New Delhi, Nov 28 (NationPress) The outstanding portfolio of microfinance firms in India has decreased by over 14 percent as of September 30, now standing at Rs 3,39,510 crore compared to Rs 4,08,049 crore at the conclusion of the previous fiscal year’s second quarter (Q2 FY25), according to a report from the Micro Finance Industry Network (MFIN) released on Friday.

Furthermore, microfinance institutions supported by Non-Banking Financial Companies (NBFC-MFIs) continue to dominate the sector, accounting for 39.2 percent of total MFI lending, with banks following at 31.4 percent. The remaining share of the portfolio is attributed to Small Finance Banks (SFBs) and NBFCs.

Despite this downturn, the microfinance portfolio has contracted by 16.8 percent during the second quarter of the current financial year (Q2 FY26), as indicated by the report.

MFIN reported that as of September 30, microfinance activities are present in 36 states and union territories, covering 718 districts.

Dr. Alok Misra, CEO and Director of MFIN, stated, "The ongoing funding squeeze has led to a sixth consecutive quarter decline in the microfinance portfolio down to Rs 3.39 lakh crore. This has resulted in nearly 50 lakh clients exiting the formal finance system."

Interestingly, the Portfolio at Risk (31-90 days) has improved to 1.09 percent, with 98 percent of clients remaining within the MFIN Guardrails, indicating disciplined lending practices within the sector.

Dr. Misra emphasized the urgent need for liquidity to preserve the financial inclusion gains achieved over the years.

A prior report from Crisil Ratings suggested that the assets under management (AUM) of NBFCs in India are expected to grow steadily by 18-19 percent this fiscal year and in FY27, surpassing Rs 50 lakh crore by March 2027.

This growth will be fueled by enhanced consumption and favorable policy adjustments, including GST rationalization, along with low inflation rates.

These factors are anticipated to bolster retail credit demand. However, varying impacts on growth outlooks will depend on risk calibration and funding access across different entities and asset categories.

According to Crisil Ratings Chief Ratings Officer Krishnan Sitaraman, "Vehicle finance and home loans are likely to experience stable growth amidst increasing competition. However, NBFCs will need to exercise caution regarding heightened customer leverage, particularly in the micro, medium, and small enterprises (MSME) and unsecured loan segments."