India’s microfinance sector seek up to $2.2 billion credit guarantee support from government, official says

MUMBAI: India’s microfinance industry has sought credit guarantee support of up to 200 billion rupees ($2.2 billion) from the government to spur loan growth in a sector grappling with higher borrowing costs, senior industry officials said on Tuesday.

The Microfinance Industry Network has sought up to 75% default guarantee coverage from the union government on bank loans to microfinance institutions, Alok Misra, CEO of the self-regulatory organisation for the sector, told reporters at a press conference.

Microfinance lending, which peaked in March 2024 at 4.3 trillion rupees, have since been contracting on a monthly basis, according to data from MFIN’s presentation, owing to stress in regional pockets such as in states like Karnataka.

The total loans outstanding for the sector were 3.5 trillion rupees in June 2025, down 16.7% from June 2024, the data showed.

Microfinance loans, which are collateral-free and capped at just above $2,000 per borrower, are typically offered to low-income individuals or groups that don’t have access to the traditional form of banking.

“The scheme will enable banks to price the risks lower and the sector will get cheaper funds which we can pass on to end-borrowers,” MFIN Chairperson Vineet Chattree said.

“It is about access to liquidity for the sector,” Chattree added.

Representatives of the microfinance industry met with India’s Finance Ministry officials on July 9 and have also written to the government, Misra said.

India introduced a similar scheme during the pandemic for the microfinance industry, allocating 75 billion rupees.

The sector is grappling with high interest rates, rising borrower over-indebtedness, and coercive recovery practices, and is in need of urgent lender reforms, a deputy governor of the central bank said in June.