Microfinance business has declined for the second consecutive time in the financial year 2026. Microfinance means giving small loans to those people who are not able to easily get loan from the bank. This loan is of very small amount, like Rs 10 thousand to Rs 1 lakh, that too without any collateral. In villages or urban settlements, microfinance companies or banks form groups and provide money. Talking about the figures, there has been improvement in the quality of loans. The total loan portfolio by September 2025 reached Rs 34.56 lakh crore, which is 3.8 percent less than the previous quarter and 16.5 percent down from the year before.
This decline has come because the sector has turned towards risk-based lending and the portfolio is being closely monitored after the 2022 framework of RBI. Small loan giving companies have now become alert, so that the risk is reduced.
The number of new loans taken decreased
According to CRIF High Mark’s Microlend September 25 report, along with the decrease in the loan portfolio, the number of active loans and customers has also decreased. Active loans have come down by 6.3 percent and customer base by 6.1 percent in the quarter. Lenders have reduced adding new borrowers, now the focus is on portfolio quality and compliance with the new rules.
The number of new loans has decreased, but the total value of disbursement has increased by 6.5 percent to Rs 60,900 crore. This increase has happened because the average loan size is larger. Loans per size have increased by 8.7 percent from the last quarter and 21.3 percent from a year ago to Rs 60,900. NBFC-MFIs have taken the largest share of new disbursements at 41.6 per cent, while Small Finance Banks have grown the fastest with a jump of 24.7 per cent in their disbursements.
Loan giving pattern changed
Not only this, now the pattern of giving loans has changed. Bigger loans are being taken more often. The Rs 50,000 to Rs 80,000 category has taken 40 percent of the total loans, this is now the largest segment. The share of loans above Rs 1 lakh more than doubled from a year ago to 15 percent.
This is mostly due to banks and NBFCs, where their originations in this bracket have increased by 44 percent and 25.1 percent. The share of small loans, i.e. Rs 30,000 to 50,000, has fallen from 42.2 per cent to 25.6 per cent. Poor families are getting slightly bigger loans so that their needs can be met.
Signs of improvement in portfolio quality
There are signs of improvement in portfolio quality, especially in the early stages. The share of overdue loans up to 180 days has increased to 5.99 percent in September, which is less than 7.06 percent in June. There has also been continuous improvement in the delay buckets of 1 to 30 days and 31 to 90 days. Delinquency is decreasing in recent loan vintages, meaning new loans are being repaid better. Collection efficiency, measured by the net forward flow ratio, increased across all delinquency categories from August to September, meaning people are returning money on time.
There has also been a change in the exposure of the borrowers, now it is towards consolidation. The share of customers associated with three or less lenders increased to 91.2 percent in September 2025, which was 83.1 percent a year ago. Those with outstanding credit up to Rs 1 lakh cover 68.5 per cent of the portfolio, while exposure above Rs 2 lakh is with only 2.3 per cent. This is the regulatory guardrail for the credit limit. Risk reduced in all exposure categories, especially in loans above Rs 1 lakh.
