India’s microfinance sector is witnessing challenges due to a visible a visible slowdown in credit disbursement. The annual disbursement volumes for the sector declined by 21 per cent and value by 7 per cent. This divergence signals a shift from aggressive expansion to portfolio consolidation and risk calibrated lending. These observations were made in the latest Microfinance Insights Report (April 2026) released by Equifax. The industry’s total portfolio outstanding reached ₹3.38 lakh crore as of March 2026, registering a 5 per cent quarter-on-quarter growth. The report notes that this divergence signals a shift from aggressive expansion to portfolio consolidation and risk-calibrated lending.
The report points out that the NBFCs and NBFC-MFIs (Non-Banking Financial Company - Micro Finance Institution) emerged as the most stable segments, maintaining lower delinquency levels compared to the industry average, indicating stronger underwriting practices and tighter credit monitoring frameworks. This trend suggests that lenders are prioritising credit discipline over growth, particularly in a macro environment marked by cautious lending.
The report further says that while the overall portfolio continues to expand, the slowdown in disbursements reflects demand moderation and tighter credit filters. Total disbursements for Jan–Mar 2026 stood at ₹79,622 crore while active loans reached ₹10.42 crore, indicating sustained borrower engagement despite slower credit flow. NBFC-MFIs continue to dominate the sector, contributing 47 per cent of disbursement share, reinforcing their leadership in last-mile credit delivery.
Interestingly, geographically, the microfinance sector remains concentrated, with the top five states accounting for 56 per cent of the total portfolio outstanding. The report observes that states such as Bihar, Tamil Nadu, and Uttar Pradesh continue to anchor the sector’s growth, though most regions reported a decline in disbursement volumes. Notably, Uttar Pradesh stood out with a 2 per cent growth in disbursements, bucking the broader trend.
However, despite quarterly growth, the sector saw a 10 per cent year-on-year decline in portfolio outstanding, dropping from ₹3.75 lakh crore in March 2025 to ₹3.38 lakh crore in March 2026.
This reflects a cyclical correction phase, as lenders recalibrate exposure and focus on improving asset quality.
“The microfinance sector seems to be entering a phase of measured growth, where lenders are consciously balancing expansion with asset quality. The improvement in delinquency metrics indicates stronger credit frameworks and a more resilient borrower base. While disbursement trends reflect near-term caution, the underlying fundamentals of the sector remain robust,” said Subhankar Mishra, interim MD for Equifax Credit Information.
Experts at Equifax Credit Information say that the latest data indicates that a structural shift is underway in India’s microfinance ecosystem. Overall the sector is moving away from a phase of aggressive, high-growth lending toward a more disciplined approach to credit expansion, where lenders are prioritising sustainability over scale. This transition seems evident in the reduced disbursement volumes alongside a steady portfolio base, indicating a clear pivot from volume-driven growth to a sharper focus on portfolio quality.
“The consistent improvement in delinquency metrics suggests that institutions are actively recalibrating risk, marking a broader shift from risk accumulation to risk optimization. Together, these trends point to a maturing sector that is becoming more resilient, data-driven, and focused on long-term stability rather than short-term growth spikes,” added Mishra.