1 week ago
Microfinance Assets Recover After Seven Quarters of Decline
Microfinance institutions lend small amounts of money to borrowers.
Their total loans outstanding grew in the fourth quarter of FY26 after falling for seven quarters.
The industry also gave out more loans than it had in the previous eight quarters.
Fewer borrowers were late in repaying their loans.
New rules limited how many lenders could lend to one borrower and capped total microfinance borrowing.
These rules appear to have helped improve loan collections.
Non-bank microfinance institutions grew faster than the overall industry.
Larger institutions may grow more quickly because smaller ones have more difficulty raising money.
Microfinance industry AUM rose 3.3% quarter-on-quarter to about Rs 3.25 lakh crore in Q4 FY26.
Disbursements reached nearly Rs 77,500 crore in Q4 FY26, the highest level in eight quarters.
AUM marginally increased to Rs 3.27 lakh crore in Q1 FY27.
Portfolio quality improved, with PAR 1-30 falling to 0.5% and PAR 31-90 to 0.7% in June 2026.
NBFC-MFIs increased their market share to 44% as smaller institutions faced higher funding costs and limited access.
- Who
- Microfinance institutions, banks, NBFC-MFIs, borrowers and CareEdge Ratings.
- What
- Microfinance AUM and disbursements recovered, while portfolio delinquencies declined.
- Where
- The report was datelined Chennai and covers the microfinance industry.
- When
- The recovery occurred in Q4 FY26; AUM was reported for Q1 FY27 and asset quality for June 2026.
- Why
- Self-regulatory borrowing guardrails, portfolio clean-up and improved collection efficiency supported the recovery and asset-quality improvement.
Portfolio Health
Growth Constraints
Impact of borrowing guardrails
Portfolio Health
The guardrails addressed borrower overleveraging, strengthened origination discipline and contributed to lower delinquencies and healthier collection efficiency.
Growth Constraints
The restrictions limit lending to some borrowers, while capital constraints and higher funding costs may restrict growth for medium and small MFIs.
Industry growth outlook
Portfolio Health
Rising AUM, stronger disbursements and improved asset quality indicate a recovery in the microfinance sector.
Growth Constraints
Growth may increasingly be led by large, well-capitalised MFIs because smaller institutions face constrained access to capital and higher borrowing costs.
Key facts
- Q4 FY26 industry AUM
- About Rs 3.25 lakh crore, up 3.3% sequentially
- Q1 FY27 AUM
- Rs 3.27 lakh crore
- Q4 FY26 disbursements
- Nearly Rs 77,500 crore, the highest in eight quarters
- PAR 1-30
- 0.5% in June 2026, down from 1.4% in March 2025
- PAR 31-90
- 0.7% in June 2026, down from 2.8% in March 2025
- NBFC-MFI market share
- 44% in June 2026, compared with 39% in March 2024
- Borrowing guardrails
- Maximum lenders per borrower reduced from four to three; aggregate microfinance debt capped at Rs 2 lakh
Sources
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