India’s microfinance sector witnessed a sharp contraction in FY 2024-25 as multiple stress factors weighed on credit quality and funding flows, according to the Micro Finance Industry Network’s (MFIN) latest Micrometer report.
Releasing its 53rd edition covering the quarter ended March 31, 2025, MFIN said the industry’s gross loan portfolio (GLP) declined 13.5% year-on-year to Rs 3.75 lakh crore. The drop comes amid operational headwinds such as heatwaves, external agitation, rising overleveraging concerns, and regional issues in Karnataka, said Dr Alok Misra, CEO & Director, MFIN.
“FY25 has been a tough year. Credit quality challenges impacted funding to the sector, pushing up credit costs and leading to a portfolio decline. However, adoption of guardrails recommended by MFIN is helping stabilise asset quality,” Misra said.
As of March-end, the industry served around 7.8 crore unique clients across 718 districts in 36 states and union territories. While banks, NBFC-MFIs and small finance banks all posted portfolio degrowth, NBFCs were the only category to register growth at 4.1% year-on-year.
Disbursements also remained under pressure. The total loan amount disbursed during the year fell by 16.9% compared to the previous fiscal, while the number of new loans disbursed dropped by 25.4%.
Eastern, North-Eastern and Southern states continue to dominate the sector, accounting for 62.7% of the total portfolio.
The report noted signs of improvement in asset quality. Portfolio at risk (PAR) in the 1–90 days bucket stood at 4.22% as of March 31, while PAR 31–180 fell to 2.2% from 6.3% a year ago.
MFIN expects liquidity to improve, aided by the Reserve Bank of India’s recent measures and regulatory relaxations for NBFC-MFIs, supporting a gradual recovery in FY26.
