At the end of March 2026, the sector’s total outstanding loan portfolio stood at approximately 3.25 trillion rupees, signalling a possible turning point for an industry that had been under significant financial strain. During the January to March quarter alone, lenders disbursed loans worth 775.24 billion rupees, marking the highest quarterly disbursement in the past seven quarters.
The rebound in lending activity suggests a gradual return of credit demand in rural and semi-urban markets, where microfinance institutions play a crucial role in supporting small businesses, agricultural activities, household consumption, and income-generating enterprises. Alongside rising disbursements, the average loan size has also increased steadily. Among non-banking financial company microfinance institutions, the average loan disbursed during financial year 2026 rose to 59,553 rupees, reflecting an 18 percent increase compared to the previous year.
Improvement in asset quality has emerged as another key indicator of recovery. A year earlier, the sector faced mounting stress due to rising delinquency levels. However, repayment performance has since strengthened. Portfolio at Risk for loans overdue between 31 and 180 days declined sharply to 2 percent as of March 2026, down from more than 6 percent a year earlier. This improvement has been observed across banks, small finance banks, non-banking financial companies, and microfinance institutions.
According to Micro Finance Industry Network Chief Executive Officer and Director Alok Misra, the industry is beginning to recover from a prolonged phase of stress, with both portfolio quality and growth showing consistent improvement.
Geographically, the microfinance market continues to be concentrated in eastern and northern regions of the country. Bihar remains the largest market, with outstanding loans valued at approximately 530 billion rupees, followed closely by Uttar Pradesh, while Tamil Nadu ranks third. Together, Bihar, Uttar Pradesh, and Tamil Nadu account for a substantial share of the country’s microfinance activity. More broadly, eastern and northeastern states contribute more than one-third of the sector’s total portfolio, reflecting continued dependence on microcredit in regions with limited access to formal banking channels.
Despite the recovery in loan values, the sector has witnessed a decline in the number of active borrowers. Total active loan accounts across the industry fell to 101 million from 133 million a year earlier. Among Micro Finance Industry Network member institutions, client numbers declined by nearly 16 percent year-on-year. However, the overall value of lending has remained resilient, indicating a strategic shift toward servicing fewer but relatively stronger borrowers after a period of financial stress.
Industry stakeholders remain cautiously optimistic about the outlook. Risks such as irregular monsoon patterns and global geopolitical uncertainties continue to pose challenges for rural income stability. At the same time, the extension of the Credit Guarantee Scheme for Micro Finance Institutions is expected to provide additional support to the sector’s recovery trajectory.
While the industry has not yet returned to full momentum, recent data suggests that the most severe phase of the downturn may have passed, with stabilising credit demand and improving repayment behaviour signalling a gradual but meaningful recovery.
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