Executive Summary
Introduction
In FY 2025–26, the global economy remained resilient but faced a challenging and
increasingly uncertain environment, marked by geopolitical tensions, trade tariff
imposition and policy uncertainty, elevated public debt, and uneven growth across
economies. Global growth remained around 3.3%, with emerging and developing
economies, particularly in Asia, continuing to provide an important source of global
momentum. At the same time, inflationary pressures moderated in several economies,
although the pace of disinflation remained uneven and risks from geopolitical
conflicts, trade disruptions and financial-market volatility persisted. Against this
backdrop, the Indian economy demonstrated continued resilience, supported by domestic
demand, investment activity and improving macroeconomic stability. While external
uncertainties and global headwinds posed challenges, India continued to remain among
the faster-growing major economies, reinforcing the resilience of its domestic growth
drivers. India's real GDP growth for FY 2025–26 was estimated at 7.7%, reinforcing
its position among the fastest-growing major economies.
The microfinance sector experienced a significant contraction during FY 2025–26, with
loan outstanding declining substantially (11%) on a year-on-year basis, reflecting the
continued impact of sector-specific stress. The contraction was particularly
pronounced among Banks and Small Finance Banks (SFBs), while NBFC-MFIs maintained
steady growth and accounted for the largest share of the sector's portfolio. The
downturn was driven by a combination of borrower overleveraging, tighter underwriting,
liquidity and funding constraints, elevated credit risk, and a cautious approach to
fresh lending. Multiple borrowing and high borrower indebtedness had earlier weakened
repayment capacity and contributed to asset-quality stress, prompting SROs to bring in
some stricter guardrails and lenders to strengthen credit discipline. At the same
time, the sector showed early signs of stabilisation towards the end of FY 2025–26:
portfolio growth turned positive sequentially in Q4, after almost 8 quarters,
disbursements recovered, and credit quality improved. Thus, FY 2025–26 can be
characterised as a period of consolidation and recalibration, with lenders focusing on
strengthening portfolio quality, controlling borrower indebtedness, improving
collections and restoring sustainable credit growth.
At the end of FY 2025–26, the total loan portfolio of the microfinance sector stood at
approximately ₹3.34 lakh crore, according to Equifax India data. The sector witnessed
a significant contraction in outreach, with Loan accounts declining by 21% to around
1,040 lakh and the active client base declining by 13%. In contrast, the SHG-Bank
Linkage Programme continued to register positive growth in terms of loan outstanding,
with outstanding credit reaching approximately ₹3.33 lakh crore across 83.24 lakh SHGs
with loan outstanding. The programme covered around 145.63 lakh SHGs, representing
approximately 16.95 crore households linked through savings accounts.
Despite the contraction in the JLG portfolio, repayment performance showed a marginal
improvement at the aggregate level. MLIs including MFIs, NBFCs and BC companies
reported 90+ days past due (DPD), including overdues beyond 179 days, at 4.73% in FY
2025–26, compared with 4.83% in the previous year. The marginal improvement
notwithstanding, elevated delinquency levels continued to warrant close monitoring of
portfolio quality, borrower indebtedness and repayment capacity.
Sensing the trouble brewing in the microfinance sector, the industry leaders and SROs
came up with remedial measures in the form of additional guardrails, the first set
being issued in July 2024, Guardrails 2.0 in April 2025, and Guardrails 3.0, without
any change, were issued on 10 April 2026. These restrictions brought some controls in
lending and made the situation better. The situation is expected to further improve in
the current financial year.
Bharat Microfinance Report
The Bharat Microfinance Report (BMR) 2026 is a comprehensive sectoral publication
brought out since 2004, and provides information on the microfinance sector from
multiple sources, providing a consolidated view of the sector at one place. The Report
draws on data from Credit Information Companies (CICs) as well as information directly
collected from Micro Lending Institutions (MLIs). Data relating to the SHG-Bank
Linkage Programme is sourced from NABARD, while relevant information from other
institutions and sectoral stakeholders is also incorporated.
Reporting of the information
For this year, the data has been collected from 178 Micro Lending Institutions (MLIs),
which represent more than 98% of MLI business in the country. The entire sectoral data
is from Equifax India, one of the Credit Bureaus. It covers data of almost all
micro-lenders, viz. MLIs, Banks and SFBs involved in microfinance lending in India.
There is also detailed information on SHG Bank linkage, and the BC model of financing
covered in the Report.
Highlights of the Performance of microfinance in the country
Microfinance Sectoral Performance (based on CIC data)
The Chapter 2 provides the sectoral data obtained from the Credit Information Bureau.
