Microfinance growth to slow amid tighter norms: S&P

The microfinance lending boom prompted self-regulatory MFIN to begin capping lenders to each borrower in August 2024, and will tighten this further starting in April 2025. S&P Global Ratings believes the cap on number of lenders to each borrower will defuse "larger risks".

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Tightening regulations and stricter underwriting standards in Indian microfinance will rein in growth plans for sector lenders and defuse risk build-up for overleveraged borrowers, said S&P Global Ratings.

Credit analyst at S&P Global Ratings, Shinoy Varghese, believes that tightening regulations will weigh on asset quality given many rely on new loans to repay old ones.

Microfinance loans typically have tenors below two years and are collateral-free for borrowers with annual income of up to Rs 300,000.