Indian microfinance industry shows early signs of recovery with a 3% QoQ uptick, bringing the total industry portfolio to Rs 3,25,174 crore.
Quarterly disbursement hits a seven-quarter high at Rs 77,524 crore, signaling renewed credit momentum.
Credit quality improves significantly; Portfolio at Risk (PAR 31-180 days) drops sharply to 2.0% from 6.3% a year ago.
NBFC-MFIs maintain leadership with a 44.2% market share, followed by banks at 32.7%.
MFIN flags potential risks for FY 26-27, urging players to monitor below-average monsoon forecasts and the West Asia conflict.
NEW DELHI : Micro Finance Industry Network (MFIN), India’s first RBI-recognized self-regulatory organization and premier industry association for microfinance providers, has officially released the 57th edition of its flagship publication, the Micrometer, for Q4 FY 25-26. The report, compiled using industry data as of March 31, 2026, indicates that the Indian microfinance sector is witnessing early signs of a structural recovery. After experiencing portfolio contraction for seven consecutive quarters, the industry registered a quarter-on-quarter (QoQ) uptick of over 3%, driving the total outstanding portfolio to Rs 3,25,174 crore.
This portfolio expansion was primarily powered by a robust quarterly disbursement of Rs 77,524 crore. While this represents the highest disbursement level in the last seven quarters, it remains below the peak achieved in Q4 of FY 23-24. Crucially, asset quality has staged a major comeback, returning to pre-March 2024 levels. As of March 31, 2026, PAR 31-90 days stood at 0.8%, while PAR 91-180 days improved to 1.2%. Both metrics have demonstrated a gradual, steady improvement over the last eight quarters.
Evolving Report Framework & Institutional Landscape
The 57th edition introduces two key enhancements reflecting the evolving business models of microfinance institutions (MFIs) following regulatory flexibility on qualifying asset norms:
Portfolio Diversification Analysis: A new dedicated section tracks the mix, performance, and balance sheet exposures (both on- and off-balance sheet) across various NBFC-MFI size categories.
Other Regulated Entities (ORE): This section continues to expand, offering a comprehensive analysis of the microfinance activities of banks, SFBs, and NBFCs that are MFIN members.
In terms of institutional market share, NBFC-MFIs remain the largest providers of microcredit, accounting for 44.2% of the total industry portfolio. Commercial banks hold the second-largest share at 32.7%, while Small Finance Banks (SFBs) and NBFCs comprise the remainder. On a year-on-year (YoY) basis, all entities witnessed a decline in their outstanding portfolios. The contraction was most pronounced for commercial banks at -30%, whereas NBFC-MFIs proved the most resilient with a marginal decline of just -2.7%.
The report also noted a pronounced funding squeeze for smaller MFIs during the year. As All India Financial Institutions (AIFIs) largely kept away from smaller players, these entities relied primarily on Banks, NBFCs, and External Commercial Borrowings (ECBs) for their outstanding liabilities, though at volumes lower than previous years.
Regional Distribution and Strategic Outlook
Geographically, microfinance operations are now deeply entrenched across 36 States/UTs and 721 districts. The Eastern region remains the top shareholder with a 36.6% market share, underscoring the industry's sustained focus on underserved regions. The top three states in terms of portfolio share are Bihar, Uttar Pradesh, and Tamil Nadu, with the top ten states collectively commanding approximately 80% of the national share.
Commenting on the industry's trajectory, Dr. Alok Misra, CEO & Director of MFIN, stated:
"We can now say that despite the tough 2 years, the industry is turning the corner as evidenced by the uptick in portfolio and continued improvement in Portfolio at Risk – PAR 31-180 declining to 2.0% as of March 2026 compared to 6.3% a year ago. A significant policy development which will further strengthen this recovery is the CGSMFI 2.0 scheme of the Government of India. Recent extension of the scheme till August 2026 will allow sufficient time for utilization. The sector is grateful to the Government, and the sector has done its part also by way of improved performance metrics riding on MFIN Guardrails; it is time for banks to come forward and actively support the cause of financial inclusion."
Looking ahead into FY 2026-27, while the macro indicators remain positive, MFIN has cautioned microfinance lenders to remain vigilant. The association advised players to factor in the potential impacts of a below-average monsoon prediction and the ongoing West Asia conflict, both of which could create headwinds for rural livelihoods and credit discipline.