Sa-dhan has introduced an MFI Accelerator Program to improve governance and efficiency for smaller microfinance institutions. This initiative aims to address a critical funding gap as banks increasingly prioritize larger, higher-rated lenders. The move follows reports of smaller MFIs struggling to access government credit guarantee schemes.
What Happened
Sa-dhan, the self-regulatory body for microfinance institutions (MFIs), has launched the MFI Accelerator Program. This initiative is designed to strengthen the operational and financial capabilities of smaller member institutions. The program focuses on improving governance standards, risk management, and the adoption of digital technology. By providing customized mentorship and professional guidance, Sa-dhan aims to help smaller lenders become more resilient and better positioned to secure necessary funding from banks and other formal financial institutions.
The Funding Disparity Issue
The launch comes at a time when smaller microfinance lenders are facing significant hurdles. Many institutions have reported that the government's ₹20,000-crore credit guarantee scheme has not effectively reached them. Banks, which act as the primary funding source for MFIs, are reportedly showing a clear preference for lending to larger, better-rated entities. This "flight to safety" among lenders creates a difficult environment for smaller MFIs, which are often the ones most in need of capital to serve rural and underbanked populations. Sa-dhan has been in discussions with the Ministry of Finance to highlight these funding challenges.
Shifting Market Dynamics
Data from CRISIL Ratings shows that the sector is undergoing a major shift. As of March 2026, roughly 66% of MFI assets were loans to repeat borrowers, compared to 53% just two fiscal years earlier. This trend reflects a risk-averse approach, where lenders favor borrowers with proven repayment records. Furthermore, the average loan size for these repeat borrowers has climbed by about 15% to approximately ₹59,000. Additionally, many MFIs are diversifying their portfolios, with the share of secured offerings like gold loans and loans against property rising to 14% from 6% over the last fiscal year.
Regulatory Changes And Rural Credit Trends
A recent update from the Reserve Bank of India in June 2025 lowered the qualifying asset requirement for MFIs to 60%. This change provides more flexibility for institutions to diversify their businesses. However, the broader rural landscape presents challenges. A NABARD survey as of March 2026 shows that the share of households relying solely on formal credit has fallen to 51.2%, down from 58.3% in November 2025. This indicates a potential increase in rural financial stress and a growing return to informal credit sources, which may affect the long-term demand for microfinance services.
What Investors Should Track
For investors and stakeholders, the key monitorables include the effectiveness of the accelerator program in helping smaller MFIs secure bank credit and the ability of these institutions to improve their credit ratings. Monitoring the utilization of the Credit Guarantee Fund for Micro Units-3 scheme will also be important. Finally, investors should watch for any further policy shifts from the RBI regarding asset quality and the trend in formal vs. informal credit reliance, as these factors will directly impact the growth and risk profiles of microfinance players.