Microfinance Institutions' AUM to Grow 20% by FY27, Driven by Diversification into Non-MFI Loans

Mumbai: Microfinance institutions' (MFIs) assets under management growth is set to accelerate to 20 per cent in FY27 after a tepid 4 per cent increase in the past fiscal, a domestic rating agency said on Wednesday.

Explaining that MFIs offer both micro credit and non-MFI loans, Crisil Ratings said the growth will be driven largely by the latter.

"While the microfinance portfolio is expected to grow 13 per cent, reflecting a gradual recovery after last fiscal's deceleration, the driver will be the non-microfinance portfolio comprising gold loans, loans to micro, small and medium enterprises (MSMEs), loans against property and individual loans," it said.

The non-MFI loans AUM, as a part of the overall pie, shot up to 14 per cent in FY26 as MFIs resorted to such segments. The segment is expected to grow further to 18 per cent by FY27 end, its associate director Prashant Mane said, adding that such entities are increasingly focusing on secured offerings.

The agency said the core MFI segment is exposed to idiosyncratic risks ranging from localised sociopolitical disruptions to weather-related income shocks, which can drive sharp volatility in borrower repayment behaviour and credit costs.

This susceptibility underscores the strategic imperative for microfinanciers to diversify into asset classes beyond microfinance to enhance portfolio resilience and earnings stability.

For a few quarters up to the third quarter of the last fiscal, lending by MFIs was muted because of asset-quality pressures and limited access to funding, it said, adding that the growth picked up from Q4FY26.

It can be recalled that MFIs were forced to adopt a slew of guardrails on maintaining their balance sheet health due to high NPAs traced back to factors including over-leverage among borrowers.

"After aligning with the guardrail dispensation, microfinance disbursements have seen a gradual uptick over recent quarters, supported by tighter control over portfolio quality," Crisil director Malvika Bhotika said.

She added that after the guardrails were set in August 2024, the new disbursements stand now at 80 per cent of the industry's AUM and the portfolio at risk over 90 days is below the one per cent mark.

MFIs have been increasingly preferring seasoned borrowers over new ones and around two-thirds of their AUM as of March 2026 comprised loans to borrowers in their second cycle or more, compared with 53 per cent two fiscals ago, the agency said.

Additionally, the average ticket size of such disbursements has risen by 15 per cent to Rs 59,000 since last fiscal, it said.