MFI AUM Growth to Accelerate Sharply in FY27
Microfinance institutions (MFIs) are poised for a strong comeback in the current financial year, with their assets under management (AUM) expected to grow by approximately 20%, according to a report by Crisil Ratings released on Wednesday. This marks a significant acceleration from the 4% growth recorded in the previous fiscal year. The recovery is attributed to a rebound in core microfinance lending and faster expansion in non-microfinance loan segments.
Core Microfinance Portfolio to See Gradual Recovery
The report highlights that the core microfinance portfolio is expected to grow around 13%, after a slowdown last fiscal. However, the primary growth driver will be the non-microfinance portfolio, which includes gold loans, MSME loans, loans against property, and individual loans. Malvika Bhotika, Director at Crisil Ratings, noted that disbursements have gradually increased since the industry aligned with the Guardrail dispensation, supported by tighter portfolio quality controls. She added that for loans originated after the new lending norms took effect in August 2024—accounting for 80% of MFI AUM—the portfolio at risk over 90 days is below 1%.
Shift Toward Existing Borrowers and Larger Loans
MFIs have increasingly focused on lending to existing customers with strong repayment records rather than acquiring new borrowers. As of March 2026, approximately 66% of MFI AUM comprised loans to borrowers in their second lending cycle or beyond, up from 53% two fiscals earlier. The average ticket size for such loans has also increased by about 15% to nearly Rs 59,000 since last fiscal.
Diversification Into Secured Lending
The sector is diversifying beyond traditional microfinance. Prashant Mane, Associate Director at Crisil Ratings, stated that MFIs are increasingly focusing on secured offerings such as gold loans, secured MSME loans, and loans against property, alongside individual loans. Over the past year, the share of such loans in MFI AUM rose from 6% to 14% (between fiscals 2025 and 2026), and Crisil expects this share to reach 18% by the end of the current fiscal. The Credit Guarantee Fund for Micro Units (CGFMU) scheme is also being used more extensively for fresh disbursements, reducing potential credit losses and improving lender confidence.
Policy Support and Risks
Policy changes have aided this shift. In June 2025, the Reserve Bank of India reduced the requirement for qualifying assets in total assets from 75% to 60%, giving MFIs greater flexibility to diversify. However, the report cautions that the sector remains vulnerable to localised socio-political disruptions and weather-related income shocks. The potential emergence of El Nino conditions and their impact on monsoon and rural incomes are key risks to monitor.
