Microfinance sector shows signs of recovery after seven quarters as portfolio crosses ₹3.25 lakh crore
MFIN report says credit quality has returned to pre-March 2024 levels; quarterly disbursements hit seven-quarter high
Commenting on the findings, MFIN CEO and Director Alok Misra said the industry had begun to turn the corner after a difficult two-year period, supported by portfolio growth and sustained improvements in asset quality.
New Delhi: India’s microfinance sector is showing early signs of recovery after nearly two years of contraction, with the industry’s gross loan portfolio rising more than 3% quarter-on-quarter to ₹3.25 lakh crore as of March 31, 2026, according to the latest edition of Micrometer released by the Micro Finance Industry Network (MFIN).
The 57th edition of Micrometer, MFIN’s flagship quarterly publication tracking the progress of the Indian microfinance industry, reported that the sector’s portfolio stood at ₹3,25,174 crore at the end of the fourth quarter of FY26. The growth was supported by quarterly disbursements of ₹77,524 crore, the highest recorded in the last seven quarters, although still below the peak levels seen in Q4 FY24.
MFIN, India’s first RBI-recognised self-regulatory organisation for the microfinance sector, said microfinance operations now span 36 states and union territories and 721 districts across the country.
The report highlighted a significant improvement in asset quality. Portfolio at Risk (PAR) for loans overdue between 31 and 90 days declined to 0.8%, while PAR for loans overdue between 91 and 180 days stood at 1.2% as of March 31, 2026. Both indicators have steadily improved over the past eight quarters, with overall PAR 31-180 days falling to 2% from 6.3% a year earlier.
NBFC-MFIs continued to be the largest providers of microcredit, accounting for 44.2% of the industry’s total portfolio, followed by banks with a 32.7% share. Small finance banks and NBFCs constituted the remaining portion. While all lender categories witnessed a year-on-year decline in outstanding portfolio, banks recorded the steepest fall at 30%, whereas NBFC-MFIs reported the lowest decline at 2.7%.
The report also pointed to funding challenges for smaller microfinance institutions. During the year, all-India financial institutions reduced their exposure to smaller players, leaving banks, NBFCs and external commercial borrowings as the primary funding sources.
Regionally, eastern India remained the largest microfinance market, accounting for 36.6% of the industry’s portfolio. Bihar, Uttar Pradesh and Tamil Nadu emerged as the top three states by portfolio share, while the top ten states together accounted for nearly 80% of the total industry portfolio.
Commenting on the findings, MFIN CEO and Director Dr Alok Misra said the industry had begun to turn the corner after a difficult two-year period, supported by portfolio growth and sustained improvements in asset quality. He welcomed the Government’s decision to extend the Credit Guarantee Scheme for Micro Finance Institutions (CGSMFI 2.0) until August 2026, saying the move would provide sufficient time for utilisation and further strengthen the sector’s recovery.
Misra noted that improved performance metrics, supported by MFIN’s guardrails framework, had helped restore stability to the sector and urged banks to actively support financial inclusion efforts. He also cautioned industry players about potential risks arising from forecasts of below-average monsoon conditions and continuing geopolitical tensions in West Asia, both of which could impact rural livelihoods and repayment capacity.
The latest Micrometer edition also introduces a dedicated analysis of portfolio diversification, tracking the mix and performance of microfinance and non-microfinance portfolios, along with on- and off-balance-sheet exposures across NBFC-MFI categories. MFIN said the addition reflects the evolving business models of microfinance institutions following regulatory changes in qualifying asset norms.
