The Rural Credit Rush

Microfinance Firms and Fintechs are looking to cash in on demand for credit in rural india which is expected to rise along with a surge in consumption.

- Jui Mukherjee

Ranu Kalita is a weaver living in the small riverside town of Changsari near Guwahati in Assam. A year ago, she and her husband were struggling to make ends meet. But then their fortunes turned when a microfinance company lent her 30,000 with which she started a small weaving business at her house. Today, the 38-year-old is a proud entrepreneur who earns around 200-300 a day. Her husband, too, helps in running the business and her family is now in a better financial position.

Prema, who used to be a food cart operator in Avadi near Chennai in Tamil Nadu, has a similar story. She took a loan of 35,000 from a microfinance company with which she set up a catering business on rented premises. Her daily income then shot up from around 600 to 1,500.

Kalita and Prema represent the dreams of thousands in small towns and villages across India who have turned around their lives because of small-ticket loans from microfinance organisations and fintech startups. The lenders are looking to cash in on demand for credit in rural India which is expected to rise along with a surge in consumption.

Data released by Microfinance Institutions Network, a national body for non-banking finance company-micro finance institutions (NBFC-MFIs), shows that NBFC-MFIs, which focus on lending in rural India, account for the largest chunk of the loan portfolio of the microfinance industry. They made up 54,018 crore of total loans of 1,46,741 crore in the second quarter of the fiscal year ending 2019, up 50% from the year-ago period. Banks have the second largest share at 48,200 crore and NBFCs are next at 17,588 crore.