Microfinance recovery: Strategic shifts, govt aid

THE RECENT DEVELOPMENTS in the microfinance sector surprised many industry participants, including many top MFIs, financial institutions, regulators, and even the government.

- ■ DHANENDRA KUMAR

However, it seems that the challenging phase is now bottoming out, and a potential turnaround is on the cards.

The government has also been quick to understand and address the issues. Earlier, there have been media reports that the Budget FY26 may announce a special fund to support MFIs, addressing the critical need for easier access to both debt and equity; however, this did not happen, but the overall thrust was in the right direction, serving the poorest segments of India's population.

Some of the common points that emerged were:

■ Worst seems behind: Learning from past disruptions, the MFI industry is now better equipped to navigate systemic shocks. Proactive regulatory measures and operational adjustments have played a significant role in stabilizing the sector.

■ Diversification into other verticals: A growing contribution from SME, housing loans, and secured loans reflects a deliberate strategy to reduce concentration risk and build a more balanced portfolio.

■ Q4 outlook: While Q4 may remain stressful due to residual challenges, it is likely to show incremental improvement over Q3. This gradual recovery is supported by improving collection efficiency and strengthening borrower behavior in most markets.

■ Geographic recovery: Most geographical pockets are returning to normalcy. Key markets like Maharashtra, Tamil Nadu, Rajasthan, and parts of UP have shown marked improvement, although rural & North Karnataka and certain pockets in UP remain areas of concern.