THE microfinance sector has shown early signs of recovery after a prolonged period of stress, with the industry portfolio witnessing a sequential uptick in the fourth quarter of the financial year 2025-26, according to the report. “Data for Q4FY26 indicates early signs of recovery in the sector. After seven quarters of portfolio contraction, this quarter witnessed a QoQ uptick of over 3 per cent,” as per Micro Finance Industry Network (MFIN) report. As on March 31, 2026, the industry portfolio stood at Rs 3,25,174 crore.

 

The portfolio expansion was supported by quarterly disbursement of Rs 77,524 crore, which was the highest in the last seven quarters, though still below the peak achieved in Q4FY24, as per the report. “We can now say that despite the tough two years, industry is turning the corner as evidenced by uptick in portfolio and continued improvement in Portfolio At Risk,” said Alok Misra, chief executive officer and director of MFIN. The report said the improvement in growth was accompanied by a recovery in asset quality. “

 

Despite seven quarters of contraction, the credit quality has returned to pre March 2024 levels.” Funding conditions also improved during the year. NBFC-MFIs received total debt funding of Rs 77,867 crore during FY26, an increase of 30.9 per cent as compared with FY25. “During FY 25-26 Banks contributed 77.4 per cent of the borrowings received, 12.2 per cent from Non-Bank entities, 4.6 per cent from ECB, 3.9 per cent from others and 1.9 per cent from AIFIs,” the report said. However, MFIN highlighted that funding challenges for smaller MFIs continued during the year, with banks, NBFCs and external commercial borrowings remaining key sources of support.