Microfinance sector set for strong comeback, MFI AUM growth seen at 20%: Crisil
Mumbai, July 1
Microfinance institutions are expected to return to stronger growth this financial year, with their assets under management 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
Reader Comments
The shift towards secured loans like gold loans and MSME loans is a welcome change. My mother runs a small tailoring business and these MFIs are a lifeline for women entrepreneurs. But the warning about El Nino is real - if crops fail, repayments will suffer. Let's hope the monsoon plays nice this year.
Impressive growth projections. The 20% AUM growth target suggests strong confidence in the rural economy. However, the rapid diversification into secured lending might be a double-edged sword - it reduces risk but also moves away from the core microfinance mission. I wonder if this will ultimately benefit the poorest borrowers or just the slightly better-off.
The CGFMU scheme is a smart move by the government to de-risk lending. My friend works in an MFI in UP and he says the guardrail norms have actually helped clean up the sector. But 13% growth in microfinance portfolio seems modest - rural demand is still not fully recovered. Let's see if the numbers actually materialize.
I'm cautiously optimistic. The 4% growth last year was a disaster and many borrowers faced hardship due to MFI pullbacks. The focus on portfolio quality is important, but I worry that MFIs might become too risk-averse and exclude the truly needy. Hope the RBI's reduced qualifying asset requirement doesn't lead to reckless diversification.
My village in Tamil Nadu has benefited a lot from MFIs. The average loan ticket size increasing to Rs 59,000 is good - shows people are using money for productive purposes like buying livestock or starting small shops. But I pray the local politicians don't start promising loan waivers again. That destroys the
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