Funding skew deepens in microfinance

Kolkata: Funding concentration in the microfinance sector is getting skewed every quarter.

Large microfinance companies accounted for 98.1% of the funds received by all non-banking financial company-microfinance institutions (NBFC-MFI) in the first quarter of this fiscal year, taking a bigger share than the 93.8% of assets they manage, data from the Microfinance Industry Network (MFIN) showed.

Six months earlier, the large ones received 97.5% of the total funding, while their assets under management (AUM) at 93.7% were similar to those in the April-June quarter. In the March quarter, the players received 97.8% of funding and had a 94.1% AUM share.


The skewness towards large NBFC-MFIs is a reflection of banks and other financiers playing safer, lending largely to well-capitalised institutions during uncertain economic cycles. While the broader economy is facing US-Iran war-related anxiety, the microfinance sector itself is trying to come out of the woods after a couple of years of intense asset quality stress.

“Funding is likely to remain the key differentiator. While larger NBFC-MFIs have better access to funding, smaller institutions continue to face tighter liquidity, higher borrowing costs and cautious lender appetite,” CareEdge Ratings said in a note last month.

“This is likely to make the pace of recovery (of the sector) uneven and increase the possibility of further consolidation in the industry,” the ratings company said.

Large NBFC-MFIs are those having more than Rs 2,000 crore AUM. The MFIN tags 12 listed entities as “large”. It lists five others with AUM between Rs 500 crore and Rs 2,000 crore as “medium” and another 23 with AUM below Rs 500 crore as “small”.

Small and medium microfinance lenders are starved of funding relative to their market share. As many as 10 entities on the top 40 list did not receive funding at all in the first quarter, the MFIN said. The list mentioned Satya MicroCapital, which is backed by Japan’s impact investor Gojo & Company. Others included Agora Microfinance, Avanti Microfinance, Hindusthan Microfinance and Srifin Credit.

During the first quarter, the top 40 NBFC-MFIs received Rs 21,407 crore in debt funding in total with banks contributing 80.4% of this, followed by 12.1% by NBFCs and 0.5% by other financial institutions. External commercial borrowing accounted for 5.3% while the balance 1.7% came from other sources, the data showed.

In FY26, small NBFC-MFIs raised borrowings equivalent to only around 14% of their opening AUM, compared with about 26% by medium-sized MFIs and 60% by large NBFC-MFIs.

Meanwhile, the total equity of the NBFC-MFI sector stood at Rs 36,310 crore at the end of June 2026 compared with Rs 34,582 crore a year prior. Of the shareholders’ funds, foreign equity totalled 25.9%.

NBFC-MFIs had AUM of Rs 1.49 lakh crore as of June 30, while their outstanding borrowings were Rs 1.06 lakh crore. They remained the largest provider of micro-credit with a 44.3% share to total industry portfolio of Rs 3.29 lakh crore, as per the MFIN data.

Banks hold the second largest share of 25.3% in direct lending to the bottom of the pyramid borrowers, followed by small finance banks (15.9%) and NBFCs (12.7%). Not for profit entities accounted for the rest.