NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Wednesday, August 27, 2014

Microfinance institutions (MFIs), which evolved as precursors of the rural thrift credit market in India, are now shifting to urban areas, with big slums in cities turning out to be cost-effective markets over small villages in far-flung locations. In a short span of nearly five years, the urban microfinance market has cornered one-third of the gross loan portfolio of MFIs. The industry expects the ratio to change to 50:50 over the next three years.

Barring the two old-generation MFIs-Bandhan and SKS-the next four top MFIs have nearly 70 per cent of their portfolio focused on urban areas.

Taking a cue from the success of the urban MFI sector, Bandhan, which is expected to transform into a bank soon, will replicate its rural microfinance market in urban areas too.