Informal borrowing among microfinance customers has collapsed to just 1% in FY25 from 46% in 2011, highlighting a shift in India’s credit landscape over the past decade, according to an MFIN–NCAER study released on Thursday.
The survey, covering 10,342 borrowers across 10 states and 19 regulated entities, shows how formal microfinance has steadily displaced high-cost moneylenders.
“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,” said Alok Misra, chief executive and director, MFIN.
Chief Economic Advisor V Anantha Nageswaran said the findings of this NCAER-MFIN study “give us every reason to feel encouraged and every reason to be ambitious”.
The findings highlight strong borrower trust, transparent lending practices and the growing role of microfinance in supporting livelihoods. Nearly 98% of borrowers reported positive staff behaviour, while 88% said they would return to their existing lender. With 75% of loans used for business purposes and over half of borrowers repaying through income generated from loan-funded activities, microfinance continues to anchor household economic resilience.
The survey reveals that digital adoption is rising, with disbursements now fully digital and 12% of borrowers beginning to use digital repayment channels. The study also notes responsible borrowing patterns, with an average fixed obligation to income ratio of 18.7%, well below the RBI’s 50% threshold.
Nageswaran believes that microfinance institutions have a strong relationship of trust with millions of borrowers, which creates an opportunity to go beyond credit by strengthening financial literacy, improving awareness, and supporting income enhancement through skilling and other interventions.