MFI credit grows after 7 quarters, borrower base continues to shrink: RBI

The RBI said borrower base shrank by 22.7 lakh in the latest quarter, indicating that while lending activity has started picking up, the sector is still witnessing consolidation in its customer base

Microfinance loans increased for the first time after seven consecutive quarters of decline, although the number of borrowers continued to contract during the January-March 2026 quarter, according to the RBI's latest Financial Stability Report (FSR) released on Tuesday.

The RBI said the borrower base shrank by 22.7 lakh in the latest quarter, indicating that while lending activity has started picking up, the sector is still witnessing consolidation in its customer base.

The central bank also pointed to a continued improvement in asset quality as the share of 31-180 days past due (DPD) declined for the fifth successive quarter. This reflects that the asset quality has improved after the guardrails were adopted by the sector.

 

According to the report, the 31-180 DPD of banks stood at 2.5 per cent, which is the highest among all lenders involved in MFI lending. This was followed by 2.0 per cent each by overall and small finance banks, 1.9 per cent of NBFC-MFI, and 1.6 per cent of NBFCs.

Another positive trend highlighted by the RBI was the decline in borrower leverage. The share of borrowers with loans from three or more lenders fell to 9.7 per cent in March 2026.

NBFCs continue to play a critical role in financing MSMEs and microfinance enterprises, supporting financial inclusion and employment.

Although NBFCs' credit growth to MSMEs moderated slightly, it remains robust with improving asset quality. Meanwhile, combined NBFC and NBFC-MFI credit to the microfinance sector, accounting for 56.7 per cent of total credit, expanded by 5.9 per cent in H2FY26, the RBI said in the report.