Over the past two decades, India’s microfinance sector has evolved significantly, responding to the diverse financial needs of low-income households. As many microfinance clients progress through their third or fourth loan cycles, a new demand has emerged—higher ticket size (HTS) loans tailored to the evolving capabilities and livelihood aspirations of these now more experienced and financially disciplined borrowers.
There is a paradigm shift underway: long-standing microfinance clients are gradually transitioning into a more economically stable segment that requires larger loans to support growing businesses or household needs. However, despite their demonstrated credit discipline, many of these clients are unable to access mainstream financial products due to the absence of formal income documentation.
This emerging segment presents a clear opportunity for microfinance institutions (MFIs) to innovate. Catering to these borrowers through HTS loans can meet their financial needs and help retain them within the inclusive finance ecosystem. However, responsible growth in this space requires a fundamental shift in underwriting practices.
While traditional Joint Liability Group (JLG) loans often rely on subjective assessments by field staff, HTS products demand structured, data-driven underwriting frameworks to ensure both borrower suitability and portfolio quality.
MFIs can leverage several objective assessment tools to validate borrower income and repayment capacity:
- • ABB (Average Bank Balance): Calculated from the average daily balances over 8–10 days per month across the year.
- • BTO (Banking Turnover): Assesses monthly credits to estimate cash flow consistency.
- • GST returns, ITR filings, and digital sales registers: Particularly relevant for small business owners and traders.
- • Account Aggregator frameworks: Enable secure access to financial data for improved credit assessment.
The introduction of dedicated credit underwriting teams, either at the field level or through centralized hubs, is key to executing this approach. These teams, equipped with business acumen and financial analysis skills, can independently verify and cross-assess loan proposals—ensuring that lending decisions are rooted in economic viability and not just customer intent.
Digital Integration and Risk Mitigation
HTS clients, due to their higher financial awareness and transaction history, are well-suited for digital lending models. These customers can be transitioned to cashless collections, with repayments facilitated through mechanisms like UPI AutoPay—streamlining operations while reducing collection risks.
However, to fully realize the benefits of digital integration and minimize delinquencies, a robust risk assessment framework must be in place. This includes a clear understanding of household income, Fixed Obligation to Income Ratio (FOIR), and other financial indicators, enabled through digital underwriting tools and data partnerships.
Rethinking Product Design in a Post-COVID Era
Post-pandemic, the traditional microfinance model of center-based JLG meetings has started to fade. Borrowers increasingly prefer individualized loan engagements with minimal formalities, prompting a shift in product delivery mechanisms. To remain relevant, MFIs must redefine product offerings—including secured, unsecured, or quasi-secured HTS loans—to better align with customer preferences and regulatory expectations.
In conclusion, the next phase of microfinance in India will be defined by its ability to serve mature borrowers with diverse financial needs through innovative, scalable, and responsible lending practices. The introduction of higher ticket size loans, underpinned by detailed and objective underwriting, represents a compelling growth avenue—one that supports borrower progress while safeguarding institutional sustainability. As the sector continues to evolve, MFIs must rise to the challenge—embracing data, technology, and credit discipline to offer products that are not only inclusive but also transformational.
Manish Kumar
(Mr. Kumar is a Deputy Business Head, Arohan Financial Services Limited, an Aavishkaar Group company – views expressed above are personal).