Microfinance sector shows signs of recovery in Q4FY26 after a prolonged period of challenges: MFIN

The Micro Finance Industry Network (MFIN) in its latest report said that after a prolonged period of challenges, the microfinance sector has shown early signs of recovery with the industry portfolio witnessing a sequential uptick in the fourth quarter of the financial year 2025-26 (Q4FY26).

The report stated ‘Data for Q4FY26 indicates early signs of recovery in the sector. After seven quarters of portfolio contraction, this quarter witnessed a QoQ uptick of over 3%’. As of March 31, 2026, the industry portfolio stood at ₹3,25,174 crore.

According to the report, the portfolio expansion was supported by quarterly disbursement of ₹77,524 crore, the highest level seen in the past seven quarters, though still below the peak achieved in Q4FY24. Alok Misra, chief executive officer and director of MFIN, said ‘We can now say that despite the tough two years, the industry is turning the corner as evidenced by an uptick in portfolio and continued improvement in Portfolio At Risk.’

Further, the report said that the improvement in growth was mirrored by an improvement in asset quality. Despite seven quarters of contraction, the credit quality has returned to pre-March 2024 levels.

Besides, the report stated, funding conditions also improved in FY26. NBFC-MFIs received total debt funding of ₹77,867 crore during FY26, an increase of 30.9% as compared with FY25. It mentioned ‘During FY 25-26 Banks contributed 77.4% of the borrowings received, 12.2% from Non-Bank entities, 4.6% from ECB, 3.9% from others and 1.9% from AIFIs.’

Besides this, the aggregate assets under management also improved to ₹1.4 lakh crore, up 4.4% YoY and 10.2% sequentially, for Q4FY26. The report also highlighted that asset quality for PAR (portfolio at risk) period of 31-180 days improved from 6.1% a year ago to 2% in Q4FY26. PAR for 1-180 days also improved to 2.6% from 4.4% in Q4FY26.

On the contrary, due to RBI’s stringent regulations, MFIs served fewer customers, which reduced loan accounts by 20.4% with marginal increase in branches.