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What is the story about?
India's microfinance sector is showing early signs of recovery after nearly two years of stress, with the industry's loan portfolio expanding sequentially for the first time in seven quarters and asset quality improving to pre-March 2024 levels.
According to the latest edition of the Micro Finance Industry Network's (MFIN) Micrometer report, the industry's gross loan portfolio stood at ₹3.25 lakh crore as of March 31, 2026, registering a more than 3% quarter-on-quarter increase after seven consecutive quarters of contraction.
MFIN is the premier industry association and the Reserve Bank of India (RBI)-recognised Self-Regulatory Organisation (SRO) for India's microfinance sector, representing banks, NBFC-MFIs, small finance banks and other lenders engaged in microfinance activities.
The recovery was aided by quarterly disbursements of ₹77,524 crore, the highest in the past seven quarters, although still below the peak lending levels seen in the fourth quarter of FY24.
The sector's asset quality also improved significantly. Portfolio at Risk (PAR) for loans overdue between 31 and 90 days fell to 0.8%, while PAR for 91-180 days declined to 1.2%. Combined PAR of 2% marks a sharp improvement from 6.3% a year ago and brings delinquency levels back to those seen before March 2024.
Microfinance operations now span 36 states and Union Territories and 721 districts, underscoring the sector's reach in providing credit access to low-income households.
Among lenders, NBFC-MFIs remained the largest providers of microcredit, accounting for 44.2% of the industry's outstanding portfolio, followed by banks at 32.7%. Small finance banks and other NBFCs made up the remainder.
However, on a year-on-year basis, all lender categories continued to report declines in their outstanding portfolios. Banks recorded the steepest contraction of 30%, while NBFC-MFIs saw a relatively modest decline of 2.7%.
The report also highlighted persistent funding challenges for smaller microfinance institutions. All India Financial Institutions reduced their exposure to these lenders during the year, leaving banks, NBFCs and external commercial borrowings as the primary funding sources, albeit at lower levels than in previous years.
Regionally, eastern India continued to dominate the microfinance landscape, accounting for 36.6% of the industry's portfolio, reflecting the sector's strong presence in financially underserved areas. Bihar, Uttar Pradesh and Tamil Nadu were the top three states by portfolio share, while the top ten states together accounted for nearly 80% of the industry's loan book.
MFIN said recent policy support, including the extension of the government's Credit Guarantee Scheme for Micro Finance Institutions (CGSMFI 2.0) until August 2026, could further support the sector's recovery. However, it cautioned that below-average monsoon forecasts and geopolitical tensions in West Asia could affect rural livelihoods and borrower repayment capacity in the coming months.
The latest data suggests that while the microfinance industry is not yet back to its earlier growth trajectory, improving collections and renewed lending activity indicate that the sector may be gradually emerging from one of its most challenging periods in recent years.
According to the latest edition of the Micro Finance Industry Network's (MFIN) Micrometer report, the industry's gross loan portfolio stood at ₹3.25 lakh crore as of March 31, 2026, registering a more than 3% quarter-on-quarter increase after seven consecutive quarters of contraction.
MFIN is the premier industry association and the Reserve Bank of India (RBI)-recognised Self-Regulatory Organisation (SRO) for India's microfinance sector, representing banks, NBFC-MFIs, small finance banks and other lenders engaged in microfinance activities.
The recovery was aided by quarterly disbursements of ₹77,524 crore, the highest in the past seven quarters, although still below the peak lending levels seen in the fourth quarter of FY24.
The sector's asset quality also improved significantly. Portfolio at Risk (PAR) for loans overdue between 31 and 90 days fell to 0.8%, while PAR for 91-180 days declined to 1.2%. Combined PAR of 2% marks a sharp improvement from 6.3% a year ago and brings delinquency levels back to those seen before March 2024.
Microfinance operations now span 36 states and Union Territories and 721 districts, underscoring the sector's reach in providing credit access to low-income households.
Among lenders, NBFC-MFIs remained the largest providers of microcredit, accounting for 44.2% of the industry's outstanding portfolio, followed by banks at 32.7%. Small finance banks and other NBFCs made up the remainder.
However, on a year-on-year basis, all lender categories continued to report declines in their outstanding portfolios. Banks recorded the steepest contraction of 30%, while NBFC-MFIs saw a relatively modest decline of 2.7%.
The report also highlighted persistent funding challenges for smaller microfinance institutions. All India Financial Institutions reduced their exposure to these lenders during the year, leaving banks, NBFCs and external commercial borrowings as the primary funding sources, albeit at lower levels than in previous years.
Regionally, eastern India continued to dominate the microfinance landscape, accounting for 36.6% of the industry's portfolio, reflecting the sector's strong presence in financially underserved areas. Bihar, Uttar Pradesh and Tamil Nadu were the top three states by portfolio share, while the top ten states together accounted for nearly 80% of the industry's loan book.
MFIN said recent policy support, including the extension of the government's Credit Guarantee Scheme for Micro Finance Institutions (CGSMFI 2.0) until August 2026, could further support the sector's recovery. However, it cautioned that below-average monsoon forecasts and geopolitical tensions in West Asia could affect rural livelihoods and borrower repayment capacity in the coming months.
The latest data suggests that while the microfinance industry is not yet back to its earlier growth trajectory, improving collections and renewed lending activity indicate that the sector may be gradually emerging from one of its most challenging periods in recent years.
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