Relevance: GS-III (Financial Inclusion, Inclusive Growth)
Source: Sa-Dhan Report; The Hindu

News

According to the Sa-Dhan quarterly report, microfinance loan stress has fallen to a four-quarter low, with Portfolio-at-Risk (PAR > 30 days) improving to 2.1% by September 2025. The sector’s gross loan portfolio has expanded to ₹4.26 lakh crore, reflecting stronger repayments and improved credit behaviour.

Microfinance: Role in Inclusive Finance

Microfinance offers small, collateral-free loans to low-income households, enabling:

• Women-led livelihood generation,
• Support to Self-Help Groups, and
• Reduced dependence on informal lenders.
  It remains a core instrument of last-mile financial inclusion, particularly in rural and peri-urban areas.

Concerns & Way Forward

Despite improvement, structural risks persist:

• Regional loan concentration increases exposure to local shocks.
• Household over-borrowing remains a challenge.
• Climate-linked livelihood risks raise future repayment concerns.

Way forward includes strengthening borrower due-diligence, widening geographical diversification, deploying data-driven risk tools, and improving digital financial literacy.

About Sa-Dhan

Sa-Dhan, recognised by the Reserve Bank of India as a Self-Regulatory Organisation (SRO), is India’s leading association of microfinance and impact-finance institutions, providing credible data and policy support.

Q. With reference to microfinance in India, consider the following statements:

1. Portfolio-at-Risk (PAR) indicates the proportion of loans overdue beyond a specified period.
2. All microfinance institutions are governed under the Reserve Bank of India’s microfinance regulations.
3. Sa-Dhan is recognised by the Reserve Bank of India as a Self-Regulatory Organisation for the sector.

How many statements are correct?
A. One only
B. Two only
C. All three
D. None