India is facing a surge in microfinance Non-Performing Assets (NPAs) due to a combination of factors, including economic distress caused by the COVID-19 pandemic, natural calamities, over-indebtedness of borrowers, and political interference such as loan waiver announcements. Many low-income borrowers, who form the core clientele of microfinance institutions (MFIs), experienced income loss and job insecurity, leading to their inability to repay loans on time. In some regions, the practice of multiple lending without proper credit checks has also worsened repayment stress. This rise in NPAs severely impacts financial inclusion as it undermines the sustainability of MFIs, reduces their willingness to lend to high-risk segments, and prompts tighter regulations. As a result, genuine borrowers in underserved areas face reduced access to credit, limiting their ability to invest in income-generating activities and improve their livelihoods, thereby threatening the broader goal of inclusive economic growth.

Stay updated with C4S Courses.