Kolkata: Microfinance sector which grew at a compounded rate of 48 per cent in the last five years has a potential for further growth as its penetration is only one-fourth of the addressable market, a KPMG report said.

Eastern and northeastern regions of the country have played a key role with the highest share of loan portfolio at 35 per cent.

"Microfinance is growing at 48 per cent CAGR in the last five years, there is still room for growth given that microfinance penetration is 25 per cent of the addressable market," KPMG India national head (Financial Services) Gayathri Parthasarathy said in the report.

Microfinance players have also been actively pursuing activities beyond lending to meet their social objectives and improve their margins, it said. "This also calls for changes in the operating model, product portfolio, partnership models and delivery capabilities of the players," Parthasarathy said.

Microfinance growth over the last four to five years has been driven by geographical expansion. Various players in this space are opting to integrate technology and collaborate with fintech players across the value chain primarily to optimise costs and reduce portfolio risk, the report said.