Industry data indicates that the gross loan portfolio (GLP) moderated to ₹3.5 trillion as of June 2025, a sharp ~17% year-on-year contraction from ₹4.3 trillion in March 2024. This recalibration reflects a deliberate slowdown in disbursements, forward flows, and accelerated write-offs as players sought to strengthen balance sheets and tighten underwriting practices. Disbursements also fell 26% year-on-year in the first quarter of FY26, underscoring the cautious stance adopted by lenders.
A significant driver of the sector’s next growth phase is the adoption of digital underwriting, stronger monitoring of borrower overlaps, and the use of proprietary scorecards powered by bureau and in-house data. These measures are reshaping risk frameworks and creating more resilient portfolios. At the same time, product diversification is gaining momentum, with lenders expanding beyond traditional joint liability group (JLG) loans into unsecured business loans, MSME financing, and micro-loans against property—developments expected to reduce cyclicality and improve operating leverage.
Regional variations continue to influence recovery patterns. While Karnataka has shown improving collection efficiencies following regulatory challenges earlier this year, states like Assam remain sensitive due to limited borrower repayment capacity. Seasonal disruptions such as floods in Punjab and Jharkhand have also temporarily pressured collections. Nevertheless, industry-level collection efficiency is on an improving trajectory, aided by sharper recovery efforts and recoveries even from written-off pools.
The funding environment, strained over the past year due to rating downgrades and covenant breaches, is also set to improve as profitability returns. Better access to bank funding and easing borrowing costs should support expansion in the medium term.
In the near term, profitability is expected to remain weighed down by legacy stress and elevated credit costs, with a more meaningful rebound anticipated from the second half of FY26 into FY27. Beyond that, stronger disbursement momentum, moderation in credit costs, and portfolio diversification are likely to drive sustainable growth.With discipline, digital adoption, and a sharper focus on portfolio resilience, the microfinance industry is poised to re-emerge stronger, offering renewed opportunities in India’s financial inclusion landscape.
Credit Access: Buy| Target Rs 1660
CreditAccess Grameen has navigated the recent stress cycle with accelerated write-offs, leaving limited residual risk on its book. Incremental PAR has stabilized at ~40bp and is expected to decline further from 3QFY26, with collection efficiencies improving across states.
The cost of funds has eased to ~9.7% and is likely to fall to ~9.5% by year-end, supporting margins. While 2QFY26 will mirror the softness of 1Q, stronger AUM growth, operating leverage gains, and lower credit costs are expected from 2HFY26.
We project FY25–28 AUM/PAT CAGR of ~20%/~59%, with RoA/RoE at 5.1%/20% by FY27. Strong discipline and execution justify premium valuations.
Fusion Finance: Buy| Target Rs 240
Fusion Microfinance has executed a strategic and operational revamp, strengthening credit policies, technology, and management. This is driving higher disbursements, better collections, and lower attrition.
Tighter underwriting, district risk filters, and stronger recovery have improved asset quality, with flow rates <4% and rising write-backs. Digital onboarding and pre-approved loans (50–60% of disbursements) are boosting efficiency and ticket sizes.
With operations stabilizing, Fusion targets ₹5–5.5b monthly disbursements, scaling to ₹7–8b by FY27 without adding cost. Profitability should return from 3QFY26, with RoA/RoE reaching 4.3%/14% by FY27E.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
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