Mumbai's microfinance institutions (MFIs) are showing signs of recovery after a challenging two-year period marked by sector-wide stress. However, the recovery is expected to be cautious as these lenders navigate geopolitical uncertainties and inflation risks.
Institutions like CreditAccess Grameen Ltd, Spandana Sphoorty Financial Ltd, and Satin Creditcare Network Ltd report improvements in collection efficiency and asset quality, largely due to stricter underwriting practices implemented following the recent microfinance crisis.
H.P. Singh, chairman and managing director of Satin Creditcare, noted during a Q4 earnings call that "the sector is healing." This sentiment is echoed by Ganesh Narayanan, MD and CEO of CreditAccess Grameen, who highlighted a significant turnaround in performance indicators.
Improved Metrics
Recent data indicates a decline in portfolios at risk (PAR), with early-stage PAR in the 1-30 and 31-90-day categories dropping below 1%. The 91-180 day PAR also saw a reduction from 3.4% in March 2025 to 1.2% in March 2026, marking the best performance in five quarters.
Despite these improvements, analysts urge caution. Nirav Shah from Equiris Capital remarked that while the worst may be over, the sector has not fully turned the corner. He emphasized that institutions must focus on better execution and governance to meet stakeholder expectations.
Disciplined Growth Ahead
While lending to MFIs has increased, with banks reporting stabilized collections and lower overdue accounts, growth is expected to be measured. Rajiv Anand, MD & CEO of IndusInd Bank, mentioned that disbursements would scale up gradually, aiming for calibrated growth in the coming year.
Spandana Sphoorty continues to maintain a selective approach, rejecting 60% to 65% of loan applicants, while Satin Creditcare has tightened its borrower filters to ensure quality lending.
Future Growth Projections
Looking ahead, microfinance lenders are optimistic about growth in FY27, with Satin Creditcare projecting a 25-30% increase in assets under management (AUM) by 2030. As of March, the total loan book for microfinance stood at ₹3.38 trillion, reflecting a 5% increase from the previous quarter.
However, global risks, particularly the conflict in West Asia, have raised concerns about provisioning assumptions, prompting MFIs to adjust their expected credit loss models accordingly.
Diversification Strategies
In response to changing market dynamics, MFIs are diversifying their lending portfolios beyond traditional joint liability group (JLG) models. This includes expanding into individual business loans, mortgage-backed loans, and two-wheeler financing.
CreditAccess Grameen and Spandana Sphoorty are developing more tightly underwritten individual loan products, incorporating personal credit assessments and automated repayment systems.
Despite these shifts, group lending remains a core focus for many institutions, with Satin Creditcare aiming to maintain its emphasis on JLGs even as it diversifies.
