Microloan Overload Eases, But Risk Remains High

The Indian microfinance sector is showing signs of recovery, with a notable reduction in borrowers holding multiple loans. As of June 2026, only 1.35 million borrowers, approximately 2% of the total borrower base, had loans from four or more lenders. This figure represents less than a third of the peak observed two years prior.

Despite the decrease in overleveraged borrowers, they collectively owe ₹14,711 crore as of June 2026. This outstanding debt carries a higher credit risk, with a portfolio at risk rate between 7.4-7.9%. This contrasts sharply with borrowers having one or two loans, whose portfolio at risk was only 1.9%.

Record loan outstanding of ₹4.43 lakh crore was observed by March 2024. Stricter underwriting standards implemented by lenders have been instrumental in the sector's gradual recovery from past asset quality crises. Industry guardrails and policy initiatives are credited with improving lending discipline and moderating borrower overleveraging.

While the overall trend is positive, the recovery pace is uneven. Smaller micro lenders face tighter liquidity and higher borrowing costs, whereas larger, well-capitalized NBFC-MFIs have better funding access. The sector is expected to see moderated credit costs and improving profitability.