New Delhi, August 14
The stress continues in the Indian microfinance industry, which is expected to see muted loan growth for a few more quarters, till 2Q-3QFY26 before recovery begins, noted a report by Morgan Stanley.
The report stated that growth in assets under management (AUM) for microfinance institutions (MFIs) has slowed or even declined in recent quarters. In 4QFY25, some institutions posted double-digit declines in quarterly growth.
It stated, "We see continued stress, muted loan growth for few more quarters (till 2Q-3QF26) before recovery begins"
Highlighting some companies, the report stated that Spandana Sphoorty recorded the sharpest drop at 24 per cent, followed by Asirvad MFI with an 18 per cent fall. IndusInd Bank and Fusion MFI posted declines of 5 per cent.
While Bandhan Bank reported a 7 per cent drop in 1QFY26.
Even for lenders that managed positive growth, such as IIFL Samasta and Muthoot Micro, the pace was much slower than earlier quarters.
The report also highlighted that the Gross non-performing assets (GNPA) or gross stage 3 ratios have also deteriorated. Fusion MFI's GNPA rose from 2.9 per cent in 4QFY24 to 9.4 per cent in 2QFY25 and 12.6 per cent in 3QFY25.
Credit costs remained elevated, reflecting the higher expenses of covering potential loan losses.
Other lenders such as Muthoot Micro, Belstar MFI, and CREDAG also posted high cumulative credit costs, indicating sustained pressure on profitability.
Delinquencies have been high as well. For loans overdue between 31 and 180 days (PAR 31-180), NBFC-MFIs and banks reported similar levels at the end of March 2025, at 7.1 per cent and 6.6 per cent respectively.
The report stated that NBFCs were lower at 3.8 per cent and the overall trend showed a steady rise through FY25.
The data suggested that the sector continues to grapple with asset quality issues, weak growth momentum, and high costs, with signs of recovery expected only after the next few quarters.
— ANI
Reader Comments
MFIs became too aggressive with lending without proper checks. Now we're seeing the consequences. They should focus more on financial literacy before giving loans. ðŸ§
The pandemic's aftereffects are still haunting the sector. Many borrowers in villages haven't recovered fully. Government should consider some relief package for both lenders and borrowers.
Interesting analysis. In other emerging markets we've seen similar microfinance stress patterns post-crisis. India's situation seems more prolonged though. The 2026 recovery timeline seems optimistic to me.
Bandhan Bank's performance is disappointing. They were pioneers in this space. Shows even established players are struggling. Maybe time for consolidation in MFI sector?
The real victims are women self-help groups who rely on these loans. MFIs need better recovery mechanisms but also more empathy. Financial inclusion shouldn't come at cost of harassment.
We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.