Microfinance overleveraged borrowers drop to 2% of total base

The number of microfinance borrowers with loans from four or more lenders has fallen to 1.35 million, or about 2% of the total borrower base of 66 million, at the end of June, according to data from Crif High Mark. This is less than a third of the peak seen two years ago, although these borrowers still have Rs 14,711 crore in outstanding loans, carrying higher credit risk.

The portfolio at risk for these stretched borrowers stood at 7.4-7.9% in the first quarter, compared with 1.9% for those with one or two lenders and 4.1% for those with three lenders. A year earlier, the risk was much higher across all categories. The microfinance market hit a record peak of Rs 4.43 lakh crore in March 2024, when 5.6 million borrowers had loans from more than four lenders.

CareEdge Ratings said the sector is recovering after a challenging period, helped by stricter underwriting and policy initiatives that have improved lending discipline. However, smaller micro lenders continue to face tighter liquidity and higher borrowing costs, while larger NBFC-MFIs have better access to funding. Defaulters must clear dues to regain eligibility for fresh loans.