While the microfinance sector witnessed a 17 per cent year-on-year (yoy) contraction in total portfolio outstanding between March 2025 and March 2026, the latest data indicates an inflection point, with visible greenshoots of recovery and microfinance borrowers graduating to retail, according to a report by SIDBI and Equifax.

The portfolio outstanding (POS) of the microfinance sector, comprising players such as non-banking finance companies – microfinance institutions (NBFC-MFIs), Banks, NBFCs and small finance banks – declined to ₹2,77,053 crore as at March-end 2026 from ₹3,35,060 crore as at March-end 2025 and ₹3,77,706 crore as at March-end 2024.

“While the microfinance sector witnessed stress and a portfolio consolidation over the period FY 2024-26 following a post Covid expansion phase (FY 2021-24), green shoots of a growth recovery are visible,” per the “Micropulse” report.

As at March-end 2026, the number of accounts in the sector declined 21 per cent yoy to 4.20 crore from 5.31 crore. Simultaneously, disbursements declined about 7 per cent yoy to ₹2.50 lakh crore in FY26 from ₹2.70 lakh crore in FY25.

Average ticket size (ATS) rose 17 per cent to ₹59,512 as at March-end 2026 against ₹50,893 as at March-end 2025.

Disbursement in the June-February-March (JFM) 2026 quarter stood at ₹78,938 crore, marking the highest level observed in the past JFM 2023, marking a milestone in the industry’s recovery, signalling a sustained return to growth mode.

“The microfinance industry has shown encouraging signs of recovery. While the portfolio outstanding declined by 17 per cent on a yoy basis, March 2026 marked a turnaround with a 3 per cent sequential growth over the previous quarter, the first time since June 2024 quarter. This reversal signals that lenders are gradually returning to a growth trajectory following a period of consolidation,” the report said.

Rising ETC shares

Analysis of the ETC–NTC mix highlights a structural shift in India’s credit landscape, with a steady move from new-to-credit (NTC) to existing-to-credit (ETC) borrowers over 2023–2026, reflecting tightening lender risk preferences with a focus on existing borrowers.

Over the 4 year period, NTC share has declined from 33 per cent in 2023 to 20 per cent in 2026 as lenders are focusing on existing borrowers with established credit history who can absorb larger amount loans.

The declining NTC share (20 per cent) and rising ETC (80 per cent) mix indicates a transition from credit expansion to credit deepening story of India, the report said.

Industry 30 + (days past due/ DPD) delinquency has declined from 6.64 per cent in March 2025 to 2.35 per cent in March 2026 but long-term stress remains the challenge. Over the same period 180+ DPD has increased from 10.68 per cent to 17.11 per cent.

“While the microfinance industry continues to manage the fallout from riskier loans disbursed in 2024, more recent disbursements are exhibiting significantly lower delinquency levels, indicating improving underwriting standards and stronger borrower selection,” the report said.

Among the top 10 states, the states that saw a de-growth of 10 per cent or more in POS include Karnataka (-28 per cent), West Bengal (-25 per cent), Odisha (-22 per cent), Tamil Nadu and Maharashtra (=20 per cent each), Rajasthan (-16 per cent), Bihar (-14 per cent), Madhya Pradesh (-13 per cent) and Uttar Pradesh (-10 per cent).

Crossovers

Referring to the analysis of the crossover of customers between microfinance and retail banking, the report said a significant 48 per cent of the sampled microfinance borrowers have successfully transitioned into the retail banking sector.

Out of an industry sample of 20 lakh customers 9.6 lakh are now using the retail banking products. These graduated customers hold 12.22 lakh active retail loans. The total retail portfolio outstanding for these customers is ₹14,639 crore.

The report said the borrowing pattern shows a healthy mix of both secured and unsecure credit, with the top 5 retail products availed by these customers being Gold Loan, Property Loan, Housing Loan, Business Loan Unsecured and Personal Loans.

Published on June 17, 2026