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NBFCs and microfinance institutions play a significant role in the country’s credit system. Demand for credit remains strong among MSMEs, rural businesses, and first-time borrowers. These institutions are the key economic support for small businesses, the self-employed, and rural households.
However, the real problems are no less despite the demand. Many NBFC with an in-hand NBFC license are still not getting adequate liquidity. Loan recovery is being delayed in the microfinance sector. Asset quality is also under pressure in some regions. So, it is difficult to give new loans and manage old loans.
So, policy support is very important. It needs structural reforms, such as credit guarantees, refinance facilities, and a strong recovery mechanism. The entire industry is expecting this direction from Budget 2026.
The NBFC sector has shown a stable performance overall in FY25. There was a good demand for MSME loans, retail loans, and gold loans. However, stress is clearly visible in the microfinance segment. In some regions, over-borrowing, regulatory tightening, and delays in collections have affected the quality of the portfolio.
The challenges are even greater for institutions operating in rural and semi-urban areas. Here, the income of customers is irregular, making recovery time-consuming. Moreover, the cost of bank loans has increased. This also increased the funding cost of NBFCs.
Many small and medium enterprises are not able to adapt quickly due to the strict regulatory norms. In this situation, the sector needs not just temporary relief, but also long-term and structural policy support. This helps them to operate their lending activities sustainably.
The biggest expectation of industry leaders from Budget 2026 is a strong credit guarantee scheme. The risk is high while lending to MSME and micro customers. If there is a guarantee, a part of the risk can be shared with the government. This reduces the pressure on lenders, and customers can also get loans at lower interest rates.
Small MFIs with a MFI registration certificate are the most affected because they don’t have a large balance sheet, and their risking capacity is also limited. They cannot expand into new areas without guaranteed support.
According to industry experts, the introduction of a new and expanded guarantee scheme will increase financial inclusion. In addition, it will promote regular loan repayments and trustworthiness among lenders and borrowers in the system.
The Co-Lending Model is gradually gaining importance in the NBFC sector. Banks and NBFCs lend together, benefiting the low-cost funding for large institutions and enhances the local experience of NBFCs.
Co-Lending reduces the cost of loans, makes recovery more predictable, and loan disbursement is also safer. This model can be more effective if the risk-sharing framework is strengthened with government support.
Budget 2026 can play a big role here. NBFCs lend with confidence with clear policies, guarantee support, and incentives are provided. This will maintain the flow of credit and will not create additional risks.
Understand how the upcoming budget may impact NBFCs, microfinance institutions, and inclusive lending policies.
One of the biggest problems for NBFCs is liquidity. In many cases, they raise money from short-term sources and lend for long terms. This mismatch creates stress, especially during times of economic uncertainty.
So, refinance windows are so important. A stable and reliable refinance system allows NBFCs to access long-term funding at a lower cost. This keeps lending operations stable and avoids sudden funding crises.
The industry has been demanding a dedicated refinance structure for NBFCs, similar to the National Housing Bank. This will strengthen MSME and rural lending operations. NBFCs will be able to extend new loans and better serve their existing customers with long-term funding readily available.
In the table given below, you will get few focus areas with industry expectations, from the budget 2026:
The minimum limit for loan recovery under the SARFAESI (Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest) Act for NBFCs is ₹20 lakh. This limit is not effective for small-ticket loans. So, loan recovery for micro and small businesses is delayed.
Industry leaders are demanding a reduction in the threshold from ₹20 lakh to ₹1 lakh for this reason. This will enable NBFCs to take prompt action even in small-amount secured loans. It will also be possible to maintain parity with banks and housing finance companies.
If the SARFAESI Act reform is implemented, the recovery process will be faster. Also, the asset quality will improve. This will strengthen the NBFC sector and help in controlling risks in the long run.
Get clarity for the threshold amount for few categories given in the table below:
Digital lending is growing rapidly. Technology has made loan disbursement easier and faster. But there are risks for the absence of clear and stable policies in this sector.
Industry experts expect uniform and consistent rules for digital lending from Budget 2026. This will increase transparency and ensure customer protection. Consent data sharing and a robust `data infrastructure is also essential for data usage.
Risks can be controlled through the proper use of technology. Advanced analytics and digital tools can help NBFCs safely extend loans and build trust in the entire system.
