MUMBAI: India’s microfinance institutions (MFIs) are returning to growth mode after almost two years of sector-wide stress, but management commentary indicates the recovery will be measured and cautious as these lenders grapple with geopolitical uncertainty, inflation risks and a structurally altered lending environment.
CreditAccess Grameen Ltd, Spandana Sphoorty Financial Ltd and Satin Creditcare Network Ltd suggested that collection efficiency and asset quality have improved materially, aided by stricter underwriting norms and guardrails introduced after the recent microfinance crisis.
“The sector is healing,” H.P. Singh, chairman and managing director of Satin Creditcare, said during the company’s Q4 earnings call on 12 May.
Portfolios at risk (PAR), a percentage measure of overdue loans by number of days, have declined in the sector. Early-stage PAR in the 1-30-day bucket and the 31-90-day bucket dropped below 1%, while PAR 91-180 declined from 3.4% in March 2025 to 1.2% in March 2026, the best level in five quarters, according to a report on microlending by CRIF High Mark.
“Q4FY26 marks a decisive inflection in our performance trajectory,” Ganesh Narayanan, MD and chief executive officer of CreditAccess Grameen, said on 8 May, adding that portfolio stress indicators were reverting to pre-crisis levels.
The recovery comes after defaults plagued the sector since the middle of 2024, led by over-leveraging, lax underwriting, a slowly fraying traditional lending model and a regulatory clampdown. However, MFIs said the rebound has fundamentally changed their approach.
“We prioritized collections first, then portfolio maintenance and only then growth,” Narayanan said.
Analysts are cautious about the turnaround in the sector and said revival would be conditional on various factors.
Sharper, leaner
“The MFI sector hasn't fully turned the corner, but the darkest days appear to be over,” said Nirav Shah, managing director of Equiris Capital. “Institutions that emerge from this cycle sharper, leaner and more digitally equipped will shape the future of financial inclusion in India and beyond. The underlying demand hasn't wavered; what the sector now owes its stakeholders is better execution and stronger governance.”
“While a significant portion of the asset quality stress now appears to be behind us, some degree of residual delinquencies is likely to continue surfacing over the near term,” said Prakash Agarwal, a partner at Geofin Capital. “We do not foresee a sharp rebound in sectoral growth immediately.”
From the perspective of banks, lending to MFIs has increased, with collections stabilizing, overdue buckets declining and fresh slippages lower, Rajiv Anand, MD & CEO of IndusInd Bank, said during its Q4 earnings call.
“With this stabilization in place, we have begun scaling disbursement gradually and expect the coming year to be one of calibrated growth rather than contraction in this segment,” he said.
Microfinance institutions should start normalizing from Q1, said Jaideep Iyer, executive director at RBL Bank.
Despite improving conditions, Spandana Sphoorty continues to reject 60% to 65% of loan applicants, MD Venkatesh Krishnan said during its Q4 earnings call on 5 May. The company added that 98% of its disbursements now go to borrowers who are currently on repayments.
Satin Creditcare has also tightened borrower filters, saying its “sourcing-to-disbursement ratio of 39% reflects genuine selectivity.”
The stricter stance follows the implementation of self-regulatory guardrails such as the three-lender cap and the ₹2 lakh borrower exposure ceiling, which companies say are reshaping the sector.
Growth plans
Microfinance lenders are once again predicting healthy growth in FY27 although their executives repeatedly stress that expansion would remain disciplined rather than aggressive. On a consolidated basis, Satin Creditcare anticipates 25-30% growth of assets under management (AUM) for 2030.
“…we've revised it from ₹25,000 crore to ₹32,000 crore, looking at this scenario across in the next four years,” company executives said. During the March quarter, the company’s AUM grew 19% on year to ₹15,174 crore.
As of 31 March, microfinance’s total loan book size stood at ₹3.38 trillion, up 5% from the previous quarter, according to Equifax, a major credit bureau.
Executives have also flagged global risks, especially the conflict in West Asia, as a key uncertainty. According to CreditAccess Grameen, the war has increased provisioning assumptions.
“The new ECL (expected credit loss) model has incorporated a higher weightage for major external event scenarios, resulting in an additional provisioning of ₹39 crore in Q4,” the management said.
MFIs said prolonged disruption in the fuel and energy markets could affect borrower repayment capacity. While Satin Creditcare has not reported any stress because of the geopolitical crisis as of now, it said rising fuel prices could trigger inflationary pressures.
The sector continues to face multiple headwinds, including the lingering impact of recent credit-cycle disruptions, a challenging macroeconomic environment and continued constraints around availability and cost of funding, Agarwal of Geofin Capital said.
“In this backdrop, stronger and well-capitalized institutions with robust underwriting frameworks, diversified liability franchises and disciplined collection mechanisms are likely to consolidate market share over the medium term,” Agarwal said.
Individual loans
MFIs are also diversifying beyond the traditional joint liability group (JLG) lending model, under which a group of individuals—usually women—form a group to guarantee each other's loans.
“It is expanding into individual business loans, mortgage-backed loans and two-wheeler financing,” CreditAccess Grameen said.
Spandana plans a more tightly underwritten individual loan product with personal credit assessment and mandatory e-NACH repayment systems, which automate recurring payment obligations.
According to Satin Creditcare, 17% of its consolidated assets now come from non-microfinance businesses, a share it seeks to increase to 30% by 2030. Even so, the company said group lending remains central.
“For us, JLG will remain our mainstay,” Singh said.
