Microfinance disbursements fall, but asset quality at record levels: Equifax

India’s microfinance sector expanded steadily in the March quarter even as lenders tightened credit filters, with asset quality improving to record levels, according to a report by Equifax.

The sector’s total portfolio outstanding rose 5% quarter-on-quarter to ₹3.38 lakh crore as of March 2026. The growth came alongside a sharp improvement in credit quality, with the 30+ days past due (DPD) delinquency rate falling to 2.3%—the lowest level in recent periods.

The data suggests lenders are shifting focus from rapid expansion to balance sheet stability, even as overall credit growth moderates.
Disbursements decline amid tighter lending

Loan disbursements slowed during the quarter, reflecting cautious lending and some moderation in demand. Total disbursements stood at ₹79,622 crore in the January–March period, while volumes declined 21% year-on-year and value fell 7%.

Despite this, borrower activity remained strong, with the number of active loans at 10.42 crore, indicating continued engagement in the segment.

Subhankar Mishra, interim managing director at Equifax, said the sector appears to be entering a phase of “measured growth,” where lenders are balancing expansion with asset quality.

“The improvement in delinquency metrics indicates stronger credit frameworks and a more resilient borrower base. While disbursement trends reflect near-term caution, the underlying fundamentals remain robust,” he said.

NBFC-MFIs lead, asset quality improves

Non-banking financial companies (NBFCs) and NBFC-microfinance institutions (NBFC-MFIs) continued to show relatively stronger asset quality compared to the industry average, supported by tighter underwriting and monitoring practices.

NBFC-MFIs also retained their leadership in disbursements, accounting for 47% of the total share during the quarter.

Concentration risks persist

Geographic concentration remained elevated, with the top five states accounting for 56% of the total portfolio. Bihar, Tamil Nadu and Uttar Pradesh continued to anchor the sector’s exposure.

While most regions reported a decline in disbursement volumes, Uttar Pradesh stood out with a 2% increase, bucking the broader trend.

Year-on-year portfolio contracts

On an annual basis, the sector’s portfolio declined 10% from ₹3.75 lakh crore in March 2025 to ₹3.38 lakh crore in March 2026, reflecting a cyclical correction as lenders recalibrate exposure and prioritise asset quality.

Mishra said the latest trends indicate a broader structural shift in the microfinance ecosystem, with institutions moving away from high-growth lending towards a more disciplined and sustainability-focused approach.

He added that the combination of lower disbursements and stable portfolios points to a transition from volume-driven growth to a sharper focus on portfolio quality, with lenders increasingly optimising risk and strengthening long-term resilience.