Microloans Get Healthier: Overleveraged Borrowers Plummet

The Indian microfinance sector is undergoing a positive transformation, marked by a substantial reduction in overleveraged borrowers. Loans extended to individuals indebted to four or more lenders have dropped significantly to Rs 30,494 crore, representing 8.8% of the total market as of November 2025, a sharp decrease from 16.9% a year prior. This consolidation is attributed to industry regulations and guardrails implemented to mitigate risk.

The number of borrowers with multiple loans has also seen a steep decline, falling to 2.8 million by November 2025 from 5 million a year ago. This trend reflects a conscious effort by lenders to avoid repeat lending to highly indebted individuals. While these stricter practices have improved the overall health of the microfinance business, they have also led to initial cash flow challenges for some borrowers.

Despite these adjustments, the declining share of overleveraged borrowers fuels optimism for a sector turnaround by the end of fiscal year 2025-26. This stabilization is anticipated to boost business volumes, though some smaller microfinance institutions continue to navigate survival challenges amidst the evolving landscape.