Microfinance sector faces funding crunch, default fears amid scrutiny

The microfinance industry is in a bind as funding declines and fears of defaults swirl amid stricter regulatory scrutiny

Sometime towards the end of this month, microfinance institutions (MFIs) hope to get a funding lifeline: The number being bandied about is around ₹6,000 crore, though the demand is much higher. The business is not doing well, to put it mildly. Funding fell to ₹58,109 crore in FY25, a decline of 55.40 per cent year-on-year (Y-o-Y). Confidence levels of lenders (to MFIs) headed south on fears about asset quality, over-leverage and relatively poor collections. The industry’s gross loan book shrank to ₹3.59 trillion in June 2025, down 5.8 per cent quarter-on-quarter and 17 per cent on an annual