Micro Lending Market by Provider (Banks, Micro Finance Institutions (MFI), Non-Banking Financial Institutions (NBFC)), End-user (Micro, Small & Medium Enterprises (MSMEs), Solo Entrepreneurs & Self-employed), & Region for 2024-2031

Micro Lending Market Valuation – 2024-2031

Micro Lending Market size was valued at USD 180.2 Billion in 2024 and is projected to reach USD 403.63 Billion by 2031, growing at a CAGR of 11.7% during the forecast period 2024-2031.

The increasing number of peer-to-peer (P2P) lending platforms, which link individual lenders and borrowers and offer flexible terms and competitive interest rates while utilizing digital technologies to expedite the lending process and lower operating costs, is fueling the micro-lending market’s potential for significant growth. This makes it a popular option for both lenders looking for higher returns and borrowers in need of easily accessible financing options. According to the analyst from Verified Market Research, the micro lending market is estimated to reach a valuation of USD 403.63 Billion by 2031 over the forecast subjugating around USD 180.2 Billion valued in 2024.

With the growing need for easily accessible financial services in developing nations where traditional banking options are limited, the microlending market is expanding rapidly. This enables individuals and small business owners to obtain funding for both personal and business needs as well as business expansion. It enables the market to grow at a CAGR of 11.7% from 2024 to 2031.

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Micro Lending Market: Definition/ Overview

Micro-lending, also known as microfinance, is the providing of small loans to individuals or enterprises that do not have access to standard banking services, allowing them to meet their financial needs without demanding collateral. This financial service is especially useful for low-income entrepreneurs and small business owners, allowing them to fund a variety of activities such as launching new businesses, purchasing goods, managing day-to-day operational expenditures, and dealing with unexpected expenses. Micro-lending is important for promoting financial inclusion, empowering underprivileged groups, and supporting economic development in emerging countries since it offers variable loan amounts and repayment durations.

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What are the Key Factors Supporting the Micro Lending Market’s Growth?

The substantial unbanked population in emerging countries is a key driver of the microlending market. According to the World Bank’s Global Findex Database 2021, around 1.4 billion adults worldwide remain unbanked. In low- and middle-income nations, 71% of people own a bank account, up from 63% in 2017. This large unbanked population represents a huge potential market for microlending services, which is fueling market expansion.

The proliferation of smartphones and digital banking services makes microloans more accessible. According to the GSMA’s Mobile Economy Report 2022, the number of mobile internet users is predicted to increase from 4.2 billion in 2021 to 5 billion by 2025, with the majority of this growth occurring in developing nations. This increased interconnectedness empowers fintech companies and traditional lenders to reach previously underserved populations, thereby expanding the micro lending market.

Furthermore, government laws and regulations are promoting the growth of the microlending market. For example, the Reserve Bank of India announced that the microfinance industry’s gross loan portfolio increased by 10.1% year on year to Rs 2.56 trillion (about USD 31 Billion) as of September 30, 2021. This increase is ascribed in part to the Indian government’s financial inclusion objectives and favorable regulatory environment for microfinance companies.

What are the Challenges Influencing the Demand for Micro Lending Services?

Borrower risk and default rates provide substantial concerns for the microlending market. Many customers have little or no credit history, making it difficult for lenders to determine their creditworthiness effectively. This high-risk environment raised default rates, reducing the profitability and viability of microfinance firms. As a result, lenders become more cautious, potentially limiting access to loans for people who need them the most.

Furthermore, microfinance institutions have substantial operational costs because they must conduct extensive outreach to rural or disadvantaged communities. These expenses cover loan distribution, collection, and customer service. As a result, the very small loan amounts available in microlending make it difficult for institutions to establish economies of scale, compromising their overall financial sustainability and ability to extend their services.

Category-Wise Acumens

How Does Accessibility to Underserved Populations Propel the Growth of Micro Finance Institutions?

According to VMR analysis, the micro finance institutions (MFI) segment is estimated to hold the largest market share during the forecast period. MFIs are specifically created to serve low-income individuals and communities who often do not have access to standard banking services. By focusing on these disadvantaged communities, MFIs provide critical financial support, allowing borrowers to start or expand small companies, driving demand, and solidifying their market dominance.

MFIs provide a variety of customized financial products to meet the specific needs of their consumers, such as flexible repayment plans and reduced loan sizes. This versatility not only attracts a varied clientele but also encourages borrower loyalty, increasing MFIs’ market share by effectively meeting the specific financial needs of their target demographic.

Furthermore, many governments, particularly in developing nations, have adopted advantageous laws and regulations to encourage the establishment of MFIs. These supportive measures include incentives for lending to low-income populations, which improves MFIs’ operational viability and supports their expansion, cementing their market leadership.

How do Micro, Small & Medium Enterprises (MSMEs) Support the Growing Demand in the Market?

