The Microfinance sector is gradually shifting away from volume-led expansion towards customer-insights led approach, is a key takeaway from the 20^th annual conference on inclusive growth organized by Sa-Dhan. Existing MFIs have built a loyal customer base that has evolved into a financially mature segment which may seek products beyond microfinance. With eligibility widened and exposure caps clarified, the next lever for growth is execution at scale, which depends on a digital operating backbone that embeds regulatory guardrails into daily workflows. The sector is also heading towards multi-product, customer-first rather than product-first institutions.

Delivering the inaugural address at the conference, M Nagaraju, Secretary, Department of Financial Services, Government of India said, “The number of MFI borrowers have reduced by over 1 crore, and the loan outstanding has reduced by over Rs 1 lakh crore, over the last 18 months, due to the self-regulation guardrails by MFIs. There are about 300 million people who are not covered by formal credit, MFIs can play a role in bringing formal credit to the underserved. The Government is committed to supporting the MFIs in advancing financial inclusion.”

MFIs alone serve over 6.72 crore customers, 95% of whom are women, underscoring their vital role in extending credit to underserved and low-income households. About 91% of loans obtained through MLIs were used for income generation activities.

Shaji KV, Chairman, NABARD said, “NABARD has been supporting the farmers in agricultural activities, as the farmers expand their income sources to non-farm activities MFIs can play a role in extending credit for non-farm related income opportunities. Additionally, NABARD will continue to partner the MFIs in building their capacity through trainings.” An MoU for an accelerator program for capacity building of smaller MFIs, was signed between Sa-Dhan and NABARD at the conference.

The MFIs are now actively taking steps to understand the entire household’s financial service requirements, which may include loans from moneylenders, secured loans like against gold, rather than focusing on the customer. Microfinance is shifting from group-based solidarity to individual responsibility, the Joint Liability Group provided social collateral through peer monitoring and shared norms, as borrowers mature, many now prefer direct relationships with lenders and are comfortable managing repayments.  MFIs have improved their ability to assess borrower-level risk with the use of analytics to draw on bank statements, UPI sales patterns, geo‑tags and even image analysis of micro‑enterprises to estimate turnover and stability. Field knowledge of local markets and the relationships built by loan officers complement these tools, producing a more accurate view of an individual's cash flows and repayment capacity.

Jiji Mammen, ED & CEO, Sa-Dhan said, “The reduction in loan accounts and the contraction in loans outstanding reflect a deliberate recalibration by microlenders. The reduction has not been driven by a decrease in demand but by an intentional shift by the industry towards risk management. This period is being described as laying the groundwork for quality growth, with trust, conduct, and operating discipline at the core.”

Access to affordable, diversified funding remains one of the sector’s defining challenges. Some institutions have flagged high borrowing costs as a constraint on growth and customer affordability, emerging trends include greater interest in market-based funding, securitisation, and impact-aligned capital pools. In addition, workforce development has become a strategic imperative, not a peripheral issue, it is only with a motivated, digitally skilled, and retained workforce can operational quality and customer engagement be sustained.

With 85.5% of Indian households owning at least one smartphone in FY2025, digital channels are increasingly poised to serve the expansion of the microfinance market. Asim Parashar, Partner, PwC said, “Use of technology could be central to delivering the sector’s new growth, by providing consistent conduct at scale, sharper risk selection, and better customer experience. While technology is enabling digitisation of processes, challenges such as costs, legacy systems, and digital literacy can be addressed with phased rollouts, the right partners, and close alignment with industry policies.”

A White Paper, ‘Future of Microfinance: Propelling Growth, Fuelling Prosperity’, was also released at the conference; it is based on a survey of MFI executives conducted by PwC and Sa-Dhan in Sept-Oct 2025. The paper discusses some of the major changes in the microfinance sector, and core strengths—deep field presence, social capital built through group structures, and a long-standing emphasis on women’s empowerment.

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Padma Shri Aloysius Prakash Fernandez was also facilitated in recognition of his outstanding contribution to Women Empowerment and Financial Inclusion. The conference had participation from Sri Lanka & Myanmar as well, as delegates.