Microlending Market

Market Overview

The global microlending market size was worth USD 140.15 billion in 2021. It is projected to be valued at USD 350.25 billion by 2030, growing at a CAGR of 13.7% during the forecast period (2022–2030). 

Microlending, also called microfinance, is a type of banking service provided to low-income individuals, groups, or unemployed people who do not have access to other financial services. Like conventional loan lenders, micro-lenders also charge interest on the loan provided to the borrowers. Various individuals are taking micro-loans to set up their businesses, creating job opportunities for others and boosting the economy. Microlending is a primary financial service in the developing countries of LAMEA.

The increased adoption of microlending in developing regions for improving lifestyles, reduced operating costs, and lower market risks considerably promote the growth of the global microlending market. In addition, the rise in the potential of entrepreneurs to bring in new enterprises and start from ground zero with less cash assistance also benefits the expansion of the global market.

Market Dynamics

Global Microlending Market Drivers

• Increased Adoption of Microlending in Developing Nations for Improving Lifestyle

By providing them with financial support, microlending or microfinance is transforming the lives of many people in developing Asia-Pacific and LAMEA countries. The industry is expanding due to increased government programs for microlending in many nations. Additionally, a surge in microlenders aids numerous emerging nations in eliminating poverty and raising living standards for the underprivileged. For instance, a study conducted in Bangladesh found that microfinance was responsible for a 40% decrease in poverty across the nation. Also, many African farmers use microloans to purchase crops, which fuels the market expansion. Further, rural residents borrow money from microlenders to start their enterprises and improve their lifestyles.

With the penetration of smartphones and internet users across the globe, online banking has witnessed significant growth in recent years. Microlending is one of the practical and popular choices for lenders because it offers applicants immediate affordability. In recent years, numerous organizations and people have begun submitting online loan applications rather than engaging in lengthy lending procedures. According to the Federal Reserve, approximately 49% of small firms worldwide applied for loans from banks and non-banking institutions. The industry is expanding due to the simplicity with which borrowers can apply for loans and the numerous advantages lenders enjoy, such as automated loan management and quick approval.

• Lesser Operating Cost and Low Market Risk

Unlike typical banks, a microlending solution doesn't need a significant workforce or infrastructure. The microlending platform uses web-based services to operate. The information is open to the public, and online businesses permit access to their websites, providing customers with a fuller image of the types of loans that are accessible. These lending platforms generate income by charging fees to borrowers and deducting expenses from investor loan repayments, driving the market.

Furthermore, by lowering the cost of physical branches, employees, and branch upkeep, microlending platforms reduce operational expenses, stimulating market expansion. Additionally, the microlending platform offers a proper plan to guarantee the borrower's payback procedure, which lowers the investor's market risk. With the aid of peer-to-peer lending, investors can reduce various market risks, including interest rate, unemployment rate, and property price risk, further boosting the market expansion.

Global Microlending Market Restraint

• High Rate of Interests Levied by Microlenders

The main obstacle to the market expansion is the high-interest rates that microfinance institutions and microlenders charge for various loan amounts. Microlenders prioritize growing their earnings, which results in a short repayment period and excessive fees. Microfinance institutions borrow significant sums of money from banks and other institutions, which causes them to charge high-interest rates and short payback terms that impede market expansion.

Furthermore, since microfinance institutions are not permitted to collect savings as traditional banks do to fund loans, which have a detrimental influence on market growth, numerous microfinance institutions across the world generate capital through private equity. The tightening of government regulations on microfinance institutions also hinders market expansion.

Global Microlending Market Opportunities

• Adoption of Advance Technology in Microfinancing

The rapid use of digital technologies in the microfinance sector to give people new channels and increased earning opportunities spurs market expansion. It is anticipated that improved connections in developing countries and technical advancements in several African and Middle Eastern countries would present profitable opportunities for the market.

Emerging countries' widespread use of cutting-edge technology in microfinance, including mobile banking, ATMs, point-of-sale systems, and others, creates future market opportunities. For instance, the Aadhaar Payment Bridge System is used by the Indian government to offer microloans and other services to citizens all around the nation. Additionally, prominent market players are bringing new technology to increase their market share and give customers a better experience, which is anticipated to create chances for the market in the future.

Regional Analysis

Region-wise, the global microlending market is analyzed across North America, Europe, Asia-Pacific, and LAMEA.

APAC Surpasses Other Regions

Asia-Pacific is the highest revenue contributor and is estimated to grow at a CAGR of 13.2% during the forecast period. China, India, and Japan are some of the major countries that drive the growth of the microlending market in the region. This is attributed to new government policies regarding microlending platforms and growing small-medium-sized businesses across the region. Small and medium-sized commercial banks and non-bank financial institutions have also introduced new microlending services to provide economic support for various small businesses. This provides a lucrative opportunity to boost the growth of the microlending market in this region.

