Microfinance Portfolio Shrinks but Asset Quality Improves in Q2

The microfinance sector in India experienced a continued decline in its gross lending portfolio during the September quarter, dropping 16.5% year-on-year to Rs 3.45 lakh crore as of September 30, 2025. This represents a 3.8% decrease from the June quarter's Rs 3.59 lakh crore. The number of active microloans also contracted, falling 19.3% on-year and 6.3% quarter-on-quarter to 12.4 crore borrowers. Despite the shrinking portfolio, the sector demonstrated improved asset quality and resilience. The amount disbursed between July and September rose by 6.5% to Rs 60,900 crore compared to the previous quarter. Loans in the Rs 50,000-1 lakh segment remained dominant, while loans above Rs 1 lakh saw their share double to 15%, driven by banks and Non-Banking Financial Companies (NBFCs). Measures like capping the number of lenders per borrower have been adopted, with borrower exposure to up to three lenders increasing to 91.2%. Dues unpaid for up to 30 days reduced to 1.41%, and those unpaid for 31-90 days fell to 1.84%. Sachin Seth, Chairman of Crif High Mark, highlighted the sector's resilience, lenders' prudence in customer selection and credit underwriting, and a maturing credit ecosystem balancing growth with sustainability.

Impact This news has a moderate impact on the Indian stock market, affecting the performance and outlook of banks and NBFCs with significant microfinance operations. Investors will monitor asset quality trends and the sector's ability to balance risk with growth. Rating: 6/10.

Difficult terms and their meanings: Credit Underwriting: The process where lenders assess the risk of lending money to a borrower by evaluating their financial history, creditworthiness, and ability to repay. Borrower Exposure: The total amount of money a borrower owes to one or more lenders. NBFCs: Non-Banking Financial Companies, which are financial institutions that provide banking-like services but do not hold a banking license.