EVALUATING CREDIT RISK AND FINANCIAL SUSTAINABILITY OF MICROFINANCE INSTITUTIONS: EVIDENCE FROM NAGPUR DISTRICT

Microfinance Institutions (MFIs) play a crucial role in realizing wider financial
inclusiveness, with the major emphasis laid on the fact that they are required to deliver the
needed credit to the unserved communities mainly located in rural and semi-urban areas. This
paper investigates the financial sustainability and credit risk management aspects of this study
for MFIs in Nagpur District, India. The research methodology that was adopted is quantitative,
as the survey and interviews were directed towards the MFI managers, clients, and financial
experts in the area. Finally, whether or not the credit risk-taking strategies are successful; how
behavioral aspects affect loan-paying behavior; and statuses of these institutions, e.g., their
financial health, are highlighted. Despite several mitigation measures being taken into account
for various risk management techniques such as group lending and collateral in the city MFI,
other potential risks, like high default rates and issues related to failure to access capital, have
and will continue to remain a threat to the financial sustainability of these institutions. The
article further strengthens the role of client education and government policy in ordering the
performance of the MFI. Therefore, it will be helpful for people, organizations, or
establishments concerning policy formulation on any MFI for those areas.