Proceedings of the Sa-Dhan Conclave on Product Diversification in MFIs: Building Resilient, Responsible & Client-Centric Portfolios

Sa-Dhan is a prominent industry association and self-regulatory organisation for microfinance in India. Yutadhi supported Sa-Dhan as the official Knowledge Partner for the Conclave on Product Diversification in MFIs, held on 21^st May 2026 in Chennai, India.

The microfinance sector comprises a variety of entities regulated by the Reserve Bank of India (RBI)¹ that originate and / or hold loans that fall within the definition of 'microfinance loans' as an asset class under the regulations of the RBI. Over the last 2 decades, the sector has grown in leaps and bounds within the boundaries that various rounds of regulatory directions posed. The 2022 microfinance regulations from the RBI are particularly noteworthy as they replaced the previous, largely prescriptive rules with a more principles-based framework. In particular, the need for household income assessments, the introduction of caps on repayment obligations as a percentage of household income, and the removal of interest rate caps, have given lenders greater flexibility but also increased responsibility for their business practices.

India's microfinance sector has gone through a sharp transition recently: from a phase of rapid credit growth after the Covid pandemic to a phase of stress, tighter regulation, and portfolio clean-up. The RBI's Financial Stability Report (FSR) for Dec 2025 noted a continuous decline in credit to the microfinance sector over six consecutive quarters. Noting signs of improvement in asset quality, it concluded that some stress persists and requires close monitoring.

It is within this context that Sa-Dhan organized a Conclave on Product Diversification in MFIs, to bring sector leaders to deliberate on and to build some consensus on the various possibilities for the sector, the feasibility and benefits to diversification, and the limitations and challenges that arise with it. Yutadhi supported as Knowledge Partner to Sa-Dhan for this Conclave. This Proceedings Report has been prepared by Yutadhi.

The microfinance sector is now at an inflection point from the gradual but steady shifts the regulator has been orchestrating post the pandemic, the global macro-economic shifts affecting business-as-usual scenarios, and domestic shifts in the competitive landscape. The RBI has liberalized the regulatory framework on many aspects, reduced concentration requirements, shifted from prescriptive rules to principle-based supervision (the board-approved policies become the first port of call for supervisors), and emphasized that borrower-focused 'repayment capacity' assessments must be the primary responsibility of the lender. The RBI, rightfully, places a higher burden of proof on lenders to establish that borrowers are not overlent to, that collection practices are fair, and that lenders can demonstrate greater sophistication and robustness in household income, debt and repayment capacity assessments.

The possibility of diversification in loan product offerings presents a set of choices and trade-offs for microfinance lenders. These relate to products that underlying segments may find appealing: whether to only offer collateral-based micro-loans (such as micro-LAPs, gold loans, livelihood-based asset financing), or whether to move into unsecured loans specifically tailored to livelihood-categories or combinations of livelihood categories (such as unsecured business loans). These decisions have implications for the complexities in liquidity and asset-liability management. Strategic choices also exist around whether to go up the income segmentation (incomes > INR 3 lakh), whether to shift to more urban locations, and whether to adopt progressively more digital-only modes of customer-interaction, or not. The latter is a decision that will take time to bear results for the existing customer base characterized by strong repayment histories but lacking in decipherable digital trails. These imperatives can significantly re-configure operational realities for existing microfinance business lines.

The sessions at the Conclave dived deep into specific pre-selected credit products that were already known to be availed by a subset of microfinance customers and therefore fulfilling an existing latent demand by the same or adjacent customer segments. These included unsecured business loans, gold loans, vehicle loans, micro-housing loans, and loans against property (LAP). The Proceedings Report carries summaries of the staging presentations and proceedings of the panel discussions for each of the 4 loan products (the last panel jointly covered gold loans and vehicle loans). For each product, the story has been told from one or more lenses, the most prevalent lens being that of a practitioner who developed (beyond a pilot) a sizeable asset under management (AUM) for the product in their respective organizations, followed by that of consulting agencies who support lenders with strategy and operations, and credit bureaus who support with credit information services to lenders both at the level of the individual borrower and at aggregator sector/ geography/ customer segment levels. Common between much of these products is the need to develop a set of core capabilities, which once built, provide strong foundations on which a variety of product offerings can now become possible.

The key question boiled down to whether lending product diversification makes sense for today's realities. Senior members from the sector shared their reflections on the strategic choices that lay ahead for the microfinance sector.

The discussions are captured in the Proceedings Report.