.7 per cent, well below the Reserve Bank of India’s prescribed ceiling. With an average monthly income of Rs 25,844, borrowers allocate income across expenses, savings, and repayments. As many as 97.2 per cent report regular savings and 84.4 per cent have credit-linked insurance.
Further, 48.1 per cent of borrowers reported using loans to expand existing businesses, while 94 per cent directed funds towards income-generating activities, including enterprise expansion, agriculture, and self-employment. Income patterns reflect this trend, with 33.5 per cent of households dependent on petty trade and small businesses.
Alok Misra, CEO and Director, MFIN, said, “The key takeaway from this study is the clear shift towards formal credit, with a sharp decline in reliance on informal sources and improved borrower outcomes. At the same time, there is a need to further strengthen credit assessment, particularly around household cash flows, to mitigate risks of over-indebtedness. The positive trends in borrower engagement, savings behaviour, and productive use of loans reinforce the sector’s role in supporting livelihoods. Going forward, continued focus on financial awareness, responsible lending, and digital adoption will be critical to deepen financial inclusion.”
V Anantha Nageswaran, Chief Economic Advisor to the Government of India, said, “The findings of this NCAER-MFIN study covering over 10,000 borrowers across 10 states give us every reason to feel encouraged and every reason to be ambitious. Microfinance institutions today have a strong relationship of trust with millions of borrowers. This creates an opportunity to go beyond credit by strengthening financial literacy, improving awareness, and supporting income enhancement through skilling and other interventions. Leveraging this engagement effectively can play an important role in advancing sustainable livelihoods and improving household resilience.”
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