The worst may be over for microfinance institutions (MFIs) as disbursements showed significant year-on-year growth in the second quarter of fiscal 2026, after a long gap of five quarters where disbursements were subdued or saw declining growth.
Disbursements of largest MFI CreditAcess Grameen (CA Grameen) rose 33 per cent year-on-year to ₹5,322 crore in Q2FY26. Disbursements rose 22 percent in the first quarter after the MFI reported four consecutive quarters of declining year-on-year growth in its disbursements.
Satin Creditcare’s disbursements grew 6 per cent year-on-year and 17 per cent quarter-on-quarter to ₹2,421 crore in the second quarter. Muthoot Microfin’s disbursements stood at ₹2,274 crore in the second quarter, over ₹1,775 crore and ₹2,035 crore of disbursements in the third quarter of FY25 to the first quarter of FY26, respectively. Spandana Sphoorty’s payouts increased from ₹33 crore in April 2025 to ₹427 crore in September 2025.
“The growth would vary from institution to institution. But I think we will not have the growth rate that we saw earlier, which was between 25 and 40 percent. It will be a cautious growth in the range of around 10 percent, which is best for the industry as a whole. We are approaching it by not growing much above 10 percent,” said SatinCredit Creditcare CMD HP Singh.
“As we have seen positive trends in collections, processes and attrition factors, we are paying out. Since the last three-four months, we have been paying out but not exaggerated given various factors. Growth is likely to be cautious from now on,” he said.
MFIs were forced to curb fresh disbursements in FY25 after they recorded a rise in non-performing assets (NPAs) due to excessive indebtedness of borrowers, political developments in some states and rapid growth of MFIs themselves. The industry’s self-regulatory organizations (SROs) had to introduce new guardrails, including not granting loans to customers with a debt of more than Rs 2 lakh, not granting loans to borrowers who have more than three outstanding loans and not granting loans to a defaulter customer, among others.
Jiji Mammen, CEO of Sa-Dhan, a Reserve Bank of India (RBI) recognized SRO for the MFI sector, says the third quarter of FY25 was the worst in terms of decline in loan growth and asset quality for MFIs. Since then, data shows that PAR (Portfolio at Risk) levels and portfolio quality are gradually improving.
“There is a significant increase in disbursements in the September quarter, as shown in the quarterly data. Things will get better as the banks and financial institutions start lending more to MFIs. Banks will be interested in lending to the microfinance sector to achieve their growth targets and priority sector lending targets. They may be a bit selective in choosing which MFIs to lend to, but overall lending to MFIs will pick up in the second half of the fiscal Improve 2026,” he said.
He added that MFIs must continue to pay attention to borrowers’ repayment ability, their existing debts and their income levels. The joint liability group mechanism will remain in place, but Mammen believes that the assessment needs to be a little more individual-focused. We expect asset quality to be stable from now on. “The worst is over for the MFI sector,” he says. END
Published on November 23, 2025