Secured loans to drive MFI AUM growth to 20% in FY27: Crisil Ratings

Rating agency says diversification into gold, MSME and property-backed loans, along with a recovery in microfinance disbursements, will drive growth this fiscal

Microfinance institutions (MFIs) are expected to see assets under management (AUM) grow around 20 per cent in FY27, up from 4 per cent in the previous fiscal, with diversification into secured loans such as gold loans, loans to micro, small and medium enterprises (MSMEs), loans against property and individual loans emerging as the key growth driver, Crisil Ratings said in a report on Wednesday.

 

The core microfinance portfolio, which accounts for around 80 per cent of MFI AUM, is expected to grow about 13 per cent this fiscal as disbursements recover after last year's slowdown. However, the bulk of the growth is expected to come from non-microfinance lending as lenders diversify their portfolios.

   

Lending by MFIs remained subdued until the third quarter of the previous fiscal because of asset quality pressures and limited access to funding. Crisil said lending started recovering in the fourth quarter as these challenges eased, a trend expected to continue.

 

"After aligning with the Guardrail dispensation, microfinance disbursements have seen a gradual uptick over recent quarters, supported by tighter control over portfolio quality. This is also reflected in the performance of originations after the dispensation began in August 2024. Accounting for around 80 per cent of MFI AUM, the portfolio at risk over 90 days is low at below 1 per cent for this book," said Malvika Bhotika, Director, Crisil Ratings.

 

MFIs are also increasingly lending to existing customers with a strong repayment track record. As of March 2026, around 66 per cent of AUM comprised loans to borrowers in their second borrowing cycle or beyond, compared with 53 per cent two fiscals earlier. The average ticket size of such loans has increased around 15 per cent to about Rs 59,000 since the previous fiscal.

 

Many lenders are also covering incremental disbursements under the Credit Guarantee Fund for Micro Units (CGFMU) scheme to mitigate potential credit losses, improve portfolio quality and strengthen access to funding.

 

At the same time, MFIs are expanding their presence in secured lending. The share of non-microfinance loans in total AUM has increased to 14 per cent from 6 per cent a year earlier and is expected to rise to around 18 per cent by the end of this fiscal.

 

"MFIs are increasingly focusing on secured offerings including gold loans, secured MSME loans and loans against property, aside from individual loans. In the last one year itself, the share of such loans in their AUM rose to 14 per cent from 6 per cent (over FY26 and FY25). We see this darting to around 18 per cent by the end of this fiscal," said Prashant Mane, Associate Director, Crisil Ratings.

 

The rating agency said the shift has also been aided by the Reserve Bank of India's decision in June 2025 to lower the minimum share of qualifying assets in total assets to 60 per cent from 75 per cent, giving MFIs greater flexibility to expand into adjacent lending segments.

 

Crisil, however, cautioned that the success of this transition will depend on lenders building underwriting capabilities in newer asset classes. It also flagged localised socio-political disruptions, weather-related income shocks and the possible emergence of El Niño conditions as risks for the sector.