9 months ago
Microfinance Sector Faces Challenges Amid Improved Asset Quality
The microfinance sector in India is facing challenges.
The total amount of microfinance loans has decreased by 17% to ₹3.39 lakh crore as of September 2025.
This means that nearly 50 lakh borrowers have left the formal credit system.
Despite this, the quality of loans has improved, with fewer loans being at risk of default.
The sector is spread across 36 states and union territories, with the East and North-East regions having the largest share of the loan portfolio.
The RBI Deputy Governor has emphasized the importance of responsible microfinance to drive economic growth and financial inclusion.
However, the sector is in need of liquidity to ensure that the financial inclusion gains built over decades do not wither away.
Microfinance loan portfolio in India declined by 17% to ₹3.39 lakh crore as of September 30, 2025.
Nearly 50 lakh borrowers have exited the formal credit system due to the funding squeeze.
Portfolio at Risk (31-90 days) improved to 1.09%, and 98% of clients are within MFIN Guardrails.
The microfinance sector is present in 36 states/UTs and 718 districts, with the East and North-East regions accounting for 33% of the total portfolio.
RBI Deputy Governor Swaminathan J emphasized the role of responsible microfinance in driving economic progress and financial inclusion.
- Who
- Microfinance Industry Network (MFIN), RBI Deputy Governor Swaminathan J
- What
- Microfinance loan portfolio declines by 17%, 50 lakh borrowers exit formal credit
- Where
- India (36 states/UTs and 718 districts)
- When
- As of September 30, 2025
- Why
- Funding squeeze and regulatory scrutiny on industry practices
Key facts
- Microfinance Loan Portfolio (Sep 2025)
- ₹3.39 lakh crore
- Microfinance Loan Portfolio (Sep 2024)
- ₹4.08 lakh crore
- Number of Borrowers (Sep 2025)
- 3.5 crore
- Number of Borrowers (Sep 2024)
- 4.37 crore
- Portfolio at Risk (31-90 days)
- 1.09%
- Clients within MFIN Guardrails
- 98%
- Regional Distribution of Portfolio (East & North-East)
- 33%
- Regional Distribution of Portfolio (South)
- 28%
- Regional Distribution of Portfolio (North)
- 15%
- Regional Distribution of Portfolio (West)
- 15%
- Regional Distribution of Portfolio (Central)
- 9%
Timeline
May's rate drop sparked defaults, hitting microfinance.
Then, sector shifted to sustainability, boosting defaults further.
Defaults surged 12% in prior quarter, slashing loans.
Disbursements plunged 25%, defaults soared, loans fell.
India's microfinance loans plummeted 17%, impacting 50 lakh borrowers.
Quotes
Alok Misra
CEO and director of MFIN, the industry’s self-regulatory body.
“Continued funding squeeze has resulted in the sixth consecutive quarterly fall in microfinance portfolio to ₹3.39 lakh crore. This has resulted in nearly 50 lakh clients going out of formal finance.”
financialexpress.com
“One thing the sector needs now is to ensure that financial inclusion gains built over decades do not wither away…”
financialexpress.com
Sources
Microfinance Loan Portfolio Falls 17%, 50 Lakh Borrowers Out Of Formal Credit
Funding squeeze pushes 5 million out of formal finance: MFIN
Microfinance can drive ‘macro progress', says RBI Deputy Governor Swaminathan J
RBI Dy Gov Wants MFI Lenders to Price Loans Reasonably
