NBFC-MFIs AUM set to accelerate to 20% in FY27 from 4% in FY26: Crisil Ratings

The assets under management of non‑banking finance companies—microfinance institutions (NBFC‑MFIs) are projected to rise to 20% in FY27 from 4% in FY26, propelled by expansion in the non‑microfinance segment while the microfinance book rebounds gradually, according to Crisil Ratings.

While Crisil expects the microfinance book to expand by about 13%, indicating a modest rebound after last year’s slowdown, the main growth engine will be the non‑microfinance line—gold loans, MSME credit, property‑backed loans and personal loans.

“Lending by MFIs stayed subdued for several quarters up to Q3 of the previous fiscal due to asset‑quality strains and tight funding. From Q4 onward, activity picked up as headwinds eased, and this upward momentum is expected to persist. MFIs are gradually growing their microfinance exposure because newer loans have performed well,” Crisil Ratings noted.

Malvika Bhotika, Director at Crisil Ratings, said that once MFIs adopted the Guardrail framework, disbursements have risen steadily over recent quarters, backed by stricter portfolio‑quality oversight.

This trend is evident in the post‑August 2024 originations, which make up roughly 80% of MFI AUM; the share of loans more than 90 days past due stands under 1% for this segment, she added.

The Guardrail dispensation, introduced by the Micro Finance Institutions Network (MFIN), comprises limits on how many MFIs a borrower can approach, a ceiling on total indebtedness per borrower, and a prohibition on lending to borrowers delinquent for over 60 days.

MFIs prefer seasoned borrowers

Crisil observed that MFIs are lending more to seasoned borrowers, with a growing proportion of new credit going to existing clients who have strong repayment records.

As of March 2026, roughly 66% of MFI AUM consisted of loans to borrowers on their second lending cycle or higher, up from 53% two years earlier. Meanwhile, the average ticket size for these disbursements climbed 15% to ₹59,000 compared with the prior fiscal.

Credit Guarantee Fund

As a precaution, many MFIs are now shielding their fresh disbursements through the Credit Guarantee Fund for Micro Units (CGFMU) to curb possible credit losses.

Under this scheme, the lending institution absorbs the first 3% of defaults; any excess beyond that is covered by CGFMU for up to 75% on a pro‑rata basis, pending an auditor’s validation of the claim. This mechanism improves portfolio oversight, boosts lender confidence and eases funding access.

Nevertheless, the microfinance sector remains vulnerable to idiosyncratic shocks—such as localized sociopolitical unrest or weather‑induced income dips—that can cause sudden swings in repayment patterns and raise credit costs.

Crisil stressed that this vulnerability makes it essential for microfinance lenders to broaden into non‑microfinance assets to shore up portfolio resilience and stabilise earnings.

Prashant Mane, Associate Director at Crisil Ratings, noted that MFIs are shifting toward secured products such as gold loans, collateralised MSME credit and property‑backed loans, in addition to unsecured personal loans.

Over the past year, the proportion of these secured loans in MFI AUM climbed from 6% to 14% (FY25‑FY26), and Crisil projects it could reach 18% by the close of the current fiscal.

Policy measures

Policy moves have facilitated this shift. In June 2025 the RBI cut the qualifying‑asset threshold—total assets net of intangibles—from 75% to 60%.

Crisil noted that this change gives MFIs greater leeway to move into adjacent products and creates more cross‑selling chances, encouraging diversified expansion. However, the outcome hinges on their capacity to develop strong underwriting expertise in these new lines.

Moreover, the potential onset of El Niño— which could affect monsoon rains and rural earnings— warrants close monitoring in the coming period.

Published on July 1, 2026