MUMBAI: With the bad loan trouble continuing to linger, the share of the microfinance pie has steeply declined, led by banks, which saw their share plunging by 33.6% in Q3. They were followed by small finance banks whose share fell by 12%, MFIs by 11.9%, and non-banks by 9.7%, pulling down the overall industry loan book by 7.3% to Rs 3,14,728 crore in the third quarter from the September period and by 18.3% on-year.
The industry body MFIN said the lower rate of fresh loan disbursals shows that the industry is getting out of the woods finally, saying the slipping portfolio numbers do not show two things -- the rate of decline has been arrested to a large extent and the fall is accentuated by an around 5% shift from MFIs to retail portfolios in Q3, with the majority of this shift driven by banks.
During the third quarter, MFIs controlled 42.1% of the market, making them the largest lenders in the microfinance sector, followed by banks at 26.7%, while small finance banks and non-banks make up the remaining portfolio, MFIN said Friday in its quarterly report.
Banks hold the second largest share with total loan outstanding of Rs 83,905 crore or 26.7% of the total micro-credit universe. SFBs have a total loan amount outstanding of Rs 55,187 crore with a total share of 17.5%. NBFCs account for another 12.5% and other MFIs account for 1.2% of the universe.
The total portfolio includes those 180 days plus delinquent assets portfolio of Rs 53,551 crore.
The decline in portfolio has also led to a substantial fall in the number of clients being served, with around 50 lakh clients having lost access to formal finance.
Total disbursements in the sector inched up to Rs 60,350 crore in Q3, marginally higher than Rs 56,677 crore in Q1. Disbursements are mainly accounted for by banks and large NBFCs and MFIs as the funding winter has led to extreme stress on the liquidity position of small and medium MFIs. In Q3, within the MFIN member base, medium MFIs disbursed Rs 995 crore, while the figure was Rs 503 crore for small MFIs.
The quarter under review also saw the asset quality normalising with 31-90 day delinquency falling to 1.6% from 3.2% in December 2024 and those in the 91-180 bucket falling to 2% from 3.3%.
Alok Misra, chief executive of MFIN, said, “Despite normalisation of credit quality and strict implementation of MFIN guardrails to check any over-indebtedness, the sector continues to face liquidity issues."
He expressed the hope that the liquidity issue will be resolved in Q4 with the likely launch of the guarantee scheme for wholesale lending and that the sector will enter a growth phase.
The total number of active loan accounts was 10.5 crore as of end December 2025. On an annualised basis between December 2024 and December 2025, the gross loan portfolio has degrown by 18.3%. As of December 2025, MFIs are the largest provider of micro-credit with a loan amount outstanding of Rs 1,32,418 crore, accounting for 42.1% of the total industry portfolio.
The top 10 states constitute 83% of the loan book and Bihar continues to be the largest market in terms of portfolio outstanding followed by Tamil Nadu and UP. Among the top 10 states, Tamil Nadu has the highest average loan outstanding per account at Rs 34,491 followed by Kerala at Rs 30,584.
From a regional angle, the East and the Northeast are the biggest market with 35.4% of the industry pie, followed by the South (27.8%), West (14.2%), North (15%) and Central (7.6%) regions.