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India's Microfinance Sector Hits "Inflection Point" as Growth Revives

JM Financial's report indicates India's microfinance sector is nearing an inflection point, marked by the first positive year-on-year disbursement growth in five quarters. The recovery is primarily driven by NBFC-MFIs, alongside a structural shift towards higher-ticket loans. While the overall loan portfolio continues to consolidate, early signs show significant improvement in asset quality and delinquency metrics. The brokerage projects a strong earnings recovery and asset growth driven by higher ticket sizes and selective expansion.

Key Points: India Microfinance Sector at Inflection Point: JM Financial

  • Disbursement growth turns positive after 5 quarters
  • Shift towards higher-ticket loans above ₹50,000
  • NBFC-MFIs lead recovery in disbursements
  • Early delinquency indicators show significant improvement
2 min read

India's microfinance sector approaching "inflection point" as disbursement growth turns positive: JM Financial

JM Financial reports India's microfinance sector shows positive disbursement growth and stabilizing asset quality, signaling a key turnaround.

"India's microfinance sector is approaching an 'inflection point' - JM Financial Institutional Securities"

New Delhi, February 26

India's microfinance sector is approaching an "inflection point," said JM Financial Institutional Securities, citing a revival in disbursement growth and early signs of asset quality stabilisation, even as overall portfolios continue to consolidate.

In its latest thematic report on India NBFCs, the brokerage noted that year-on-year (YoY) disbursement growth turned positive in 3QFY26 for the first time after five consecutive quarters of decline.

Disbursements rose 9.2 per cent quarter-on-quarter (QoQ) and 5.2 per cent YoY, supported by higher average ticket sizes (ATS) and a rebound in loan volumes.

The report highlighted that the recovery in disbursements was primarily led by NBFC-MFIs, which recorded 10 per cent QoQ and 27 per cent YoY growth by value. Banks also posted a sequential uptick of 13 per cent QoQ, though YoY growth remained negative. Small Finance Banks (SFBs) reported moderate growth.

JM Financial observed a structural shift towards higher-ticket loans, with segments above INR 50,000 gaining market share, while sub-INR 50,000 buckets continued to contract. ATS increased 2 per cent QoQ and nearly 16 per cent YoY during the quarter.

Despite the improvement in disbursements, the industry's gross loan portfolio (GLP) declined 7.1 per cent QoQ and 18 per cent YoY in 3QFY26, reflecting ongoing borrower consolidation and lender-led de-risking. Banks led the retrenchment, reporting a sharp 21 per cent sequential decline in portfolio outstanding. In contrast, NBFC-MFIs exhibited relative stability, with only a marginal QoQ decline.

On asset quality, the brokerage stated that early delinquency indicators showed significant improvement. PAR 1-30 declined to around 1 per cent, the lowest level since 4QFY24. NBFC-MFIs outperformed peers across delinquency buckets, while banks continued to report elevated stress, particularly in late-stage delinquencies and write-offs.

JM Financial cautioned that sustainability remains key, pointing to elevated write-offs in lower-ticket segments and the need to closely monitor borrower leverage. Exposure to borrowers with more than three lenders declined sequentially but remained above comfort levels.

Looking ahead, the brokerage expects sectoral growth over FY26-28E to be driven by higher ticket sizes, selective customer additions, and incremental expansion of non-MFI portfolios. It projects a 21 per cent AUM CAGR and a sharp earnings recovery for its coverage universe.

- ANI

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Reader Comments

A
Arjun K
Good to see disbursements growing again. But the shift to loans above ₹50,000 is a bit worrying. What about the very poor who need just ₹10,000-20,000? Microfinance should not forget its original mission of serving the smallest borrowers.
R
Rohit P
The report mentions borrower consolidation. This is crucial. Multiple loans to the same person was a huge problem leading to stress. Hope lenders have learned their lesson and are using the credit bureau data properly now.
S
Sarah B
Interesting analysis. The divergence between NBFC-MFIs and banks is stark. Banks seem to be pulling back aggressively while MFIs are holding steady. Shows the specialized NBFC model might be more resilient in this segment.
V
Vikram M
Positive signs, but caution is key. We've seen cycles before. The "elevated write-offs in lower-ticket segments" is a red flag. Sustainability over the next few quarters will be the real test. Hope for the sake of millions of small entrepreneurs that this recovery is real.
K
Kavya N
As someone who works with a women's self-help group, I can see the change on ground. Loan officers are being more careful, but genuine borrowers are getting funds. The focus on asset quality is a welcome shift from the reckless growth of past years.

We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.

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