Whalesbook
Bihar's microfinance sector showed strong recovery in the March quarter of 2026, with its loan portfolio growing 8.9% sequentially to ₹53,100 crore. This rebound occurs as the broader Indian microfinance industry also recovers from significant stress experienced in 2024-25. However, this growth is tied to evolving lending practices and the industry's overall fragile recovery path.
Loan Size Expansion Boosts Bihar's Revival, Asset Quality Improves
The revival in Bihar's microfinance lending is largely driven by an increase in loan sizes. Loans between ₹50,000 and ₹80,000 now represent 45.2% of all disbursals for the quarter, a shift that has expanded the state's portfolio. This move to higher-value loans has coincided with improved asset quality. Delinquencies in the 31-180 day bucket fell to 2%, bringing Bihar's performance closer to national averages. This contrasts sharply with the severe stress seen in 2024-2025, when Bihar was a focal point for microfinance defaults. Nationally, the microfinance gross loan portfolio (GLP) increased by 3.2% sequentially to ₹3.31 lakh crore in Q4FY26, though it was still down 13% year-on-year, showing a slow industry recovery.
Indian Microfinance Sector Shows Stabilization Amidst Persistent Delinquencies
Bihar's microfinance rebound is happening as the wider Indian industry shows signs of stabilization after significant stress. The overall gross loan portfolio (GLP) grew 3.2% sequentially to ₹3.31 trillion by March 2026, ending an eight-quarter decline. Non-Banking Financial Company-Micro Finance Institutions (NBFC-MFIs) are leading this recovery, increasing their market share to 43.7% by March 2026, up from 38.9% a year earlier, while banks' share decreased to 26.4%.
Despite stabilization, the sector continues to face high delinquency rates. Nationally, loans overdue by more than 30 days (PAR 30+) reached 6.2% in FY2024-25, up from 2.1% the previous year. PAR 90+ also rose to 4.8% from 1.6%. In March 2025, Bihar reported 7.2% of loans overdue by more than 30 days and 4.6% overdue by more than 90 days, both figures higher than the national average at that time. Nationally, the average loan size has climbed to about ₹61,500, indicating a trend towards larger loans.
For listed microfinance companies, Muthoot Microfin had a TTM P/E ratio of -11.81 and a market capitalization of ₹3,565.2 crore as of May 7, 2026. CreditAccess Grameen, another major MFI, posted a P/E ratio of 49.8 with a market cap of ₹24,159 crore. The Indian microfinance market was valued at an estimated USD 7.3 billion in 2025.
Persistent Risks Cloud Microfinance Sector Sustainability
Despite positive growth numbers, significant risks threaten the sustainability of Bihar's microfinance recovery. The state's past role as a 'flashpoint' for microfinance crises in 2024-2025, marked by high defaults and borrower over-indebtedness, requires careful attention. The current growth, heavily dependent on larger loans, could hide existing borrower stress or lead to increased over-leveraging if not managed closely. Rural borrowers, who are historically more vulnerable, continue to show higher delinquency rates.
The sector faces ongoing challenges like borrower over-indebtedness and credit risk. States including Bihar, Tamil Nadu, and Uttar Pradesh are identified as hotspots for delinquencies, contributing significantly to new defaults. NBFC-MFIs also face the risk of 'mission drift,' shifting focus from financial inclusion to profit. Additionally, states with high microfinance penetration, like Bihar (around 80%), may be nearing market saturation, potentially making future growth more difficult. Past political interventions and state regulations have also previously impacted sector stability.
Future Projections for Microfinance
The Indian microfinance market is forecast to grow at a Compound Annual Growth Rate (CAGR) between 9.77% and 11% until 2034, reaching an estimated USD 17.7 billion. The Economic Survey 2025-26 indicates sector stabilization, supported by regulatory adjustments and better asset quality. Initiatives such as credit guarantee schemes are also expected to bolster smaller entities facing liquidity issues, reinforcing the industry's recovery.