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India's Microfinance Sector Poised for Growth in FY26-28, Says JM Financial

A JM Financial report states India's microfinance sector has reached an inflection point, transitioning from contraction to stabilisation and gradual recovery. Growth over FY26-28 is expected to be driven by selective customer additions, higher ticket sizes, and contributions from non-microfinance portfolios. The report notes that lenders with strong credit controls and diversified portfolios are best positioned for the recovery, though risks related to borrower leverage persist. While the overall portfolio declined in Q3 FY26, NBFC-MFIs showed relative stability, indicating a market repositioning.

Key Points: India Microfinance Growth Forecast FY26-28: JM Financial Report

  • Sector at inflection point
  • Growth driven by selective customer adds
  • Higher ticket sizes key
  • Valuations appear reasonable
2 min read

India's microfinance sector likely to see growth in FY26-28E on stabilisation, selective customer additions: JM Financial

JM Financial report predicts India's microfinance sector growth in FY26-28 driven by selective lending, higher ticket sizes, and portfolio diversification.

"We believe the microfinance sector is at an inflection point. - JM Financial Report"

New Delhi, February 24

The microfinance sector in the country is expected to register growth over FY26-28E, driven by selective customer additions, higher ticket sizes, and incremental contribution from non-microfinance portfolios, according to a report by JM Financial.

The report stated that the microfinance sector has reached an inflection point, transitioning from a period of rapid balance sheet contraction and stress recognition to one of stabilisation and gradual recovery.

"We believe the microfinance sector is at an inflection point. The industry has moved from a phase of rapid balance sheet contraction and stress recognition to one of stabilisation with gradual recovery. Growth over FY26-28E is likely to be driven primarily by higher-ticket sizes, selective customer additions and incremental contribution from non-MFI portfolios," the report said.

It added that valuations across the sector currently appear reasonable when compared to the medium-term potential for return normalisation.

The report highlighted that lenders with lower exposure to multi-lender borrowers, strong credit cost control, diversified portfolios, and robust capital positions are better placed to benefit from the recovery phase.

The report also noted that lenders with visible recovery in return on assets (RoA) and sustainable growth in assets under management (AUM) are likely to perform better. However, it cautioned that some players may continue to face challenges if their profitability normalisation is delayed despite growth ambitions.

According to JM Financial, asset quality in the microfinance sector has likely bottomed out, while disbursement momentum has started recovering. It added that NBFC-MFIs are relatively well-positioned in the current cycle, supported by improving sector conditions.

However, the report highlighted that risks related to borrower leverage and stress in lower-ticket loans still persist. Despite these challenges, the sector appears to be transitioning towards a more stable and disciplined growth phase.

The report also pointed out that the industry gross loan portfolio declined 7 per cent quarter-on-quarter in the third quarter of FY26, reflecting continued borrower consolidation and lender-led de-risking efforts. This contraction was largely driven by banks, which reduced their exposure aggressively.

In contrast, NBFC-MFIs showed relative portfolio stability during the period, while small finance banks (SFBs) and NBFCs reported only modest sequential declines.

This trend indicates a structural repositioning within the lending ecosystem, with banks recalibrating their exposure and specialised microfinance lenders gradually regaining market share.

- ANI

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Reader Comments

A
Arjun K
Finally some positive signs! The sector went through a tough patch. The report's point about lenders with diversified portfolios being better placed makes sense. Can't put all eggs in one basket. Banks pulling back might actually give specialised NBFCs a chance to do what they do best.
R
Rohit P
"Selective customer additions" is a fancy term. In reality, it means many small entrepreneurs and women's self-help groups who genuinely need capital might still find it hard to get loans. The focus on higher ticket sizes worries me—it might leave the smallest borrowers behind. 🧐
S
Sarah B
Interesting read. The structural repositioning mentioned is crucial. If banks are de-risking and NBFC-MFIs are holding stable, it shows the latter have better on-ground risk assessment for this segment. Sustainable growth is better than reckless expansion any day.
V
Vikram M
Good analysis by JM. The sector needed this correction. The past aggressive lending led to multiple loans to the same borrower and created stress. Now with discipline and better tech for credit checks, the recovery should be more solid. Jai Hind! 🇮🇳
K
Kavya N
As someone from a tier-2 city, I've seen the positive impact of microfinance. My aunt used a small loan to expand her tailoring unit. Hope the 'gradual recovery' means these services remain accessible and don't become too corporate and distant from the people they're meant to serve.

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