NBFCs and microfinance institutions have a big role in providing credit to rural and semi-urban areas. Where bank presence is low, these institutions become the financial backbone of small businesses and households. Women-led enterprises get the opportunity to start and grow their businesses through microfinance, with support through MSME registration.
Linking social protection with credit is essential in this sector. Credit-linked insurance or security programs help protect customers during times of crisis. Policy benefits also need to reach the ground level quickly. If Budget 2026 strengthens last-mile credit delivery, inclusive growth will be further deepened.
Looking ahead to FY26, there is optimism about the NBFC sector. According to industry experts, the total AUM growth of 12-18% for NBFCs is expected. MSME loans, retail credit, and gold loans will be the key drivers of this growth.
The recovery in the microfinance sector is likely to be slow. Due to asset quality pressure, the recovery is likely to be 4-15%. So, the policy decisions of Budget 2026 are very important. Sustainable growth will be possible while keeping risks in check with the right support.
In the given table, you will know growth projections for the financial year 2026 in different segments, see below:
EV financing is emerging as a new opportunity in the NBFC sector. Lending is increasing demand for electric vehicles. High capital cost and residual value risk remain major challenges.
The industry is demanding partial credit guarantees for EV loans. EV financing and modern lending support will reduce the risk of lending. If Budget 2026 provides targeted policy support to this new segment; green finance and new types of credit will move forward faster.
The expectations of NBFCs and the microfinance sectors from the Budget 2026 are clear. These are Strong credit guarantees, dedicated refinance support, and SARFAESI reforms.
NBFCs will be able to reach out to more people while controlling risks with the right policy support. This will benefit MSMEs, rural enterprises and women entrepreneurs.
The right advice and compliance support are required to keep pace with these changes. That is why, Enterslice, a trusted advisor to NBFCs, MFIs, and financial institutions. Our professionally experienced team provides the necessary guidance in regulations, structuring, and policy changes.
NBFCs are looking at Budget 2026 as it sets the direction for their future work. Although there is a demand for credit at present, in this funding costs, recovery issues and policy uncertainty are major challenges. If credit guarantees, NBFCs will be able to lend more stably with refinance support and recovery reforms.
A credit guarantee scheme reduces the risk for lenders. Since the government incurs a part of the risk, NBFCs and MFIs can easily lend to MSMEs and small borrowers. The interest rate is comparatively low. New and small businesses also get easy access to credit and grow their business.
Microfinance institutions work with low-income customers. The income of these customers is often irregular, resulting in delayed recovery. Regulatory tightening and funding issues have also increased in recent times. So, they need credit guarantees, refinance facilities, and clear policy support to survive.
A refinance window is a mechanism where NBFCs can access long-term and low-cost funds. Normally, NBFCs borrow money from short-term sources and lend for long-term. This mismatch creates pressure. With refinance facilities, funding remains stable and lending activities are not hampered.
The SARFAESI limit for NBFCs is ₹20 lakh. This is not effective for small loans. If this limit is reduced to ₹1 lakh, NBFCs will be able to recover the small secured loans faster. This eases the recovery process, improves asset quality, and reduces financial stress.
There are several reasons behind the slow recovery of microfinance. There has been over-borrowing in some regions. Customer income is not stable. In addition, there are regulatory changes and collection problems at the field level. All these reasons are responsible for the slow recovery of microfinance portfolios.
Digital lending is growing rapidly without clear rules. The customer’s credentials, transparency, and responsible lending are at risk. Clear policies increase trust, allowing fin-tech and NBFCs to safely use technology to increase lending with customer protection.
Rural and semi-urban areas often have a low bank presence. NBFCs and MFIs provide loans to small businesses, agri-based activities, and self-employed individuals. They play a big role in women entrepreneurs. These institutions increase financial inclusion by extending credit to the last mile.
The NBFC sector is expected to grow by 12-18% in AUM in FY26. MSME loans, retail credits and gold loans will be the main drivers of this growth. However, the recovery in microfinance may be relatively slow. The policy support of Budget 2026 can stabilize this growth.
Understanding the new rules, framework, and compliance after Budget 2026 can be a challenge for NBFCs. Enterslice can be a good partner in this. We help in assisting with regulatory compliance, business structuring, and policy changes. This will allow NBFCs and MFIs to adapt to the new budget changes.
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