After two years of consistent decline, India’s microfinance sector has finally pivoted back toward growth. According to the latest CRIF High Mark report, the gross loan portfolio (GLP) grew by 3.2% quarter-on-quarter, reaching ₹3.31 trillion in Q4FY26. While the sector is still smaller than it was a year ago (down 13.2% YoY), the sequential uptick signals a significant recovery in rural and semi-urban credit demand.
The Shift in Power: NBFC-MFIs vs. Banks
A major trend highlighted in the report is the changing landscape of who is lending to the “bottom of the pyramid.”
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NBFC-MFIs Take the Lead: Specialized microfinance institutions remain the primary engine of growth.
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Banks Recede: The market share of banks in the microfinance space has seen a sharp decline, falling from 32.6% to 26.4% in just one year. This suggests that banks are becoming more risk-averse or focusing on larger ticket retail loans.
Key Performance Drivers
The recovery in the final quarter of the fiscal year was driven by three main factors:
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Increased Loan Origination: The number of loans disbursed jumped to 12.61 million in Q4, up from 10.27 million in the previous quarter.
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Higher Ticket Sizes: The average loan size increased by 18.3% YoY to ₹61,500. Mid-range loans (₹50,000–₹80,000) now dominate the market, accounting for nearly 42% of all new value.
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Tighter Discipline: Borrowing behavior is becoming more regulated, with 95% of borrowers now linked to three or fewer lenders—a direct result of stricter underwriting and regulatory guardrails.
Improving Asset Quality
Perhaps the most encouraging news for investors is the improvement in Portfolio at Risk (PAR) metrics, indicating that borrowers are becoming more consistent with repayments:
| Metric | Dec 2025 | March 2026 | Trend |
| PAR 1-180 Days (Short-term stress) | 4.4% | 2.6% | Significant Improvement |
| PAR 180+ Days (Incl. write-offs) | 17.3% | 16.3% | Moderate Recovery |
Strategic Outlook
This “turnaround quarter” suggests that the microfinance sector has largely digested the post-pandemic stress and the impact of previous interest rate hikes. With asset quality improving and ticket sizes growing, the sector is well-positioned for a more stable FY27. However, the shrinking footprint of banks suggests that the burden of rural credit growth will increasingly fall on NBFC-MFIs, who may need to tap the bond markets (as seen with other large NBFCs recently) to fuel this renewed expansion.
