Microfin borrower indebtedness rises marginally in Sept after two-year dip

RBI's Financial Stability Report shows microfinance borrower indebtedness edged up in September 2025 after a two-year decline, even as credit and active borrowers fell in H1 FY26

After declining consistently over the last two years, borrower indebtedness in the microfinance sector, measured as the share of borrowers availing loans from three or more lenders, rose marginally in September 2025, according to the Reserve Bank of India’s (RBI’s) Financial Stability Report (FSR) released on Wednesday.

 

What does the RBI say about stress in the microfinance sector? 

In the report, the RBI said: “Though there has been consolidation in the microfinance sector, some stress persists and requires close monitoring.”

 

How did credit and borrower numbers in microfinance change in H1 FY26? 

Credit to the microfinance sector declined for the sixth consecutive quarter, falling 9.3 per cent in the first half of FY26, with total active borrowers in the sector decreasing by 78 lakh. Bank credit to the sector, which forms 47.7 per cent of total credit outstanding to the sector, contracted by 10.6 per cent during the same period.

 

 

How did NBFC and NBFC-MFI lending trends and credit costs move? 

Combined credit from non-banking finance companies (NBFCs) and NBFC-microfinance institutions (NBFC-MFIs) to the microfinance sector, which comprises 51.2 per cent of total credit outstanding to the sector, contracted by 8.5 per cent in H1 FY26. The credit cost of NBFC-MFIs rose sharply from 4.4 per cent in September 2023 to 15.5 per cent in September 2025, due to higher risk provisions and write-offs.

 

What did MFIN report on the microfinance loan book in Q2 FY26? 

According to a recent report by the Microfinance Industry Network (MFIN), the gross loan portfolio of microfinance lenders dropped 17 per cent year-on-year to Rs 3.39 trillion in Q2 FY26 due to funding constraints, leading to nearly 5 million borrowers exiting formal credit.

 

What does the data show on asset quality in microfinance? 

In terms of asset quality, the ratio of stressed assets (31–180 days past due) has been declining for three successive quarters. “Asset quality is showing signs of improvement with the ratio of stressed assets declining in three successive quarters,” the report said.

 

What steps did SROs take to curb stress in microfinance lending? 

Earlier in the year, the two self-regulatory organisations (SROs) for the microfinance sector — MFIN and Sa-Dhan — tightened norms for their members to reduce stress in the sector, imposing a Rs 2,00,000 limit on loans and capping the number of lenders per borrower at three. The SROs also requested their members to stop lending to delinquent borrowers with defaults of over Rs 3,000 for 60 days, instead of 90 days earlier.