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India's microfinance sector under stress: long-term delinquencies double, government launches ₹20,000 crore guarantee scheme

PAR >180 days hit 17.11% by March 2026, portfolio shrank 10% and disbursements fell 21%; Crisil kept a negative outlook even as the worst-case scenario was avoided

マネー· worsening 何が壊れたか·誰の金か ·8 論調 · ·rbtfl 更新 2026年6月27日

Summary

India's microfinance sector ended FY2025-26 under significant strain, even as the acute phase passed. Portfolio at Risk (PAR) exceeding 180 days hit 17.11% by March 2026, more than double the 10.68% a year earlier, meaning one in six rupees lent by MFIs has not been serviced in over six months. Short-term PAR (>30 days) improved to 2.35% (March 2026), suggesting the acute wave peaked. Total portfolio outstanding shrank 10% year-on-year to ₹3.38 lakh crore, annual disbursements fell 21%, and active loans declined to 106 million. The household share relying solely on formal credit dropped from 58.3% to 51.8%, as tightened MFI lending pushed borrowers back toward informal sources. The government launched the Credit Guarantee Scheme for Microfinance Institutions-2.0 (CGSMFI-2.0) on March 20, 2026, a ₹20,000 crore partial-guarantee fund to restore lender confidence. Crisil and ICRA kept negative sector outlooks, citing persistent customer over-leverage (multiple loans from five or more lenders), competitive margin pressure and structural funding gaps for mid-sized entities. Broader NBFCs grew at 15-17% with AUM approaching ₹50 lakh crore, but vehicle finance and MSME lending showed early delinquency warning signs. The RBI's December 2025 FSR classified NBFCs with ₹1 trillion+ assets as upper-layer entities under enhanced oversight.

The split

MFIN (the industry body) framed the data as "past the stress peak," pointing to improving short-term PAR. Crisil and independent credit analysts noted that the 17.11% long-term PAR figure tells a different story: those loans are largely unrecoverable, not deferred. The government guarantee covers only new lending; it does not resolve the existing impaired book. Business Standard's April 2026 assessment called the sector "not out of the woods" despite the lifeline.

By the numbers

  • 17.11%, PAR >180 days (March 2026; from 10.68% a year prior)
  • 2.35%, PAR >30 days (March 2026; improving)
  • ₹3.38 lakh crore, MFI portfolio outstanding (March 2026; down 10% YoY)
  • 21% / 7%, annual decline in disbursement volume / value
  • 106 million, active MFI loans (down 1.2% from 107 million)
  • 51.8%, household reliance solely on formal credit (down from 58.3% in November 2025)
  • ₹20,000cr, CGSMFI-2.0 fund size (launched March 20, 2026)
  • ₹48-50 lakh crore, broader NBFC AUM by March 2026 (sector-wide; healthy)

Why it matters

Microfinance reaches approximately 106 million mostly rural and low-income borrowers, and MFI credit contraction directly reduces purchasing power and financial inclusion at the base of the income pyramid. This matters for Modi's inclusive-growth narrative and for consumption-led GDP growth; if MFI credit stays compressed, rural consumption softens. The sector's over-leverage problem, multiple lenders to the same borrower, was visible in the data for two years before the stress crystallised, raising questions about the RBI's early-warning surveillance.

What to watch

  • Whether CGSMFI-2.0 actually disburses: schemes of this kind often have slow uptake in the first two quarters
  • PAR >180 days in June and September 2026 data: whether it has peaked or is still climbing
  • Crisil and ICRA sector-outlook review (typically biannual)
  • The RBI June 2026 FSR, expected mid-year: whether MFI stress is upgraded to a systemic concern