Microfinance is Back: India’s ₹3.31 Lakh Crore Portfolio just Flipped Positive after 2 Years

Key Takeaways
 

1. India’s microfinance gross loan portfolio rose 3.2% to ₹3.31 lakh crore in Q4 FY26. Disbursements jumped 25.8%, while loan quality improved sharply, according to CRIF High Mark’s Microlend report.
    
2. In Q3 FY26, the sector was still contracting year-on-year. Portfolio-at-risk was as high as 4.4%, while active borrowers were falling more quickly.

India’s Microfinance Sector shows first signs of real Recovery in Two Years

India’s microfinance sector is slowly returning to stability. After nearly eight quarters of decline, the industry’s gross loan portfolio (GLP) rose 3.2% sequentially to ₹3.31 lakh crore in March 2026, according to CRIF High Mark's Microlend report. This is the first sequential growth since mid-2024.

However, the yearly picture remains weak. The portfolio is still 13.2% lower than last year. Many borrowers are still leaving the system. Active borrowers fell 3.2% to 6.9 crore. Small lenders and rural households may continue facing limited credit access in the near term.

What does this mean for Millions of Low-Income Borrowers across India?

The recovery in disbursements directly impacts India’s low-income households. Disbursements rose 25.8% quarter-on-quarter to ₹77,555 crore in Q4 FY26. Loan volumes also increased 22.8% to 12.61 crore accounts. This means more people can now access credit for small businesses and daily expenses.

States such as Bihar, Jharkhand, and Uttar Pradesh reported strong portfolio growth. These are among India’s most financially underserved regions. Larger loans are also showing better repayment trends. Ticket sizes above ₹80,000 recorded lower default rates across most risk categories, according to CRIF High Mark data.
 

Experts believe the Sector is improving, but Risks remain

CRIF High Mark said the improvement in asset quality reflects tighter underwriting standards, stronger collection efficiency, and the impact of regulatory safeguards. 

NBFC-MFIs led this recovery. Their share of the portfolio rose to 43.7% in March 2026 from 38.9% a year earlier. They also contributed 33.8% of sequential disbursement growth.

Experts say the sector’s problems developed over time. Over-lending and multiple borrowings had increased default rates sharply. The current shift shows improvement, as 95% of borrowers now deal with three or fewer lenders. 

Analysts believe sustained recovery will require continued regulatory support and stronger income growth for low-income borrowers.

Conclusion

India’s microfinance sector is moving carefully toward recovery. The Q4 FY26 numbers are encouraging. However, the yearly portfolio is still down by more than 13%, and millions of borrowers remain outside the credit system. A fully stable sector is still some distance away for India’s crores of low-income families.

FAQs 

1. Did India’s microfinance loan portfolio fall sharply before recovering in Q4 FY26?

Yes. India’s microfinance sector was facing a slowdown before the recovery in Q4 FY26. Portfolio growth had weakened, borrower numbers were falling, and loan stress remained high. The latest CRIF High Mark report now shows the first signs of recovery after nearly two years.