From Groups to Individuals: The Next Chapter in Microfinance

For decades, microfinance has been synonymous with group lending models—self-help groups or joint liability groups where women collectively borrowed, supported each other, and built financial discipline. This approach helped millions climb the economic ladder, especially in rural India.

But today, a new chapter is unfolding. Across the world—and increasingly in India—there is a shift from group-based lending to individual credit solutions. This transition isn’t just about loans; it’s about personalized finance, greater autonomy, and the opportunity to build stronger household-level financial independence.

So what’s driving this move from groups to individuals? The panelists highlighted several key forces:

Borrower Maturity – After two decades of microfinance, many borrowers now have a proven repayment history. With records across credit bureaus, lenders are more confident in assessing individuals directly.
Larger Loan Requirements – At smaller ticket sizes, underwriting a neighbor’s loan may work. But when loan amounts rise to ₹1–2 lakh or more, borrowers prefer relying on their own credibility rather than collective liability.
Competition & Choice – New-age lenders are offering customized, unsecured individual loans at competitive rates. Borrowers increasingly prefer one larger loan over juggling multiple smaller group loans.
Regulatory Push – Guidelines such as caps on unsecured borrowing per borrower are nudging MFIs to rethink models and diversify into individual loans.
Government & Policy Support – Initiatives like digital land records and property ownership certificates are making collateralization easier, opening the door for larger, longer-tenor loans at better rates.

Technology & Payments Revolution – With UPI, digital disbursement, and app-based repayments, the logistical need for center meetings has diminished. Technology has made individual transactions cheaper, safer, and scalable.

Perfios has introduced an AI-powered assistant for credit underwriting—a tool designed to accelerate the interpretation phase without taking away human judgment.

Here’s how it works:

The AI agent is trained like an underwriter, not just on data points.
It ingests all relevant documents—bank statements, GST, ITRs, credit bureau data, litigation checks, and more—and creates a consolidated data lake for each application.
Underwriters can then converse with the AI: ask questions, request detailed risk analyses, or test financial projections.
Guardrails ensure the AI only works with validated application data, eliminating hallucinations and ensuring reliability.

For example:

Ask, “Is the current profit after tax sufficient to cover incremental financial costs?” and the AI instantly analyzes the applicant’s financials.
Request, “Do a projection if a new manufacturing unit increases capacity by 35–40%,” and the AI generates scenario-based forecasts within seconds.

What once took 2–3 days of manual effort now happens in minutes, with complete audit trails for compliance and post-loan monitoring.

As the industry evolves, AI and advanced analytics are emerging as critical enablers. They make it possible to:

Assess income without formal documents like GST or ITR, using alternative data points.
Create household-level risk profiles instead of relying only on group guarantees.
Automate reminders, customer education, and financial literacy programs via mobile apps and short videos.
Even in niche areas like cattle financing, AI tools are being piloted to evaluate livestock health and productivity.

In short, AI is making individual lending viable, affordable, and less risky—something unimaginable just a few years ago.

Microfinance has long emphasized financial literacy for women borrowers. But with digitization, the next frontier is digital literacy helping borrowers confidently use UPI apps, mobile banking, and online repayment tools.

At the same time, cybersecurity awareness is crucial. Wrongful use of technology, phishing, and AI-driven scams could undermine trust in the very systems meant to empower. Regulators, MFIs, and fintechs must work together to balance access with safeguards.

Individual lending also unlocks opportunities to serve new-to-credit (NTC) customers:

Men in the household, who were traditionally outside MFI lending.
Gig workers and informal economy participants with irregular incomes.
Micro-entrepreneurs looking to scale beyond small-ticket loans.

Lenders must develop innovative underwriting models that go beyond documents and dig into the economics of real livelihoods—whether that’s small trade, agriculture, or gig work. Done right, this could expand credit access to millions more underserved households.

One of the strongest themes from the discussion was the need for partnerships. MFIs bring trust, reach, and borrower relationships. Fintechs bring agility, technology, and risk-scoring innovations. Together, they can:

Lower operational costs in disbursement and collections.
Scale customized products more efficiently.
Develop sustainable co-lending or correspondent models under regulatory oversight.

This kind of ecosystem collaboration will be critical to balance innovation with stability in microfinance.

The shift from groups to individuals in microfinance is not a rejection of the past—it’s a natural evolution. Group lending created the foundation for inclusion, trust, and discipline. Now, with technology, regulation, and borrower maturity, the industry is ready for the next step: personalized microfinance that empowers individuals and households to achieve greater financial independence.

The transition will take time, and both models will coexist. But if guided thoughtfully, this evolution could redefine financial access for millions, making credit faster, fairer, and more future-ready.