Microfinance asset quality improves further

In June, microfinance asset quality stress continued to decline, with the share of portfolio at risk dropping to 2.3% from 2.6% three months earlier, according to CRIF High Mark data. This marked a significant improvement from 7.1% a year ago and 7.6% as of the end of March 2025. The data covers loans that were unpaid for up to 180 days from their due date, excluding those unpaid beyond 180 days.

Overall, overall risk management remained robust, bolstered by the impact of regulatory safeguards, the credit information bureau reported in its latest quarterly analysis. Loan originations slowed due to seasonal influences during the quarter. The decline in stressed loans was attributed to lenders' aggressive write-offs of bad loans across the board.

The microfinance sector has been trending towards improved performance and larger loan sizes, with average loan amounts increasing to Rs 62,100 by the end of June from Rs 53,600 a year prior. Larger borrowers with strong repayment histories have been prioritized by lenders. Notably, Bihar and Jharkhand witnessed the most significant shift, with the share of loan originations above Rs 1 lakh rising to 16% in Bihar (up from 9.8%) and 10.3% in Jharkhand (up from 7.7%) over the past year.

Tamil Nadu led the sector with the highest share of loan originations above Rs 1 lakh at 30%. Microfinance disbursements totaled Rs 61,100 crore in the first quarter, a 20% decrease from the previous quarter due to seasonal factors. NBFC-MFIs contributed 45% of the origination value, accounting for 44% of the portfolio share in June, up from 38.8% a year earlier.