The microfinance sector in India predominantly follows the Joint Liability Group model where borrowers form groups and guarantee each other.

The sector has shown significant progress over the years with Indian microfinance institutions (“MFIs”) having taken steps towards strengthening their governance, management and operations and building efficiencies by reducing costs while maintaining good portfolio quality.

Indian MFIs now serve more than a 100 million borrowers, potentially the largest borrower base in the world. The microfinance portfolio in India has withstood events of stress such as floods, cyclone, droughts and demonetization in the past, and emerged much stronger.

The industry is regulated by the Reserve Bank of India and follows the requisite governance and reporting standards. The allotment of 9 of the 10 Small Finance Bank licenses to MFIs is a testament to their strength and contribution towards creating a more inclusive India.

Given the regulatory push for financial inclusion, Northern Arc sees a big opportunity in the Microfinance sector, and we expect the sector to show robust growth over the coming years.