India’s microfinance sector recorded its first quarterly expansion after eight consecutive quarters of decline, signalling early signs of stabilisation in the industry amid improving asset quality and stronger loan disbursements.
According to a report by CRIF High Mark, the sector’s gross loan portfolio (GLP) grew 3.2% quarter-on-quarter to ₹3.31 trillion in Q4FY26. However, on a year-on-year basis, the portfolio remained lower by 13.2%.
The recovery was driven by higher loan originations, rising ticket sizes, and gradual improvement in portfolio quality across lenders.
Among lenders, NBFC-MFIs continued to remain the primary growth drivers for the sector, while the share of banks in the outstanding portfolio declined significantly to 26.4%, compared to 32.6% a year earlier.
Asset quality indicators also showed improvement during the quarter. Portfolio at Risk (PAR) 180+, including write-offs, improved to 16.3% in March 2026, compared to 17.3% in December 2025. Similarly, PAR 1–180 declined sharply to 2.6% from 4.4% over the same period.
The report highlighted that nearly 95% of portfolio exposure remained concentrated among borrowers linked to three or fewer lenders, reflecting tighter underwriting standards and stronger regulatory oversight in the sector.
Loan demand also strengthened during the quarter. The average ticket size increased 18.3% year-on-year to ₹61,500, while the number of loans disbursed rose to 12.61 million in Q4FY26, up from 10.27 million in the previous quarter.
Loans in the ₹50,000–80,000 category accounted for the largest share of origination value at 41.8%, indicating rising borrower appetite for larger-ticket credit products.
The recovery comes after a prolonged slowdown triggered by elevated borrower stress, tighter regulations, and funding challenges over the past two years. Industry observers believe improving collections, disciplined lending practices, and stabilising rural demand are now beginning to support a gradual turnaround.
The microfinance sector remains a crucial pillar of India’s financial inclusion ecosystem, particularly in semi-urban and rural markets where access to formal credit remains limited.
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