Negative impactSector
Smaller MFIs change tack: No onlending, just routing funds
Economic Times 6 hrs ago·12 Nov 2026, 7:37 pm
Smaller microfinance institutions (MFIs) in India are pivoting away from their traditional business model. Facing tighter funding from banks and a challenging economic environment, these smaller lenders are moving away from directly lending money to borrowers. Instead, they are adopting a business correspondent model, where they act as agents for banks to route loans and collect repayments.
This shift is significant for the sector. By earning fees for these services rather than interest income, MFIs are trying to stabilize their revenue streams amid funding constraints. It marks a departure from the long-standing joint-liability group model, as the industry adapts to a more digital and formal credit landscape.
Investors should monitor how this transition impacts the sector's overall profitability. While this move may reduce risk for individual lenders, it also signals a broader restructuring of the microfinance industry as it navigates a period of financial stress.
Excerpt from Economic Times
Smaller MFIs change tack: No onlending, just routing funds Smaller MFIs change tack: No onlending, just routing funds India’s microfinance sector is seeing a structural shift as funding constraints and mounting stress push smaller lenders away from direct lending towards business correspondent models. With bank…Read the original at Economic Times
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- Category: Sector.
- AI reads the tone as negative (potentially bearish) for the stock.
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