Budget 2026: Microfinance, NBFC leaders seek credit guarantee and faster recovery tools

As the Union Budget 2026 approaches, leaders across the NBFC and microfinance ecosystem expect the government to prioritise liquidity support, stronger risk-sharing frameworks and policy clarity to sustain credit flow to MSMEs, first-time borrowers and underserved segments.

Industry executives say demand for retail and small business credit remains resilient, but lenders now want structural support to manage funding costs, asset quality pressures and recovery timelines—especially in rural and semi-urban markets.

Credit guarantees emerge as a key ask for micro borrowers and MSMEs

Shubha Bhanu, Associate Partner, MicroSave Consulting (MSC), said the sector expects relief measures, particularly through a new credit guarantee scheme that can help smaller MFIs expand outreach and support borrowers.

She said the move would be timely, as the microfinance sector faced stress over the past year due to localised over-indebtedness, regulatory tightening, portfolio quality pressures and funding challenges.

Several NBFC leaders also flagged the need to expand guarantee cover to strengthen credit availability while lowering lender risk.

Manish Shah, MD & CEO, Godrej Capital, said the Budget can support financial deepening by strengthening risk-sharing structures such as credit guarantees and co-lending frameworks, which can help reduce borrowing costs and improve repayment predictability.

NBFCs seek refinance windows and better access to long-term capital

Experts expect the Budget to address funding friction by improving access to stable and longer-tenure capital.

Deepak Aggarwal, Co-founder, Co-CEO and CFO, Moneyboxx Finance, said the government should place rural and semi-urban MSMEs and first-time borrowers at the centre of its inclusion agenda, with NBFCs acting as the primary conduit of formal credit in these markets. He called for a structured refinance mechanism for MSMEs and priority-sector lending to ensure uninterrupted and affordable credit.

Similarly, Ravi Narayanan, MD & CEO, SMFG India Credit, said Budget 2026–27 should focus on three structural priorities—liquidity support, recovery mechanisms and tax relief. He called for a dedicated refinance window for NBFCs, similar to the National Housing Bank (NHB), and expanded credit guarantee coverage for MSMEs and micro borrowers to lower funding costs.

In a separate statement, Abhimanyu Munjal, MD & CEO, Hero FinCorp, said Budget 2026 provides an opportunity to strengthen the inclusive credit ecosystem, and that continued policy support for NBFCs through better liquidity access, greater access to long-term capital and a balanced operating environment will help accelerate credit flow to underserved segments.

SARFAESI threshold cut becomes a recurring demand

Multiple industry leaders reiterated the need to lower the SARFAESI Act’s minimum loan threshold for NBFCs from ₹20 lakh to ₹1 lakh, saying it can improve recovery efficiency and support asset quality.

Bhupinder Singh, Promoter & CEO, InCred Holdings, said India’s retail credit market continues to see a structural upswing driven by rising consumption and deeper financial inclusion.

He said one decisive reform could further strengthen the ecosystem: lowering the SARFAESI threshold for NBFCs to ₹1 lakh to restore parity with housing finance companies (HFCs), shorten recovery cycles and improve asset quality.

Narayanan also backed the same proposal, stating that aligning SARFAESI thresholds with banks and HFCs could strengthen recovery efficiency and help contain asset quality risks.

Industry seeks regulatory clarity for responsible digital lending

Fintech-linked lenders and credit platforms also expect policy clarity around digital lending, with a focus on transparency and consumer protection.

Rohit Garg, CEO, Olyv, said the Budget should deepen trust, transparency and access within the formal lending system. He called for consistent policy frameworks for digital lending, stronger data infrastructure and continued emphasis on financial literacy to ensure responsible credit delivery. He also highlighted the importance of collaboration between fintechs and regulated lenders with consumer protection at the core.

Highlighting technology-led underwriting, Joydip Gupta, APAC Head, Scienaptic, said India should manage credit growth in a way that keeps it sustainable and healthy.

He said stronger digital lending infrastructure and analytics-driven credit appraisal can help lenders scale without taking undue risk, and added that support for responsible use of advanced analytics and fraud prevention can strengthen trust in the system.

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Rural livelihoods, women entrepreneurship and MSME resilience in focus

Leaders in the microfinance space expect Budget priorities to remain aligned with inclusive growth, particularly in semi-urban and rural regions.

Aditi Singh, Chief Strategy Officer, Satin Creditcare, said institutions working at the grassroots expect sustained focus on rural livelihoods, women entrepreneurship and MSME resilience. She also pointed to the need for stronger support for credit-linked social security programmes, faster transmission of policy rate changes and continued emphasis on housing and clean energy to widen last-mile economic participation.

From an ecosystem standpoint, Umesh Revankar, Executive Vice Chairman, Shriram Finance, said the Budget’s broader expectation is continued support for India’s growth priorities with a strong focus on implementation. He said industry discussions have centred on incremental enabling measures such as improving operational efficiency in funding flows, making refinancing channels more accessible and providing a level playing field in the use of SARFAESI, while remaining aligned with responsible lending and underwriting practices.

Growth outlook remains steady, but microfinance recovery may stay uneven

Narayanan said overall credit demand remains healthy, but the sector is entering a phase of moderated growth. He expects NBFC AUM growth in FY26 in the range of 12–18%, led by MSMEs, gold loans and retail credit, while microfinance portfolios may see a slower recovery of around 4–15% amid asset quality pressures.

Narayanan also flagged reforms such as easing regulations around factoring services and accelerating adoption of TReDS platforms to enable faster working capital cycles for MSMEs.