Microfinance institutions’ (MFIs) assets under management are set to grow by 20 percent in FY27, after a tepid 4 percent increase in the past fiscal, Crisil Ratings said. Explaining that MFIs offer both micro credit and non-MFI loans, the rating agency said the growth will be driven largely by the latter.
“While the microfinance portfolio is expected to grow 13 percent, reflecting a gradual recovery after last fiscal’s deceleration, the driver will be the non-microfinance portfolio comprising gold loans, loans to micro, small and medium enterprises (MSMEs), loans against property and individual loans,” it said.
Non-micro loans to grow
The non-MFI loans AUM, as a part of the overall pie, shot up to 14 percent in FY26 as MFIs resorted to such segments. The segment is expected to grow further to 18 percent by FY27 end, its associate director, Prashant Mane, said, adding that such entities are increasingly focusing on secured offerings.
The agency said the core MFI segment is exposed to idiosyncratic risks ranging from localized sociopolitical disruptions to weather-related income shocks, which can drive sharp volatility in borrower repayment behaviour and credit costs.
This susceptibility underscores the strategic imperative for microfinanciers to diversify into asset classes beyond microfinance to enhance portfolio resilience and earnings stability.
How industry adapted to changes
For a few quarters up to the third quarter of the last fiscal, lending by MFIs was muted because of asset-quality pressures and limited access to funding, it said, adding that the growth picked up from Q4FY26.
It can be recalled that MFIs were forced to adopt a slew of guardrails to maintain their balance sheet health due to high NPAs, traced back to factors including borrower over-leverage.
“After aligning with the guardrail dispensation, microfinance disbursements have seen a gradual uptick over recent quarters, supported by tighter control over portfolio quality,” Crisil director Malvika Bhotika said.
She added that after the guardrails were set in August 2024, the new disbursements now stand at 80 percent of the industry’s AUM, and the portfolio at risk over 90 days is below the 1 percent mark.
MFIs have increasingly preferred seasoned borrowers over new ones, and as of March 2026, around two-thirds of their AUM comprised loans to borrowers in their second cycle or more, compared with 53 percent two fiscals ago, the agency said.
Additionally, the average ticket size of such disbursements has risen by 15 percent to Rs 59,000 since the last fiscal, it said.