Microfinance sector set for strong comeback, MFI AUM growth seen at 20%: Crisil

Mumbai (Maharashtra) [India], July 1 (ANI): Microfinance institutions (MFIs) are expected to return to stronger growth this financial year, with their assets under management (AUM) projected to expand around 20 per cent, up sharply from 4 per cent growth in the previous fiscal, driven by a recovery in microfinance lending and faster expansion in non-microfinance loans, according to a Crisil Ratings report released on Wednesday.
The report said MFI AUM growth will be supported by a gradual recovery in the core microfinance portfolio, which is expected to grow around 13 per cent after slowing last fiscal. It added that the bigger growth driver will be the expanding non-microfinance portfolio, comprising gold loans, MSME loans, loans against property and individual loans.
"After aligning with the Guardrail dispensation, microfinance disbursements have seen a gradual uptick over recent quarters, supported by tighter control over portfolio quality," said Malvika Bhotika, Director, Crisil Ratings.
She added that the improvement is reflected in loans originated after the industry-wide lending norms came into effect in August 2024.
"Accounting for ~80% of MFI AUM, the portfolio at risk over 90 days is low at below 1% for this book," Bhotika said.
According to the report, MFIs have increasingly focused on lending to existing customers with good repayment records rather than acquiring new borrowers. As of March 2026, around 66 per cent of their AUM comprised loans to borrowers in their second lending cycle or more, compared with 53 per cent two fiscals earlier. The average ticket size of such loans has also increased by around 15 per cent to nearly Rs 59,000 since last fiscal.
The report said MFIs are also increasingly using the Credit Guarantee Fund for Micro Units (CGFMU) scheme for fresh disbursements, which helps reduce potential credit losses, improves lender confidence and supports access to funding.
Alongside the recovery in traditional microfinance lending, the sector is diversifying into other loan segments.
"MFIs are increasingly focusing on secured offerings including gold loans, secured MSME loans and loans against property, aside from individual loans," said Prashant Mane, Associate Director, Crisil Ratings.
"In the last one year itself, the share of such loans in their AUM rose to 14% from 6% (over fiscals 2026 and 2025). We see this darting to ~18% by the end of this fiscal," he added.
Crisil Ratings said policy support has also aided this shift.
It noted that the Reserve Bank of India lowered the requirement for qualifying assets in total assets to 60 per cent from 75 per cent in June 2025, giving MFIs greater flexibility to diversify beyond traditional microfinance lending and expand cross-selling opportunities.
However, the report cautioned that the sector remains exposed to localised socio-political disruptions and weather-related income shocks, while the possible emergence of El Nino conditions and their impact on the monsoon and rural incomes remain key risks to watch. (ANI)