The Indian microfinance sector's total portfolio outstanding stood at Rs 2,77,053 crore as of March 31, 2026, reflecting a 17% year-on-year contraction from Rs 3,35,060 crore in March 2025, according to the latest MFI Pulse Report brought out by Equifax and SIDBI. Sequentially, however, the data pointed to a turnaround, with the industry recording a 3% quarter-on-quarter increase between December 2025 and March 2026, the first such expansion in several quarters.
Lending Patterns Shift Toward Existing Borrowers
Lending patterns indicated a structural shift towards existing borrowers, as institutions reduced exposure to new customers. According to the data, the share of new-to-credit borrowers declined steadily:
- 33% in Jan-Feb-March 2023
- 26% in Jan-Feb-March 2024
- 21% in Jan-Feb-March 2025
- 20% in Jan-Feb-March 2026
In contrast, the share of existing-to-credit borrowers rose from 67% to 80% over the same period, reflecting a preference for customers with established credit histories.
Borrower Leverage Moderates Across Key States
Borrower leverage moderated across key states after regulatory tightening. Between September 2025 and March 2026, the proportion of borrowers with four or more active loans fell across the top five states:
| State | Sep 2025 | March 2026 | Change |
|---|---|---|---|
| Bihar | 4.07% | 2.03% | -2.04 ppt |
| Karnataka | 2.18% | 1.25% | -0.93 ppt |
| Uttar Pradesh | 2.11% | 1.24% | -0.87 ppt |
| Tamil Nadu | 1.60% | 1.12% | -0.48 ppt |
| West Bengal | 1.51% | 0.69% | -0.82 ppt |
West Bengal remained the least leveraged market, with the proportion falling to 0.69%.
Loan Sizes Continue to Rise
Loan sizes continued to rise as lenders shifted towards higher-value disbursements. The share of loans above Rs 75,000 increased from 26% in Jan-Feb-March 2025 to 41% in Jan-Feb-March 2026. At the same time, the share of loans below Rs 50,000 declined. This trend pushed up the average ticket size by 19% over five quarters, from Rs 52,789 in Jan-Feb-March 2025 to Rs 62,945 in Jan-Feb-March 2026.
Asset Quality: Mixed Picture
Asset quality trends presented a mixed picture. The overall 30+ days past due delinquency rate improved significantly, falling from 6.64% in March 2025 to 2.35% in March 2026, supported by tighter underwriting and a reduction in early-stage delinquencies in the 30–179 days bucket. Near-term stress remained contained, with 1–29 days past due at 1.21% in March 2026.
At the same time, stress in older loan cohorts intensified. The 180+ days past due bucket rose from 10.68% in March 2025 to 17.11% in March 2026. According to the report, this increase reflects ageing stress from loans originated during the 2024 expansion phase, suggesting that lenders may need to undertake significant write-offs to clean up balance sheets.
Implications for Treasury and Credit Professionals
For CFOs and treasury professionals tracking microfinance exposure, the stabilization in Q4 is a positive signal, but the rising 180+ day delinquency warns of potential balance sheet clean-up costs. The shift toward larger loan sizes and existing borrowers indicates a more cautious underwriting environment, which may improve credit quality over time. However, the need for write-offs could impact near-term profitability and capital adequacy for lenders. Investors should monitor how institutions manage legacy stress while capitalizing on the nascent recovery.
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