Microfinance Loan Portfolio Falls 17%, 50 Lakh Borrowers Out Of Formal Credit
“One thing the sector needs now, to ensure that the financial inclusion gains built over decades do not wither away is liquidity,” added Misra
Mumbai: Microfinance loans in India have declined by 17 per cent to Rs 3.39 lakh crore as on September 30, 2025 as lenders have curtailed funds to the sector. This has resulted in nearly 50 lakh borrowers going out of formal finance according to data released by the Micro- Finance Industry Network (MFIN), an industry association of banks, NBFC-MFIs, small finance banks and NBFCs providing microfinance and an RBI-recognized self-regulatory organization. This is the sixth consecutive quarter where the portfolio has declined. The outstanding microfinance portfolio was Rs 4.08 lakh crore at the end of the same quarter last year.
Alok Misra, CEO & Director, MFIN said, “Continued funding squeeze has resulted in sixth consecutive quarter fall in microfinance portfolio to Rs 3.39 lakh crore. This has resulted in nearly 50 lakh clients going out of formal finance. It is ironic as Portfolio at Risk (31-90 days) has improved to 1.09 per cent and 98 per cent of clients are within the MFIN Guardrails showcasing disciplined underwriting in the sector.”
The microlending universe is facing multiple headwinds for the past several quarters, and the regulator has blamed industry practices, including multiple lending to the same borrower by different lenders and charging usurious interest rates with a view to expand profits as among the problems. Faced with high delinquencies, banks have become highly selective in lending to the MFI sector despite the RBI reducing risk weights on bank credit to NBFCs and microfinance sector to 100 per cent from 125 per cent.
Of the total microloans outstanding, NBFC-MFIs contribute 39.2 per cent share making them the largest lenders in the microfinance sector, followed by banks at 31.4 per cent, small finance banks and NBFCs make up the remaining share of portfolio.
“One thing the sector needs now, to ensure that the financial inclusion gains built over decades do not wither away is liquidity,” added Misra.
As of September 30, 2025, microfinance operations are spread across 36 states/UTs and 718 districts.