India’s Microfinance Sector Shows Resilience Amid Credit Slowdown; Delinquencies Hit Record Lows: Equifax Report
Mumbai : The Indian microfinance sector is demonstrating strong underlying resilience despite a visible slowdown in credit disbursement, according to the latest Microfinance Insights Report (April 2026) released by Equifax.
The industry’s total portfolio outstanding reached ₹3.38 lakh crore as of March 2026, registering a 5% quarter-on-quarter growth, even as annual disbursement volumes declined by 21% and value by 7%. This divergence signals a shift from aggressive expansion to portfolio consolidation and risk-calibrated lending.
“The microfinance sector seems to be entering a phase of measured growth, where lenders are consciously 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 of the sector remain robust,” said Subhankar Mishra, interim MD for Equifax Credit Information.
Asset Quality Strengthens Significantly
One of the most notable trends is the sharp improvement in asset quality. The 30+ days past due (DPD) delinquency rate dropped to 2.3%, the lowest recorded in recent periods, with consistent improvement across all lender categories.
NBFCs and NBFC-MFIs emerged as the most stable segments, maintaining lower delinquency levels compared to the industry average, indicating stronger underwriting practices and tighter credit monitoring frameworks.
This trend suggests that lenders are prioritizing credit discipline over growth, particularly in a macro environment marked by cautious lending.
Shift in Lending Dynamics
While the overall portfolio continues to expand, the slowdown in disbursements reflects demand moderation and tighter credit filters.Total disbursements for Jan–Mar 2026 stood at ₹79,622 crore while Active loans reached 10.42 crore, indicating sustained borrower engagement despite slower credit flow.
NBFC-MFIs continue to dominate the sector, contributing 47% of disbursement share, reinforcing their leadership in last-mile credit delivery.
Concentration Risks Persist
Geographically, the sector remains concentrated, with the top five states accounting for 56% of the total portfolio outstanding.
States such as Bihar, Tamil Nadu, and Uttar Pradesh continue to anchor the sector’s growth, though most regions reported a decline in disbursement volumes. Notably, Uttar Pradesh stood out with a 2% growth in disbursements, bucking the broader trend.
Portfolio Contraction Year-on-Year
Despite quarterly growth, the sector saw a 10% year-on-year decline in portfolio outstanding, dropping from ₹3.75 lakh crore in March 2025 to ₹3.38 lakh crore in March 2026.
This reflects a cyclical correction phase, as lenders recalibrate exposure and focus on improving asset quality.
“The latest data indicates that a structural shift is underway in India’s microfinance ecosystem. The sector is moving away from a phase of aggressive, high-growth lending toward a more disciplined approach to credit expansion, where lenders are prioritizing sustainability over scale. This transition seems evident in the reduced disbursement volumes alongside a steady portfolio base, indicating a clear pivot from volume-driven growth to a sharper focus on portfolio quality.
At the same time, the consistent improvement in delinquency metrics suggests that institutions are actively recalibrating risk, marking a broader shift from risk accumulation to risk optimization. Together, these trends point to a maturing sector that is becoming more resilient, data-driven, and focused on long-term stability rather than short-term growth spikes,” concluded Mishra.
