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Microfinance Shows Early Recovery as Legacy Bad Loans Persist
India’s microfinance lenders gave out less money overall during FY26 than the year before.
But they started lending a little more again in the final quarter.
Many borrowers are keeping up with newer loans better than they did a year earlier.
Still, old unpaid loans are piling up and remain a big problem.
Fewer borrowers now have loans from many different lenders.
The report says this happened after lenders tightened their rules.
Better harvests, jobs and other support helped families repay during the year.
But rising prices, weak rainfall in some areas and the end of a loan guarantee could make recovery harder.
India’s microfinance loan book fell 11% to ₹3.34 trillion in FY26, but rose 4% in the January–March quarter.
Loan accounts declined 21% to 10.40 crore by March 2026, as lenders pulled back after high credit stress and multiple borrowing concerns.
Current-book stress eased: PAR of 30–179 days fell to 2.34% from 6.63% a year earlier.
Legacy loans overdue 180 days or more rose to 17.04% from 10.67%, highlighting unresolved defaults.
Borrower multiple lending declined, but the report warned of risks from rising inflation, below-normal monsoon rainfall and the expiry of a guarantee facility.
- Who
- India’s microfinance sector and its lenders, as assessed in Sa-Dhan’s Bharat Microfinance Report 2026.
- What
- The sector recorded early signs of recovery, while older severely overdue loans continued to grow.
- Where
- India.
- When
- Financial year 2026, with figures reported through March 2026; rainfall data ran through 12 August 2026.
- Why
- Lenders tightened credit and focused on collections after high credit stress, household indebtedness and multiple borrowing; the report also cited improved incomes and funding conditions as supporting recovery.
Signs of recovery
Reasons for caution
Portfolio performance
Signs of recovery
Stress in the current loan book eased, with 30–179-day past-due loans falling substantially and lending rising in the final quarter.
Reasons for caution
Loans overdue by 180 days or more increased, showing that legacy defaults remain a significant burden.
Outlook
Signs of recovery
Sa-Dhan’s executive director and CEO said sectoral prospects are expected to improve in the current financial year, following stronger collections and tighter credit discipline.
Reasons for caution
The report cautioned that inflation is rising, the monsoon has been below normal in high-borrower-density districts, and the guarantee facility has expired.
Key facts
- Loan book at March 2026
- ₹3.34 trillion, down 11% year over year
- Quarterly change
- Loan book rose 4% in January–March 2026
- Loan accounts
- 10.40 crore, down from 13.18 crore a year earlier
- PAR, 30–179 days
- 2.34% in March 2026, down from 6.63%
- PAR, 180 days or more
- 17.04% in March 2026, up from 10.67%
- Borrowers with five or more lenders
- 0.1% in March 2026, down from 1.6%
- Rainfall through 12 August 2026
- 12% below the long-period average
Quotes
Jiji Mammen
Executive director and chief executive officer of Sa-Dhan
“FY2025–26 can be characterised as a period of consolidation and recalibration, with lenders focusing on strengthening portfolio quality, controlling borrower indebtedness, improving collections and restoring sustainable credit growth. The third set of guardrails from industry leaders and SROs, issued in April 2026, have strengthened credit discipline. The sectoral outlook is expected to further improve in the current financial year.”
livemint.com
Bharat Microfinance Report 2026
Report released by Sa-Dhan
“The portfolio dynamics between March 2026 and March 2025 reveal a clear structural split”
livemint.com
Sources
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