Resilient Microfinance Sector Shows Signs of Recovery Despite Shrinking Portfolios

The microfinance sector reported a shrinking lending portfolio but saw improvements in asset quality. The gross lending portfolio dropped, yet disbursements rose. Banks and NBFCs led growth in loans above Rs 1 lakh. Improved asset quality demonstrates a more resilient sector balancing growth and sustainability.

The microfinance industry faced a decline in its lending portfolio during the September quarter, yet showed a notable rise in asset quality, according to a report released on Tuesday. The gross lending portfolio contracted by 16.5% year-on-year to Rs 3.45 lakh crore as of September 30, 2025.

Active loans to lower-income borrowers dropped by 19.3% year-on-year to 12.4 crore. However, disbursements in the July-September period rose by 6.5%, driven by the Rs 50,000-1 lakh loan segment, with loans above Rs 1 lakh accounting for a larger share.

The microfinance sector has reinforced commitments to prudent lending. Chairman Sachin Seth noted improvements in customer selection and credit underwriting practices, contributing to a sustainable and maturing credit system, as reflected in decreased unpaid dues.