India Micro Lending Market Outlook to 2028

Market Overview:

The Indian Micro Lending Market is the fastest-growing market in the worldwide micro-lending Industry. The Indian Micro Lending market is driven by various factors such as the unbanked population, the increasing population of microenterprises, government support for microfinance, and digital technology & mobile penetration. With the growing demand for micro-finance loans among consumers the market is expected to grow at a CAGR of 11% in the forecasted period of 2022-2028.

The Indian Micro Lending Market is growing rapidly owing to different factors influencing the market. The target audience for the micro-lending market in India includes low-income individuals, small business owners, microenterprises, and self-help groups. This market provides small amounts of loans to these individuals that help them to cover immediate needs like working capital and emergencies. The market is also helped by the government to promote financial inclusion and micro-lending.

The Indian micro-lending market is highly competitive and has the presence of both domestic and foreign players. Some of the major players in the market are Equitas Small Finance, ESAF Microfinance and Investments Ltd, Fusion Microfinance Pvt Ltd, Annapurna Microfinance Pvt Ltd, Arohan Financial Service Ltd, BSS Microfinance Ltd, Asirvad Microfinance Ltd, and Bandhan Financial Services Ltd are some of the major players of this market.

The market is highly competitive as every major player is aiming for a wider reach and greater penetration. Companies want to expand their reach as this will help them to add more active borrowers and clients. Some of the players are also offering different varieties of financial products as these products will attract clients with different financial needs.

Indian Micro Lending Market Analysis

• The Indian Micro Lending Market is going through significant growth due to the large sum of unbanked population, the increasing population of microenterprises, government support for microfinance, and digital technology & mobile penetration. These are some of the variables that are influencing the Indian Micro Lending Market.
• The market includes different types of microfinance institutions such as Non-banking Financial Companies (NBFCs) and NGOs. These microfinance providers offer different kinds of financial products like micro-loans, saving accounts, insurance, and others.
• The market is also facing a lot of challenges and risks as well such as lending credit to people with no credit history makes the process risky for micro-lending companies. The market is also limited as these companies charge high-interest rates in comparison to traditional banking services.
• Evolution and development of technology is impacted the Indian micro-lending market significantly. The utilization of digital platforms for loan origination, disbursement, and repayment has streamlined forms and diminished operational costs. Data analytics and alternative credit scoring models help evaluate creditworthiness more precisely.

Key Trends by Market Segment:

By Product Type: The Indian micro-lending market is segmented into four main categories: Microloans, Savings and Deposit Services, Microinsurance, and remittances. Microloans are dominating the micro-lending market as these are small, short-term loans provided to individuals. Usually, (MSEs) medium or small size enterprises avail of this product to fulfil their day-to-day services.

Saving and deposit services help customers save a small amount which encourages financial discipline. Microinsurance products offer coverage against risks like health emergencies, accidents, and crop failures. While remittance services allow customers to send and receive money nationally or internationally.

By Type of End-User: Based onend-user the Indian micro-lending market is divided into four parts such as microenterprises and small businesses, individual borrowers, agricultural borrowers, and self-help groups (SHGs). Microenterprises and small businesses lead the market because these small enterprises are the major target audience of the micro-lending market. These businesses frequently require small amounts of money to continue their operations and microfinance companies provide them vital support in this process.

Microenterprises and small businesses didn't get much support from traditional banking systems as they need very small loan amounts and banks follow a complex and lengthy loan process. On the contrary, micro-lending companies issue loans to these microenterprises in a quick process with much documentation. This makes them the dominant segment in the Indian micro-lending market.

By type of Geography: The Indian micro-lending market is divided into four main types: North, South, East, and West. The most dominating region in this market is the northern part of India. North India drives the largest share of the micro-lending market followed by the southern part. States such as Bihar and Uttar Pradesh from the northern part and Tamil Nadu and Karnataka from the southern part are some of the states that are major regions for the Indian micro-lending market.

These states contribute the maximum to the Indian micro-lending market as these states experience prevailing credit culture. Another reason behind this is the overall infrastructural support system available in the region. Government policies and support can be another factor behind the remarkable growth of the micro-lending market in these specific regions.

Competitive Landscape:

The Indian micro-lending market is highly competitive and filled with several players. Both national and international companies are operating in this market. Some of the major players in this market are Equitas Small Finance, ESAF Microfinance and Investments Ltd, Fusion Microfinance Pvt Ltd, Annapurna Microfinance Pvt Ltd, Arohan Financial Service Ltd, BSS Microfinance Ltd, Asirvad Microfinance Ltd, and Bandhan Financial Services Ltd are some of the major players of this market.

As the market is set to grow significantly in the forecasted period that’s why the assumption is that the market will witness various new entrants. The entry of new players will make the market more competitive and user-friendly. Alongside this, the existing company will try its level best to hold the current market share and match the customer’s expectations.

Recent Developments

• The Indian micro-lancing has transformed significantly in recent years owing to different factors impacting the market. Loan disbursals in the micro-lending market in India increased by 80% in 2022 compared to the previous year, with eastern and northeastern India making up 37% of the total portfolio of non-banking financial companies-microfinance institutions (NBFC-MFIs) in the nation.
• The Microlending market of India is slowly overtaking the market of traditional banks in rural areas. As micro-lending companies provide small loan amounts with less paperwork and documentation. It has also enabled last-mile connectivity by affording loans to borrowers that reside in the remotest corners of India.
• The increasing influence of digital technology among individuals has given a much-needed boost to the micro-lending market in India. The growing micro-lending market in India has provided a wide array of employment opportunities to around 1,50,000 people with a vast network of 14000 branches in 2022.
• The market is witnessing aggressive investments from its key players as the demand for the micro-lending industry is increasing day by day. Recently, Philippines- Dutch development bank FMO has announced an investment of $11Mn in Arohan financial services, one of India’s leading micro-lending companies.

Future Outlook:

The Indian Micro Lending Market is projected to grow at a CAGR of 11% from 2022 to 2028 driven by variables like the unbanked population, the increasing population of microenterprises, government support for microfinance, and digital technology & mobile penetration.

• The Indian microlending market is all set to dominate the world microlending market within the next decade. Indian microfinance industry will face major transformation in terms of innovation in the coming years. Innovation will enable the market to bring changes in products, service delivery, and process of operations.
• The Indian micro-lending market is set to receive huge investments from national as well as international players. As the market is projected to take over the world lending market by 2028 owing to the various national and international companies’ players investing aggressively in the market.
• The Indian lending market will cover ~30% of the country’s population with the majority of its areas will cover the rural areas. In the coming years, the micro-lending market of India will play a major role in the rural economic growth of the country.