MFI sector shows signs of recovery after prolonged slowdown: Report

The SIDBI-Equifax report said the sector's portfolio grew 3 per cent quarter-on-quarter in the March quarter, while 30-plus delinquency fell sharply

After witnessing a 17 per cent year-on-year contraction in portfolio outstanding between March 2025 and March 2026, India's microfinance sector is showing early signs of recovery, according to the latest SIDBI-Equifax Microfinance Pulse Report. The industry's portfolio grew 3 per cent quarter-on-quarter in the January-March 2026 period, reversing four consecutive quarters of decline.

 

Further, asset quality also improved sharply, with 30-plus days past due delinquency falling to 2.35 per cent in March 2026 from 6.64 per cent a year earlier. The microfinance sector currently serves about 5.5 crore unique live borrowers through 7.6 crore active loans.

 

The report noted that delinquency levels improved across lender categories and geographies, while NBFCs continued to report the lowest delinquency rates among lender segments.

 

“Over the last few quarters, the microfinance sector has gone through a phase of correction and cautious lending. What we are now seeing in the data points to an early but clear sign of recovery,” said Subhankar Mishra, interim managing director, Equifax Credit Information Services.

 

Disbursement activity also rebounded strongly during the quarter. Loans worth ₹78,938 crore were disbursed during January-March 2026, the highest level recorded since the January-March 2023 quarter. The report described this as one of the strongest recovery phases for the sector after a prolonged slowdown.

 

NBFC-microfinance institutions (NBFC-MFIs) emerged as the dominant players, accounting for nearly half of the industry's active loans, portfolio outstanding and fresh disbursements. The report said NBFC-MFIs have increasingly filled the gap left by reduced participation from banks in the sector.

 

The report highlighted a structural shift in lending patterns, with lenders increasingly focusing on higher-value loans and borrowers with established credit histories. The share of loans above ₹75,000 rose to 41 per cent in January-March 2026 from 26 per cent a year earlier, while loans below ₹50,000 continued to decline.

 

Average ticket size increased to ₹62,945 during the quarter, reflecting a growing focus on borrowers with stronger repayment capacity.

 

The report's vintage analysis showed that loans originated during January-March 2025 and July-September 2025 are performing better than earlier cohorts, indicating improvements in underwriting standards and borrower selection.

 

Among states, Bihar remained the largest microfinance market, with a 16 per cent share of the industry's portfolio outstanding. Tamil Nadu reported the lowest 30-plus delinquency rate among major states at 1.88 per cent. All of the top 10 microfinance states recorded lower delinquency levels alongside moderation in portfolio outstanding.