NBFC-MFIs Pivot to MSME and Gold Loans as RBI Lowers Qualifying Asset Requirement to 60%
Indian microfinance institutions (NBFC-MFIs) are recalibrating their core operating models, transitioning from mono-line unsecured group lending platforms to diversified retail and small-business financiers. Spurred by the Reserve Bank of India’s (RBI) revised qualifying assets criteria, lenders are ramping up their exposures to micro, small, and medium enterprise (MSME) loans, gold loans, loans against property (LAP), and affordable housing.
The strategic pivot comes as the sector actively tackles asset quality headwinds and over-leveraging concerns in traditional Joint Liability Group (JLG) unsecured borrowing.
Regulatory Catalyst: The 60% Rule
Under previous RBI norms, NBFC-MFIs were required to deploy a minimum of 75% of their total assets (net of intangibles) into qualifying microfinance loans—defined as collateral-free credit extended to households with an annual income not exceeding ₹3 lakh. The central bank lowered this qualifying asset threshold to 60%, granting lenders the flexibility to allocate up to 40% of their balance sheet to non-microfinance assets.
This revision provides NBFC-MFIs with operational headroom to build secured loan books, mitigate concentration risks, and insulate their balance sheets against external economic shocks that historically plague unsecured rural portfolios.
Strategic Push into Secured Products
Leading players, including CreditAccess Grameen, Satin Creditcare Network, Spandana Sphoorthy Financial, and Arohan Financial Services, have begun curbing pure-play unsecured exposure in favour of collateral-backed assets.
Key Focus Areas for Portfolio Diversification:
- Gold Loans: Micro lenders are scaling gold-backed financing to deliver rapid liquidity to rural and semi-urban entrepreneurs while securing an immediate collateral buffer.
- Secured MSME and LAP: Lenders are extending higher-ticket credit to small enterprises, backed by residential or commercial properties and business cash flows.
- Borrower Graduation: Mature borrowers with clean track records in the JLG ecosystem are being transitioned into individual retail loans, enhancing customer retention and lifetime value.
According to industry data, the share of non-microfinance loans in the sector's total assets under management (AUM) expanded from 6% to 14%, with projections indicating it could reach approximately 18% by the end of FY27. Ratings agency CRISIL anticipates overall MFI sector AUM growth to rebound to around 20% in FY27, up from 4% in FY26, largely powered by secured product diversification alongside a gradual recovery in core microfinance disbursements.
Capital Efficiency and Risk Management
Secured asset classes offer clear capital benefits under RBI prudential guidelines. While unsecured microfinance credit typically attracts a 100% risk weight, secured exposures often carry lower risk weights in the range of 50% to 75%, moderating overall capital consumption. This capital efficiency, paired with stronger recovery prospects during stress periods, is expected to reduce credit loss volatility by 10% to 15% during downturns.
However, sector analysts and rating agencies caution that long-term execution will hinge on underwriting discipline. Venturing into MSME credit and collateralised financing requires specialized appraisal mechanisms, robust legal verification infrastructure, and revamped collection setups distinct from standard group meeting routines. Lenders that successfully integrate analytics-based underwriting and build specialized secured lending verticals stand to achieve more stable asset quality profiles and improved valuation multiples in public markets.
