Microfinance Loan Book Shrinks While Early Delinquency Levels Show Signs of Improvement

In a subdued September quarter, India’s microfinance sector entered a slower, more controlled phase of balance-sheet consolidation as lenders prioritised internal clean-up, borrower risk filtering and existing-to-lender relationships rather than volume-led growth.

According to the latest quarterly report on the microfinance sector by credit bureau CRIF High Mark, Gross Loan Portfolio (GLP) as of September 2025 stood at Rs 345.6 lakh crore, declining by 16.5 per cent year-on-year and 3.8 per cent sequentially. 

The moderation pattern closely tracked the fall in active loans, which contracted 19.3 per cent YoY and 6.3 per cent QoQ. The latest quarter, however, suggests that the “rate” of moderation is easing, even though the underlying directional trend remains soft.

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Origination behaviour underlines that directional pivot with originations value increasing 6.5 per cent QoQ despite a 2.1 per cent QoQ drop in disbursal volumes, confirming a ticket-size led shift and a sharper lender focus on existing borrowers over fresh borrower acquisition.

Active borrowers fell 6.1 per cent QoQ and 12.8 per cent YoY, showing that lenders continue to stay conservative on onboarding incremental first-time microfinance customers.

Portfolio quality, however, improved in aggregate. PAR 1–180 days past due (DPD) eased to 5.99 per cent, down 42 basis points (bps) YoY and 107 bps QoQ. Early delinquency in PAR 1–30 and PAR 31–90 buckets also moderated, indicating that behaviour-level stress reduction is visible earlier in the cycle despite a shrinking base portfolio.

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But late-stage stress is still elevated. PAR 180+ (including write-offs) rose sharply to 15.32 per cent -- up 971 bps YoY and 289 bps QoQ, pointing to the legacy clean-up still playing out in the tail of the book.

Importantly, origination quality markers in the 7–9 MOB PAR30+ window improved across most lender types.

Borrower exposure is also more tightly ring-fenced: the share of borrowers exposed to up to three lenders rose from 83.1% in September quarter in 2024 to 91.2 per cent in September 2025, suggesting that industry guardrails are binding and consolidation is becoming structurally visible.