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Microfinance sector: Recovery underway, diversification gains focus

ICICIdirect Research 29 May 2026 DISCLAIMER

AUM trajectory in microfinance sector remained flattish at ~₹3.34 lakh crore as of April 2026 (9% YoY degrowth on YoY basis), however, stark variation has been seen among peers. While private banks and SFBs remained selective on growth amid tighter underwriting, NBFC-MFIs continued to gradually gain market share with their portfolio rising to ~₹1.43 lakh crore.
Encouragingly, asset quality improved materially, with 30+ DPD delinquency declining to 2.5% from 6.4% a year ago, indicating gradual stabilisation in the operating environment. Further, large MFIs are increasingly diversifying into secured retail and MSME lending following RBI’s relaxation allowing up to 40% of the loan book to be non-MFI without any dilution in classification.
Players such as Satin Creditcare aims to increase the share of non-MFI businesses to 30% of AUM by 2030 from 17% currently, while Fusion Finance expects secured MSME loans to contribute 15% of its targeted  ₹10,000 crore AUM by FY27. CreditAccess Grameen expects overall AUM growth of 20–25% in FY27, supported by migration of 6–8% borrowers from MFI to higher-ticket retail lending.
The government also continues to support the sector through guarantee-backed initiatives. This has increased the maximum loan limit for large MFIs to ₹1,000 crore from ₹300 crore earlier, subject to ceiling of 20% of AUM being eligible, with overall guarantee pool capped at ~₹20,000 crore. The move is expected to improve funding access, particularly for larger MFIs, and support gradual recovery in sector growth.
We continue to remain constructive on the microfinance sector with anticipation of revival in earnings aided by 1) reversal in business growth, 2) improvement in operational efficiency and 3) sustained healthy collections resulting in substantial decline in credit cost in FY27-28E. in our coverage universe, we remain positive on CreditAccess Grameen with a target price of ₹1,750.

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