Bank lending to small borrowers slows down

BANK LENDING TO joint liability groups (JLGs) contracted sharply in 2024-25, with disbursements declining 58%, highlighting the stress faced by the microfinance sector over the past year, according to the Trend and Progress report released by the Reserve Bank of India (RBI).

- KSHIPRA PETKAR

JLGs, which are informal credit groups catering to small borrowers, were among the worst hit as lenders turned cautious amid funding constraints and tighter underwriting norms.

A combination of rising credit risk, regulatory tightening and weaker repayment capacity among micro and small enterprises has been behind banks' lending to small borrowers slowing down.