As per RBI mandate, the regulated entities are required to submit their account-wise
lending data and its outstanding, collection, delinquency information, etc in a
prescribed format to all four CICs, once a week. Some of the bigger MFIs provide this
data on a daily basis. But banks generally follow the RBI norms of 7 days. Hence,
there is a weekly updation of all loan accounts extended by regulated entities, and
available at one place.
For the current year's report, the data has been sourced from Equifax India, which has
reported a combined loan outstanding of ₹3,33,907 Cr. for the microfinance sector,
against 1,040 lakh loan accounts, as on 31 March 2026. The share of different
institutions in loan outstanding is as follows: NBFC-MFIs: ₹1,41,663 Cr. (42%); Banks:
₹85,299 Cr. (26%); SFBs: ₹50,725 Cr. (15%); NBFCs: ₹46,155 Cr. (14%); and Others:
₹10,064 Cr. (3%). The share of loan accounts of various institutions is as follows:
NBFC-MFIs: 435 lakhs (42%); Banks: 311 lakhs (30%); SFBs: 160 lakhs (16%); NBFCs: 98
lakhs (9%), and Others: 36 lakhs (3%).
Performance of Micro Lending institutions (MLIs) reporting the data
For the detailed analysis of the lending done by micro-lending institutions (MLIs),
which include NBFC-MFIs, NBFCs, Other MFIs -Section 8 companies, Societies and Trusts
and also BC companies, data has been collected directly from these institutions. A
total of 178 MLIs, which cover 98% of the total MLIs portfolio of these categories of
institutions, have provided the data for this report.
Growth and Outreach of microfinance in the country
These MLIs operate in 28 States, 5 Union Territories, and 686 districts in India.
Whereas the data from Equifax India shows operations in all 35 States/UTs and in
nearly 780 districts of the country. The total branch network of these institutions
was 36,716, with 2.86 lakh employees engaged with them. Together, they are servicing
over 558 lakh active micro clients, with a total loan outstanding of ₹2,43,975 Cr.,
including a managed portfolio of ₹73,027 Cr. The managed portfolio consists of ₹51,004
crores lent by Business Correspondents. About 88% of loans were reported as used for
income-generating purposes.
The CIC data shows a total active client base of 6.72 Cr. with a loan outstanding of
₹3,33,907 Cr. The active client base and loan outstanding for the sector declined by
13% and 11%, respectively. The top 5 States, as per CIC data, are Bihar, Tamil Nadu,
Uttar Pradesh, West Bengal and Karnataka. Although there was a reduction in the
portfolio, Bihar continues to be the top state, accounting for nearly 16% of the total
portfolio. The Average Ticket Size (ATS) was ₹59,473 and the Average Loan Outstanding
per Unique Active Borrower was ₹49,658 respectively.
Based on the loan outstanding, 12 districts of Bihar, 4 districts each of Karnataka,
Tamil Nadu, and West Bengal, and 1 district from Uttar Pradesh come in the top 25
districts. Within the top 15 districts in terms of loan outstanding, 11 districts have
loan outstanding above ₹2,000 Cr. but less than ₹3,000 Cr., 3 districts have loan
outstanding exceeding ₹3,000 Cr., but less than ₹4,000 Cr. and only 1 district (Purbi
Champaran of Bihar) recorded loan outstanding above ₹4,000 Cr. The combined loan
outstanding of the top 25 districts accounted for 18% of the sector loan outstanding,
while the top 10 districts alone contributed 9%. A notable fact was that the districts
with loan outstanding more than ₹2,000 Cr. declined from 24 in the previous year to 15
this year.
The Self-reported data from 178 MLIs indicates a growth in loan portfolio by 2% and a
decline in client base of 11% for these institutions. The total portfolio managed by
them comprised ₹1,70,948 Cr. (70%) as On-Balance Sheet and ₹73,027 Cr. (30%) of
Off-Balance Sheet Portfolio. The On-Balance-Sheet portfolio had ₹1,47,099 Cr. (86%)
qualified assets and ₹23,849 Cr. (14%) non-qualified assets. Similarly, the
Off-Balance Sheet Portfolio comprised ₹63,420 Cr. (87%) qualified assets and ₹9,606
Cr. (13%) non-qualified assets. The indications are that the MLIs are yet to take
advantage of the relaxed norms for non-qualified assets.
The On-Balance Sheet (On-BS) portfolio of ₹1,70,948 crore, in FY 2026, increased by 3%
on a year-on-year basis, from ₹1,65,268 crore in the previous year. The Off-Balance
Sheet (Off-BS) portfolio remained largely unchanged at ₹73,027 crore (₹72,930 crore in
the previous FY). During the reporting year, 84 MLIs operated as BC agents, with a
total loan portfolio under the BC model standing at ₹51,004 crore, recording a 4%
decline during FY 2025–26.
