Secured micro-lending, a cornerstone of inclusive finance, refers to loans extended to underserved segments against collateral, typically ranging from microfinance loans, MSME loans, and housing loans. This space caters to ticket sizes up to half a million rupees, offering opportunities to individuals and businesses otherwise excluded from formal credit systems. But, has this sector reached a critical inflexion point in India?
In recent years, India has started witnessing challenges in secured micro-lending, with over-leveraged borrowers / households emerging as a key concern. Many middle- and lower-income families, seeking to unlock capital for livelihood or emergency needs, have found themselves trapped under increasing debt burdens. In addition, higher consumerism and hence increasing aspiration especially from younger generation in this segment has also driven higher credit offtake in the unsecured segment driving higher leverage for the household. This rising household indebtedness not only threatens borrowers' financial stability but also raises alarm bells for lenders, policymakers, and the broader financial ecosystem.