Microfinance Portfolio Declines 16.5% in Q2 FY26, Asset Quality Shows Improvement
India's microfinance portfolio contracted by 16.5% year-on-year to ₹3.45 lakh crore in the second quarter of fiscal year 2026, while asset quality displayed signs of recovery, according to a report by Crif High Mark.
Portfolio Shrinks Amid Cautious Lending
The gross microloan portfolio decreased from ₹4.14 lakh crore in the same period last year to ₹3.45 lakh crore as of September 30, 2025. Compared to the June quarter, this represents a 3.8% decline from ₹3.59 lakh crore. The number of active loans to bottom-of-the-pyramid borrowers fell by 19.3% annually and 6.3% quarterly, reaching 12.4 crore outstanding loans as of September.
Disbursements Rise Despite Decline in Active Loans
On a positive note, disbursements increased by 6.5% quarter-on-quarter to ₹60,900 crore during July to September, up from ₹57,168 crore in the previous quarter. Most disbursements were in the ₹50,000 to ₹1 lakh range, while loans exceeding ₹1 lakh doubled their share to 15% year-on-year, mainly driven by banks and NBFCs.
Asset Quality Improves as Lenders Exercise Caution
“Troubles on the asset quality front have led lenders to be cautious over the last few quarters, but there was an improvement,” stated the Crif High Mark report.
Photo Credit
Shashi Shekhar Kashyap / The Hindu
Summary: India's microfinance portfolio has contracted notably in Q2 FY26, yet asset quality is improving due to lenders’ cautious approach and a shift in loan disbursement patterns.