Microfinance Industry's Strategic Shift

The microfinance sector, once a beacon of financial inclusion, is witnessing a significant transformation. Financial institutions are increasingly cautious, reducing their exposure to small-ticket loans below Rs 50,000 due to rising default concerns.

Changing Loan Portfolios

The gross loan portfolio (GLP) has seen a notable decline, dropping to Rs 3.59 lakh crore by June 2025 from Rs 4.33 lakh crore the previous year. This marks a 17% year-on-year decrease. The trend is clear: lenders are favoring larger loans, with those above Rs 1 lakh doubling their share in the portfolio.

Regional Impacts and Industry Response

States like Odisha, Tamil Nadu, and Karnataka have experienced the sharpest declines in GLP. Non-bank microfinance institutions (NBFC-MFIs), despite remaining the dominant players, have also seen their portfolios shrink. The industry's focus has shifted towards risk management and ensuring portfolio stability, moving away from aggressive growth strategies.