By:–  Dr. Alok Misra, CEO & Director of Microfinance Industry Network (MFIN)

“The microfinance sector was severely tested over the past year. Aided by guardrails and focus of players on underwriting, the sector is marking a steady and silent recovery. Credit quality of new disbursements has continued to improve and has almost come to the normal levels seen in pre-March 2024. The PAR figures (1-90 days) would have been closer to 1.5% had disbursement volumes not remained subdued. Nearly 98% of borrowers now remain within MFIN’s guardrails—underscoring the sector’s disciplined underwriting and strong adherence to responsible lending practices.

That said, a key area of concern is the sustained contraction of the microfinance portfolio. Q2 FY26 data indicates a 16.8% year-on-year decline in the microfinance loan book, marking the sixth consecutive quarter of degrowth. The fall in funding has directly impacted disbursements; and led to an adverse policy outcome of nearly 65 lakh clients having slipped from microfinance towards informal sources of credit. Looking ahead, with improving liquidity conditions, and sustained discipline, the sector is well-positioned to stabilise and gradually rebuild momentum.”