Microfinance Sector Faces Portfolio Slump Amid Private Bank Caution

The microfinance sector saw a 9% drop in outstanding portfolio due to cautious lending by private banks, as per Equifax's report. Despite a decline, assets unpaid for over 30 days improved to 2.5% from 6.4%. Non-bank lenders showed resilience, with NBFC-MFIs increasing their market share significantly.

The microfinance sector in India has experienced a 9% decrease in its outstanding portfolio over the past year until April, primarily due to increased caution from private banks, a recent Equifax report revealed. The sector's total portfolio fell to Rs 3.34 lakh crore as per the April 2026 figures.

Encouragingly, the amount of assets with overdue payments exceeding 30 days improved markedly, falling to 2.5% compared to 6.4% the previous year. Active loans also saw a 21% reduction, down to 10.28 crore, reflecting a strategy to favor larger loan amounts.

The report highlighted that non-bank lenders achieved better asset-quality results, with their outstanding loans decreasing by only 4% during this period. Meanwhile, NBFC-MFIs boosted their market share to 43% from 39%, and NBFCs grew to 14% from 12%.

Conversely, private banks faced a market share decline from 32% to 25%, indicating significant hesitancy in the market. While small finance banks maintained a steady market share of 15%, geographical data showed Bihar, Uttar Pradesh, Rajasthan, and Jharkhand enjoying positive growth in disbursements.