The gross loan portfolio of players in the microfinance space de-grew 13.5 per cent year-on-year (yoy) to ₹3,75,030 crore as at March-end 2025, against ₹4,33,697 crore as at March-end 2024, according to industry body the Micro Finance Industry Network (MFIN).

The de-growth came in the backdrop of issues such as borrower over-leveraging, asset quality and liquidity issues, and a State (Karnataka) bringing in a stringent law to curb coercive loan recovery practices.

The players in the microfinance space include non-banking finance company–microfinance institutions (NBFC-MFIs), banks, small finance banks (SFBs) and NBFCs.

The loan amount disbursed in Q4FY25 declined 34 per cent yoy to ₹70,942 crore (₹1,07,640 crore in Q4FY24), but was up 13 per cent quarter-on-quarter (QoQ) as compared to ₹62,817 crore in Q3FY25.

However, the average loan size increased about 11.5 per cent yoy to ₹53,897 (₹48,322). The number of loans disbursed declined to 132 lakh (223 lakh), but was higher than 118 lakh in Q3FY25.

Alok Misra, CEO & Director, MFIN, said last year (FY 24-25) was a tough year, with multiple factors including a heatwave, external incitement, concerns on overleveraging, Karnataka issue, etc, affecting credit quality. Consequently, funding to the sector also shrank. As a result, credit costs went up and GLP fell.

However, with the adoption of guardrails issued by MFIN, credit quality is improving with PAR (portfolio at risk) 1-90 days of the industry at 4.22% as on 31 March 2025.

PAR 31-180 (days) for all entities except NBFCs has improved or stabilised in comparison to the previous quarter. However, for NBFCs it has weakened to 4.0% from 3.7% (in December 2024).

While PAR 31-180 for NBFC-MFIs and banks improved to 6.6 per cent (6.8 per cent as at December-end 2024) and 6.2 per cent (6.7 per cent), it was flat at 7.2 per cent for SFBs.

Among regulated entities active in the microfinance space, the portfolio of all entity types de-grew, except NBFCs which grew by 4.1% on a y-o-y basis.

As at March-end 2025, the number of unique borrowers was unchanged at 7.8 crore, even as the number of loan accounts declined to 13.3 crore (14.9 crore as at March-end 2024).

The top 10 states (based on universe data) constitute 83.7% (84.4% as at March-end 2024) in terms of GLP.

Bihar continues to be the largest state in terms of microfinance portfolio outstanding, followed by Tamil Nadu and Uttar Pradesh. Among the Top 10 states, Tamil Nadu had the highest average loan outstanding per account at ₹31,131 (₹31,382), followed by West Bengal at ₹30,488 (₹31,146), per MFIN data.

Karnataka portfolio shrinks

The microfinance portfolio outstanding in Karnataka shrunk about 17 per cent y-o-y to ₹35,126 crore (₹42,265 crore), with the average loan size declining to ₹28,296 (₹30,111).

Microfinance players in the southern State faced a crisis in Q4FY25 in the wake of over-borrowing leading to delinquencies, and some borrowers committing suicide. Moreover, a law passed by the State, penalising unregulated MFIs and lenders for coercive recovery practices by imposing a jail term of up to 10 years and a fine of up to ₹5 lakh for violations, had a ripple impact on formal players.

Published on June 11, 2025