Loan disbursals of the microfinance sector declined 25% year-on-year to ₹1.12-lakh crore in Q4FY25 as lenders curtailed exposure and reduced the borrower base in response to growing default stress.
According to the 53rd edition of Micrometer by Microfinance Institutions Network (MFIN), a self-regulatory body for the sector, the number of loans disbursed dropped to 22 million accounts during the quarter, from 34 million in Q4FY24.
“FY25 has been a tough year with multiple factors — heatwave, external incitement, overleveraging concerns and the Karnataka issue — affecting the credit quality. Consequently, funding to the sector shrinked,” said Alok Misra, CEO and director, MFIN.
The industry’s GLP dropped 14% year-on-year to ₹3.75 lakh crore. NBFC-MFIs saw their outstanding portfolio shrink 13.7% to ₹1.48-lakh crore, while bank portfolios declined 15% to ₹1.23 lakh crore. Small finance banks’ microfinance portfolio dropped to ₹59,252 crore in Q4FY25 from ₹74,278 crore in the year-ago period. However, the average loan amount disbursed per account during FY25 rose 12.3% to ₹50,131.
Portfolios at risk (PAR) >90 days — loans overdue by more than 90 days —deteriorated sharply to 5.4% as of March 2025, compared with 2.4% a year ago. PAR 31–180 days worsened to 6.2% from 2.0% in the same period.
Misra noted that the adoption of MFIN’s guardrails is beginning to stabilise the credit quality, with PAR 1–90 days standing at 4.22% as of March 2025.
Macquarie echoed this view, saying early signs of stress abating are visible, thanks to tighter norms around loan limits and the number of lenders per borrower. “This has helped in better portfolio origination and has brought in discipline in the MFI space,” the global brokerage said, adding that the share of borrowers with two or fewer lenders is also inching up.