Growth in assets under management (AUM) of non-banking finance company — microfinance institutions (NBFC-MFIs) is set to accelerate to 20 per cent in FY27 from 4 per cent in FY26, driven by growth in the non-microfinance portfolio, even as the microfinance portfolio will see a gradual recovery, said Crisil Ratings.
The agency assessed that while the microfinance portfolio is expected to grow 13 per cent, reflecting a gradual recovery after last fiscal’s deceleration, the driver will be the non-microfinance portfolio comprising gold loans, loans to micro, small and medium enterprises (MSMEs), loans against property and individual loans.
“For a few quarters up to the third quarter last fiscal, lending by MFIs was muted because of asset-quality pressures and limited access to funding. But from the fourth quarter, growth began to tick up as challenges eased and this trend is likely to continue. MFIs are steadily expanding their microfinance portfolio given that recent originations have done well,” Crisil Ratings said.
Malvika Bhotika, Director, Crisil Ratings, observed that after aligning with the Guardrail dispensation, microfinance disbursements have seen a gradual uptick over recent quarters, supported by tighter control over portfolio quality.
This is also reflected in the performance of originations after the dispensation began in August 2024. Accounting for 80 per cent of MFI AUM (assets under managment), the portfolio at risk over 90 days is low at below 1 per cent for this book, she said.
Guardrail dispensation refers to measures announced by Micro Finance Industry Network (MFIN) for strengthening microfinance lending that includes limit on number of microfinance lenders per borrower, cap on total indebtedness per borrower and no lending to delinquent borrowers (overdue for more than 60 days).
MFIs prefer seasoned borrowers
The agency noted that MFIs have been increasingly preferring seasoned borrowers. A rising share of new loans are now to existing customers with good repayment history.
It assessed that around 66 per cent of their AUM as of March 2026 comprised loans to borrowers in their second cycle or more, compared with 53 per cent two fiscals back. Apart from this, the average ticket size of such disbursements has risen by 15 per cent to ₹59,000 since last fiscal.
Credit Guarantee Fund
Additionally, as a prudent measure, many MFIs are increasingly covering their incremental disbursements under the Credit Guarantee Fund for Micro Units (CGFMU) scheme to mitigate potential credit losses.
This scheme (Loan defaults till first 3 per cent will be borne by the eligible lending institution. The amount in default over & above 3 per cent will be settled by CGFMU to the extent of 75 per cent on pro-rata basis, subject to the receipt of an auditor’s certificate confirming eligible claim amount), in turn, enables better control over portfolio quality while also enhancing lender confidence, thereby supporting improved access to funding.
However, the microfinance segment remains exposed to idiosyncratic risks ranging from localised sociopolitical disruptions to weather-related income shocks, which can drive sharp volatility in borrower repayment behaviour and credit costs.
The agency said this susceptibility underscores the strategic imperative for microfinanciers to diversify into asset classes beyond microfinance to enhance portfolio resilience and earnings stability.
Prashant Mane, Associate Director, Crisil Ratings, observed that MFIs are increasingly focusing on secured offerings including gold loans, secured MSME loans and loans against property, aside from individual loans.
In the last one year itself, the share of such loans in their AUM rose to 14 per cent from 6 per cent (over fiscals 2026 and 2025). The agency sees this share rising to 18 per cent by the end of this fiscal.
Policy measures
Policy measures have also supported this shift. The Reserve Bank of India had, in June 2025, lowered the requirement of qualifying assets in total assets (net of intangible assets) to 60 per cent from 75 per cent.
The agency said this enhanced the flexibility that MFIs had to expand into adjacencies and increased opportunities to cross-sell, paving the way for more diversified growth. That said, the success of this transition will depend on MFIs’ ability to build robust underwriting capabilities in newer asset classes.
Additionally, the possible emergence of El Niño conditions—potentially impacting the monsoon and rural incomes—bear watching in the road ahead.
Published on July 1, 2026
