Finance Desk – India’s microfinance sector has asked the government for credit guarantee support worth up to ₹2 lakh crore ($2.2 billion) to help revive loan growth amid rising borrowing costs.
The Microfinance Industry Network (MFIN) has requested the union government to provide up to 75% default guarantee on bank loans to microfinance institutions (MFIs). This would allow banks to lower interest rates for MFIs, who could then pass on the benefit to low-income borrowers.
Microfinance loans small, collateral-free loans of just over $2,000—are given to people or groups who do not have access to traditional banking.
According to MFIN data, microfinance lending peaked at ₹4.3 trillion in March 2024, but has been shrinking each month since, mainly due to stress in regions like Karnataka. By June 2025, loans outstanding fell to ₹3.5 trillion, down 16.7% from a year earlier.
“This is about access to liquidity for the sector,” said MFIN Chairperson Vineet Chattree, adding that the scheme would make funds cheaper for end-borrowers.
Industry representatives met Finance Ministry officials on July 9 and have also written to the government. A similar scheme worth ₹75 billion was introduced during the pandemic.
The sector is currently struggling with high interest rates, rising borrower debt, and aggressive recovery practices, and experts say urgent reforms are needed.
