After a challenging phase in FY25, India’s microfinance sector is showing early signs of stabilisation, supported by regulatory recalibration, improving asset quality and the steady expansion of digital infrastructure, according to the Economic Survey 2025 to 26.
The survey highlights that stress in the sector has begun to moderate following timely intervention by the central bank and stronger self regulatory safeguards. Loan outstanding declined 14% year on year in FY25, but quarterly data shows a reduction in risky assets between Q1 FY26 and Q2 FY26. This, along with gradual improvement in loan disbursements and solvency ratios, points to a slow but steady recovery in sector health.
A key measure supporting this turnaround was the central bank circular dated June 6, 2025, which lowered the minimum qualifying assets requirement for NBFC MFIs from 75% to 60% of total assets. This step was aimed at giving lenders greater flexibility in managing portfolio risk. At the same time, self regulatory organisations introduced tighter guardrails, including lower loan limits and caps on overall borrower indebtedness, to address credit overexposure that had built up after a surge in post pandemic demand.
Despite recent stress, the survey reiterates the sector’s long term importance in promoting financial inclusion. Women account for 95% of microfinance borrowers, while rural areas represent nearly 80% of the client base. As of March 2025, NBFC MFIs remained the largest players with a 39% share of loan outstanding, followed by banks at 32%, small finance banks at 16%, NBFCs at 12% and others at 1%. Microfinance operations cover 685 districts across 28 states and 5 Union Territories, with Eastern and Southern regions together holding 62% of the outstanding portfolio.
Over the last decade, active borrowers nearly doubled from 330 lakh in FY14 to 627 lakh in FY25. The gross loan portfolio expanded almost 7 times from Rs 33517 crore to Rs 238198 crore, while branch networks grew from 11687 to 37380. Looking ahead, the survey says future growth will depend on improving household income assessment, as MFIs still rely on in house estimates due to limited visibility on other borrowings such as gold loans, agricultural credit and cooperative loans. These gaps are expected to narrow as more households adopt digital public infrastructure and digital finance, enabling better cash flow data, stronger credit assessment and more resilient lending practices.
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