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Banks Shift Microfinance Lending Toward Institutions, Report Finds
Banks gave fewer microfinance loans directly to individual borrowers during the April-June quarter.
Their direct lending portfolio dropped sharply from the previous year.
Instead, banks provided more money to microfinance institutions, which then lend to borrowers.
Banks made up most of the money borrowed by these institutions.
The total microfinance market also became smaller.
There were fewer active loan accounts, but the average loan size increased.
Non-bank microfinance institutions remained the biggest providers of these loans.
Their late repayments in the 31-to-180-day period also improved.
Bihar was the largest microfinance market, followed by Uttar Pradesh and Tamil Nadu.
Banks’ direct microfinance portfolio fell 28.5% year on year to ₹83,080 crore by June 30, 2026.
Banks supplied 64.8% of NBFC-MFIs’ outstanding borrowings and 80.4% of their fresh funding during the quarter.
The overall microfinance portfolio contracted 6.9% to ₹3.29 lakh crore, while active loan accounts fell to 9.9 crore.
NBFC-MFIs remained the largest micro-credit providers, with a ₹1.46 lakh crore portfolio and 44.3% industry share.
Bihar had the largest microfinance portfolio, followed by Uttar Pradesh and Tamil Nadu.
- Who
- Banks, non-bank microfinance institutions (NBFC-MFIs), and individual microfinance borrowers.
- What
- Banks reduced direct microfinance exposure while increasing lending to NBFC-MFIs, according to the MFIN Micrometer report.
- Where
- India, with Bihar, Uttar Pradesh, and Tamil Nadu identified as the largest state markets.
- When
- The April-June quarter of 2026; figures were reported as of June 30, 2026.
- Why
- The report attributed much of the decline in banks’ direct portfolio to loans being reclassified into retail portfolios, while the industry’s borrower base contracted.
Key facts
- Banks’ direct microfinance portfolio
- ₹83,080 crore as of June 30, 2026, down 28.5% year on year.
- Banks’ share of NBFC-MFI borrowings
- 64.8% of outstanding borrowings as of June 2026.
- Fresh bank funding
- ₹21,407 crore during the first quarter of 2026-27, up 91.4% year on year.
- Total micro-credit portfolio
- ₹3.29 lakh crore as of June 30, down 6.9% from a year earlier.
- Active loan accounts
- 9.9 crore, compared with 12.5 crore a year earlier.
- NBFC-MFI portfolio
- ₹1.46 lakh crore, representing 44.3% of the industry.
- Largest state market
- Bihar, with a portfolio of ₹53,163 crore.







