MFIs face tough recovery path; profitability seen by FY26-end: CRISIL

CRISIL says MFI profitability to normalise only by end-FY26 as legacy slippages and state-level disruptions in Karnataka and Tamil Nadu slow down recovery prospects

The road to recovery for microfinance institutions (MFIs) is expected to be challenging, with normalisation of profitability projected only by the end of the current financial year (FY26), said CRISIL Ratings in a note on Wednesday. Disruptions caused by ordinances in Karnataka and Tamil Nadu will hinder the path to recovery, the agency added.

 

According to the rating agency, the transition of MFIs to the guardrails imposed by the Microfinance Institutions Network (MFIN) has limited their exposure to over-leveraged borrowers, but slippages from their legacy portfolio will keep their asset quality under pressure.

 

The ability to control slippages and manage credit costs — and thereby profitability — will be crucial in the road ahead, the agency said.

 

“While the current bucket collections have stabilised at 98–99 per cent, and there has been some reduction in fresh slippages, around 14 per cent of the assets under management (AUM) as on June 30, 2025, remains extended to borrowers transacting with more than three microfinance lenders,” said Malvika Bhotika, director, CRISIL Ratings.