The micro, small & medium enterprise (MSME) segment is estimated to dominate the micro lending market during the forecast period. The essential need to have access to capital for expansion and operational sustainability is one of the main forces behind the MSME segment’s dominance. Microlending provides these businesses with the necessary funds to invest in inventory, equipment, and expansion activities, all of which are critical to their competitiveness and survival in increasingly difficult markets. This financial support enables MSMEs to innovate and adapt, hence promoting economic development.

Government activities and policies fostering entrepreneurship and economic development considerably benefit the MSME segment of the microlending market. Many governments in developing nations have enacted favorable legislation and financial incentives to promote microlending, recognizing its importance in job creation and poverty alleviation. These supportive initiatives increase the attractiveness of microloans for MSMEs, hence increasing their market share.

Furthermore, the MSME segment’s dominance is also largely due to the increasing emphasis on financial inclusion. Many MSMEs operate in underserved markets with limited access to standard financial services. Micro-lending bridges this gap by making funding more accessible, boosting small enterprises, and contributing to economic stability.

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Country/Region-wise Acumens

How Does Large Unbanked Population Drive the Micro Lending Services in the Asia Pacific Region?

According to VMR analyst, Asia Pacific is estimated to dominate the micro lending market during the forecast period. The Asia Pacific region has a sizable unbanked population, resulting in a massive market for microlending services. According to the World Bank’s Global Findex Database 2021, around 24% of adults (or approximately 420 million people) in East Asia and the Pacific do not have access to banking services. In South Asia, the proportion is much higher, at 30% (or nearly 540 million adults). This large unbanked population is a key driver of microlending expansion in the region.

The Asia Pacific region is rapidly adopting digital financial services, allowing for easier access to micro loans. According to the GSMA State of the Industry Report on Mobile Money 2022, the number of mobile money accounts in East Asia and the Pacific increased by 68% year on year in 2021, reaching 183 million. This digital transition allows microlenders to reach previously underserved communities more efficiently, resulting in market growth.

Furthermore, supportive government policies and shifting regulatory frameworks are boosting Asia Pacific’s microlending market. For example, in India, a prominent market in the area, the Reserve Bank of India announced that the microfinance industry’s gross loan portfolio increased by 10.1% year on year to Rs 2.56 trillion (about $31 billion) on September 30, 2021. This increase can be ascribed in part to the Indian government’s financial inclusion objectives and favorable regulatory environment for microfinance institutions.

What are the Main Drivers Propelling the Micro Lending Market in Latin America?

Latin America is estimated to exhibit substantial growth within the micro lending market during the forecast period. Many Latin American countries are enacting policies to promote financial inclusion and microfinance. For example, Brazil’s Central Bank announced that credit operations through Fintechs increased by 239% between December 2018 and June 2021, reaching R$15.7 billion (about USD 3 Billion). This expansion is partly due to favorable policies such as the implementation of open banking systems and streamlined digital account opening procedures.

The growing usage of cell phones and internet connectivity is making microloans more accessible across Latin America. According to GSMA’s The Mobile Economy Latin America 2022 report, the region’s unique mobile internet subscribers are predicted to increase to 424 million by 2025, up from 360 million in 2021. This improved connection, along with fintech innovation, allows microlenders to access previously underserved groups. For example, Ernst & Young’s Global FinTech Adoption Index shows that fintech adoption in Mexico increased from 36% in 2019 to 58% in 2021.

Furthermore, Latin America has a large unbanked population, which creates a big market for microlending services. According to the World Bank’s Global Findex Database 2021, over 45% of people in Latin America and the Caribbean are unbanked. In Brazil, the region’s largest economy, 16% of adults (about 28 million people) lack a bank account. This big unbanked population represents a huge potential market for microlenders, which is fueling market growth.

Competitive Landscape

The micro lending market’s competitive landscape is characterized by a varied range of competitors, including traditional financial institutions, fintech startups, and peer-to-peer lending platforms, all seeking a portion of the growing demand for accessible financial services.

Some of the prominent players operating in the micro lending market include:

• Accion International
• StreetShares
• Funding Circle
• BlueVine, Inc.
• Kabbage, Inc
• On Deck Capital
• Fundera, Inc.
• Lendio
• Kiva
• Lendr

Latest Developments

• In November 2023, Funding Circle and Atom Bank announced a lending collaboration to provide GBP 150 million (USD 180.87 million) in new loans to small enterprises. Atom has committed to lending GBP 800 million (USD 964.65 million) through Funding Circle, in addition to the prior lending of GBP 350 million (USD 422.03 million).
• In April 2023, Wise committed to streamlining money transfers and partnered with Bluevine, a leading provider of small business banking solutions. Bluevine’s all-in-one digital banking account now offers international payments that are more convenient, simple, and transparent thanks to a relationship with the Wise Platform.

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