Asset Quality of microfinance portfolio
As per the CIC data, Asset quality of the sector showed a marked improvement in the
short- to medium-term delinquency buckets, with PAR 30–179 DPD declining sharply to
2.34% as on 31 March 2026 as against 6.63% a year earlier. The PAR 30 to 90 dpd stood
at 0.89% and PAR 90–179 DPD stood at 1.45%. The improvement reflects better asset
quality and stronger collection efficiency. However, the PAR 180+ DPD portfolio is
still high despite the full provision and write-off. This is more due to the different
write-off policy of banks and SFBs. NBFC-MFIs and NBFCs generally do technical write
off continue the collection, although the recovery is very minimal.
Operational and Financial Performance of MLIs
The 'feet on street' model of the microfinance sector continued to have a larger
workforce with 2.86 lakh personnel, which had declined from 3.05 lakh in the previous
year. Of this, 74% of staff were in the field. The share of women in the MLI staff was
only 11%, which recorded a small hike from the previous year. The average number of
active borrowers per credit officer (ABCO) has declined to 210 from 299 in 2024-25,
mainly due to the reduction in total portfolio. The number may improve with an
increase in portfolio and result in more efficient manpower use.
The cost implication for the industry as a whole, as self-reported by MLIs, was that
financial cost formed 36%, and administrative expenses and operational expenses
together formed 37%. The expenditure on personnel cost was at 26%. As a result, the
average operating cost of these MLIs was at 8.47%, which showed an increase from 7.09%
in the previous year. This could be due to a reduction in the denominator, the loan
portfolio and could be corrected with an increased portfolio size. It varied between
different types of institutions and different sizes. The lowest was for the Very Large
MLIs with a portfolio of more than ₹5,000 Cr., which was at 7.89%.
The Effective Yield of these MLIs during the year was at 18.54% and the weighted
average Margin in FY2025-26 stood at 7.64%. The cost of operation, risk cost and net
margin are deducted from the financial margin, indicating that many MLIs are not
earning enough to keep them in profit. The average OSS (Operational Self Sufficiency)
of the MLIs was at 104%. There were 46 MLIs that reported operational self-sufficiency
(OSS) below 100%, indicating that their income was insufficient to cover their total expenses.
The weighted averages of the Return on Assets (ROA) and Return on Equity (ROE) for the
sector stood at 0.21% and 2.51%, respectively. These values were lower in most cases,
with some showing negative values too.
The CAR (Capital Adequacy Ratio) for all types of MLIs remained above the desirable
level of 15%, with NBFC-MFIs having an average CAR of 40.23%. The Leverage
(Debt-to-Equity ratio) of the sector was at 3.0. The sector received funding of
₹1,07,081 Cr. for its business activities, which includes the sale and securitization
of portfolio of ₹15,235 Cr. The fund flow from the lending institutions recorded a
substantial reduction during the year. The total outstanding borrowing of MLIs stood at
₹1,29,128 Cr., at the end of the year, which recorded a significant hike from the last
year. The loans received from the banks and other financial institutions were mostly
for the larger entities, with NBFC-MFIs accounting for nearly 97% of the outstanding
pie. The large category of MLIs (Large and Very Large) had 90% of the share of funds
received, whereas Very Large MLIs alone had 73%.
Self-Help Groups Bank Linkage Programme
The SHG Bank linkage programme has been adopted by the GOI for its poverty alleviation
programme and implemented by the Ministry of Rural Development under a programme
called Deendayal Antyodaya Yojana - National Rural Livelihood Mission (DAY NRLM). The
number of SHGs with savings linkage in the country increased to 145.63 lakh accounts,
as per the NABARD report, covering 16.95 crore households, during the year. The total
bank savings mobilized from these SHGs and placed with the banks was at ₹79,669 Cr at
the end of the year. The number of SHGs credit-linked also decreased during the year,
to 53.48 lakh SHGs with total amount disbursed during the year, amounting to ₹2,21,944
Cr. The average loan disbursed per SHG for FY 2025-26 is reported at ₹4,15,000. The
aggregate NPA of SHG loans has deteriorated in FY 2025-26 to 2%.
Co-lending portfolio Model
The co-lending model is also slowly getting traction. With the recent guidelines on
co-lending, the model will further gain traction. Some of the MLIs have already
entered into a co-lending arrangement with larger entities, but it is still in the
nascent stages. As of 31 March 2026, the total co-lending portfolio stood at ₹1,792
crore, involving 11 MLIs and 12 banks/financial institutions. Banks/FIs funded ₹1,431
crore (80%), while MLIs retained ₹361 crore (20%) on their books, highlighting
co-lending as an emerging channel for accessing larger and relatively lower-cost
funding while retaining credit risk and customer servicing responsibilities.
