Microfinance portfolios continue to shrink as lenders tighten underwriting standards amid continued stress

India’s microfinance industry saw a lot of stress over the last two years. In this backdrop, the assets under management of the industry continue to shrink as companies tighten underwriting standards and look to restrict the leverage at the borrower level. Also, smaller lenders continue to face a liquidity crunch, which is also weighing on their disbursements.

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Overall, the total outstanding microfinance portfolio stood at over Rs 2.69 lakh crore at the end of December 2025, down 22 per cent from Rs 3.48 lakh crore in December 2024, according to a report by Equifax and Sidbi.

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The factors behind the continuing portfolio contraction are persistent stress in asset quality, albeit the extent has been on a decline, leading to tightening of underwriting standards; adoption of guardrails to restrict the number of loans and leverage at a borrower level and liquidity constraints, particularly in smaller lenders, leading to lower disbursements, the Microfinance Pulse report noted.

“Periods of accelerated growth are often followed by consolidation, and this phase appears to be restoring balance in the system,” said Aditya Chatterjee, Managing Director, Equifax.

Industry disbursements for the October–December quarter rose 6 per cent from a year ago to Rs 63,348 crore, with NBFC-MFIs now accounting for 44 per cent of new sourcing, while private banks have continued to curtail their exposure, seeing a significant 26 per cent contraction in disbursal, as per the report.

Notably, the industry continues to shift to higher ticket sizes. Average ticket size in October-December 2025 stood at  Rs 61,253, compared with Rs 52,748 in October-December 2024, a 16 per cent year-on-year increase, the data showed.

“The rise in average ticket sizes indicates that lenders are more comfortable with higher exposure to existing borrowers with a good track record, rather than a sign of stress-led borrowing,” said Chatterjee.

The share of loans below Rs 50,000 has significantly declined to 17 per cent in October-December 2025 from 33 per cent in the year-ago quarter. Meanwhile, the share of loans above Rs 75,000 has gone up to 38 per cent from 25 per cent in the same period.

The delinquencies by days past due have come down for various time periods ranging from 1-29 days up to 90-179 days. The overall industry delinquency (30-179 days past due) has declined to 3.90 per cent in December 2025 from 6.92 per cent in December 2024, reflecting lower incremental slippages and write-offs taken by lenders, according to the report.