Microfinance Credit Grows After Seven Quarters As Borrower Base Shrinks: RBI Financial Stability Report

Mumbai, June 30: Microfinance loans increased for the first time after seven consecutive quarters of decline, although the number of borrowers continued to contract during the January-March 2026 quarter, according to the RBI's latest Financial Stability Report (FSR) released on Tuesday.

Borrower Base Continues To Shrink

The RBI said the borrower base shrank by 22.7 lakh in the latest quarter, indicating that while lending activity has started picking up, the sector is still witnessing consolidation in its customer base.

The central bank also pointed to a continued improvement in asset quality, as the share of 31-180 days past due (DPD) declined for the fifth successive quarter. This reflects that asset quality has improved after the guardrails were adopted by the sector.

According to the report, the 31-180 DPD of banks stood at 2.5 per cent, which is the highest among all lenders involved in MFI lending. This was followed by 2.0 per cent each for overall lenders and small finance banks, 1.9 per cent for NBFC-MFIs, and 1.6 per cent for NBFCs.

Credit Growth Shows Recovery

Another positive trend highlighted by the RBI was the decline in borrower leverage. The share of borrowers with loans from three or more lenders fell to 9.7 per cent in March 2026.

NBFCs continue to play a critical role in financing MSMEs and microfinance enterprises, supporting financial inclusion and employment.

Also Watch:

Although NBFCs' credit growth to MSMEs moderated slightly, it remains robust, with improving asset quality. Meanwhile, combined NBFC and NBFC-MFI credit to the microfinance sector, accounting for 56.7 per cent of total credit, expanded by 5.9 per cent in H2FY26, the RBI said in the report.

(Disclaimer: Except for the headline, this article has not been edited by FPJ's editorial team and is auto-generated from an agency feed.)