Digital Transformation and Risk Management in Microfinance: Evidence from India

This study investigates how the rapid diffusion of digital technologies, Aadhaar-enabled services, mobile banking, and UPI, has reshaped operations and risk management in Indian microfinance institutions (MFIs) between 2018 and 2025, using secondary data from RBI, NABARD, Sa-Dhan, and industry literature. The analysis documents sustained borrower expansion alongside rising portfolio delinquency in digital portfolios, and a sharp increase in digital repayment penetration. The paper situates these trends within the evolving policy framework, notably RBI’s 2022 digital lending guidelines and the 2025 Directions that further refine guardrails for risk-sharing, data protection, and consumer protection, and within recent sector performance reports. The evidence indicates that while digitalization improves efficiency and outreach, it necessitates stronger credit governance, cyber-risk controls, and borrower protection mechanisms. The paper offers policy and managerial recommendations for resilient and responsible digital adoption in MFIs.