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Key Points

According to Axis Securities, the microfinance sector in India will experience reduced stress levels over the next two quarters. They anticipate that difficult conditions will persist during the first half of FY26, marked by high loan defaults. Factors like legal changes in Karnataka and Tamil Nadu could have significant impacts. However, secured lending and vehicle financing are expected to thrive due to favorable conditions and increased rural incomes.

Key Points: Axis Securities Predicts Stress Relief in India's Microfinance Sector

  • Stress in microfinance to decline next two quarters
  • Axis Securities report sees recovery in H2FY26
  • Secured lending and vehicle financiers poised for growth
2 min read

Stress in the microfinance sector should recede over the next two quarters: Report

India's microfinance stress to ease over the next two quarters, says Axis Securities.

"Credit costs will continue to remain elevated for micro-financiers for the coming couple of quarters. - Axis Securities"

New Delhi May 27

The worst is over for India's microfinance sector, with stress levels posed to ease over the next two quarters, said Axis Securities in its latest report.

Microfinance companies are hopeful that growth will return to normal from the second half of the financial year (FY) 2026. However, the report added that the first half of FY26 is likely to remain tough, with higher loan defaults and slower business expansion.

The report says that key factors such as the ongoing impact of the Karnataka ordinance and the possible effects of a similar law in Tamil Nadu will be worth watching, which could affect lending operations.

On the brighter side, secured lending such as home and diversified loans is expected to benefit from favourable conditions, helping those lenders grow at a strong pace of 24 per cent year on year between FY25 and FY27.

The vehicle financiers are expected to benefit from the improved infrastructure spending, better rural incomes and improving capacity utilisation of fleet, enabling vehicle financiers to deliver a robust 19 per cent CAGR growth over FY25-27.

Furthermore, the report added that despite fresh delinquency accretion peaking out, micro-financiers will continue to see elevated slippages and accelerated write-offs in the first half of fiscal 2026.

"Credit costs will continue to remain elevated for micro-financiers for the coming couple of quarters. For other financiers, we could expect asset quality improvement," the report added.

The Axis Securities report expects recovery in both microfinance and credit from H2FY26.

"we expect gradual normalisation in credit costs, thereby supporting earnings. Navigating the headwinds effectively, we expect NBFCs under our coverage to deliver an earnings growth of 23 per cent CAGR over FY25-27E, with improving credit costs being a key improvement driver," the report added.

As per Industry data the business of Micro Finance Institutions (MFIs) industry has risen from Rs17,264 crores in March'12 to Rs3.93 lakh crores as of November 2024.

The microfinance industry operates in over 723 districts, including 111 aspirational districts across 28 states and 8 Union Territories. It also caters to the financial needs of almost 8 crore borrowers. MFIs contribute 2.03 per cent of the gross value added to GDP and support 1.3 crore jobs.

- ANI

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Reader Comments

R
Rajesh K.
This is good news for rural India! Microfinance has been a lifeline for small entrepreneurs in villages. Hope the recovery happens as predicted. The government should also look at simplifying regulations to help this sector grow faster. 🚀
P
Priya M.
While the report sounds optimistic, I've seen firsthand how microfinance companies sometimes push loans to people who can't repay. The Karnataka ordinance was needed to protect vulnerable borrowers. Hope the sector finds the right balance between growth and responsible lending.
A
Arjun S.
The vehicle financing growth projection makes sense with all the new highways being built. My cousin in UP got a loan for an e-rickshaw through microfinance - it changed his family's life. More such success stories needed!
S
Sunita R.
MFIs supporting 1.3 crore jobs is impressive! But I worry about the high credit costs mentioned. These ultimately get passed to borrowers. RBI should monitor interest rates charged to ensure they don't become exploitative.
V
Vikram J.
The growth from ₹17k cr to ₹3.93 lakh cr in 12 years shows how crucial this sector is for financial inclusion. But with great power comes great responsibility - MFIs must focus on financial literacy programs alongside lending.
N
Neha T.
As someone working in rural development, I've seen both sides - MFIs empowering women entrepreneurs but also cases of multiple loans leading to debt traps. Hope the predicted recovery comes with better safeguards for borrowers 🙏

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