Additionally, the microlending market is highly fragmented in the Asia-Pacific region, owing to many market players indulging in various development such as partnerships, acquisitions, and product launches. For instance, in October 2020, FOODIES, one of the leading food and beverages (F&B) retail and restaurant management platform in Saudi Arabia, launched a microlending platform named Foodies Capital. It offers loans from USD 5,000 (SAR 18,750) to USD 133,000 (SAR 500,000) to support Saudi Arabia’s F&B merchants. More product launches are expected to boost the microlending market growth during the forecast period.

LAMEA is the second-largest region and is estimated to reach an expected value of USD 200 billion by 2030, growing at a CAGR of 12.4%. Growth in the capital market and banking sector in LAMEA countries such as the UAE, Brazil, and Mexico and increased demand for microcredit programs by the customers drive the market growth in the region. Additionally, increasing the number of commercial microfinance institutions across the region that helps small businesses to get loan services more easily also propels the market growth.

Furthermore, offering customers digital loans and improving credit access for small businesses are boosting the microlending market in this region. The growing financial need of micro-entrepreneurs and improved quality of financial services have also led to the growth of the microlending market. Many key players in the LAMEA nations offer loan services for individuals and small businesses through mobile banking apps. More innovations are expected to boost the microlending market growth during the forecast period.

Europe is the third-largest market for microlending. The microlending policy offers numerous benefits to end-users, such as promoting self-employment, fighting against social & financial exclusion, and supporting microenterprises. The surge in financial crisis across several banking domains and the rise in profit inequality in different parts of Europe drive the growth of the microlending market in this region. Increased demand for microenterprises in the UK, Germany, and France also contributes to market growth.

The adoption of microlending policies among small businesses, owing to its benefits such as receiving loan amounts as per requirement, increasing organization productivity, and reducing enterprise operational costs, is another driving factor. Furthermore, the presence of SMEs and the growing adoption of microlending services among SMEs provide a lucrative opportunity to boost the microlending market in this region. However, the need for microlending services for this sector differs, as they require increased earning power, faster performance in work, and improved quality of product with smaller production units.

Segmental Analysis

The global microlending market is segmented into provider, end-user, and region.

By Provider

Provider-wise, the global microlending market is fragmented into Banks, Microfinance Institutes (MFI), Non-Banking Financial Institutions (NBFC), and Others.

The Bank segment is the highest contributor to the market and is estimated to grow at a CAGR of 11.3% during the forecast period. The increased focus on digitalizing financial processes has transformed traditional banking systems. Banks are heavily utilizing microlending platforms to accommodate increased customer demand. The expansion of the market has also been fueled by microfinance’s contributions to closing existing gaps in financial services and improving efficiency for improved client experiences. Furthermore, the rise in the number of COVID-19 patients worldwide has led many banks and FinTech organizations to use digital platforms for lending and other purposes, driving the market.

The Microfinance Institute (MFI) segment is the fastest growing. Microfinance institutes focus on understanding the needs of the underprivileged, finding better ways to provide financial services tailored to their needs, and developing the most effective and efficient mechanism to deliver micro-credit services to small and medium enterprises. MFIs are rapidly implementing reseller partnership strategies since reseller networks boost the ability of banks and non-banking financial institutions to attract new clients quickly. These institutes adopt microlending platforms rapidly due to their numerous benefits, including faster loan processing, better customer experience, and automating claims. This propels the growth of this segment.

By End-User

End-user-wise, the global microlending market is classified into Solo Entrepreneurs & Individuals, Micro Enterprises, and Small Enterprises.

The Small Enterprise segment is the highest contributor to the market and is estimated to grow at a CAGR of 11.9% during the forecast period. Microlending helps small businesses efficiently manage their business operations and fundings by enabling effective planning and management of the inflow & outflow of monetary funds, driving the adoption of microlending services. Small businesses are the primary consumers of microlending services due to the advanced security features, user-friendliness, cost-effectiveness, and ease of managing finances. Furthermore, the rise in startups in developing countries, such as India, China, and others, is opportunistic for the market. For instance, Intuit QuickBooks has become India's leading cloud financial management software as numerous Indian business owners and accountants increasingly use it to run their business finances.

The Solo Entrepreneurs & Individuals segment is the fastest growing. There is an increase in internet penetration and internet use for day-to-day activities. These factors drive the demand for microlending services to expand the business and manage financial operations. Moreover, using these lending services makes it easy to handle every financial detail as it can track investments and small transactions. In addition, it can be linked with internet banking to provide live updates of transactions, which helps individual consumers in money management, increasing its adoption among the particular consumer segment. Key market players also emphasize enhancing operational efficiency to gain a competitive advantage and launch new products with optimized performance.

Recent Developments

• June 2022 - With the help of current investors, Endiya Partners and Accion Venture Lab invested USD 3 million in AquaExchange. This full-stack, tech-driven platform serves India's multi-billion-dollar shrimp and fish ecosystem. By the conclusion of the March 2023 fiscal year, the company would use the funds to improve its technology, e-commerce operations, and farm automation on more than 1 lakh acres of farmland.
• April 2022 - As part of a global initiative by impact measurement partner 60 Decibels to encourage uniform, comparable impact outcomes data for the microfinance industry, the international organization Accion announced its participation in a new financial inclusion index.