From Expansion to Endurance — Lessons from NBFC-MFIs FY-25

 

Invest in bonds—the modern echo of financial discipline. That same restraint is reshaping India’s microfinance landscape. Northern Arc’s FY-25 findings show how NBFC-MFIs shifted gears from aggressive growth to sustainable operations amid rising risk and regional concentration.

Growth and Consolidation

At FY-25-end, partners managed ₹98,458 crore across 26 states, reaching three crore borrowers. The earlier surge—44 % growth in FY-23—gave way to a 17 % contraction as lenders prioritised risk control. Large MFIs (AUM > ₹5,000 crore) accounted for 80 % of portfolios, reflecting both scale and exposure. Disbursements halved between H2 FY-24 and H2 FY-25, signalling a decisive slowdown.

Concentration and Risk

Regional imbalance remains the sector’s Achilles heel. Bihar (17 %), Uttar Pradesh (14 %), and Tamil Nadu (11 %) dominate exposure; the top ten states hold 81 % of AUM. This concentration amplified stress as collection efficiency dipped to 90 %. States such as Jharkhand and Odisha reported PAR > 90 ratios near 9 %.

Lenders are countering through tighter underwriting, borrower-level caps, and credit bureau integration. Many have paused new lending in high-risk districts, choosing instead to deepen engagement with reliable clients.

Capital and Liquidity

Despite operational pressure, NBFC-MFIs remained well capitalised. CRAR ≈ 28 %, Debt/TNW ≈ 3.4×, and liquidity buffers near 7–9 % of assets suggest resilience. Funding diversification continued—banks contributed roughly half of borrowings, while foreign investors increased their share to 18 %. Smaller MFIs leaned on PTCs and debentures, broadening their liability base.

Profitability Compression

Profitability was the clear casualty. Credit costs = 9 % for large MFIs, 5 % for small; PAT/GLP slid to zero or negative territory. Provisioning coverage rose sharply—5 % of AUM for large players—while write-offs touched 8.9 %. Still, yields improved to 25 %, showing pricing power even in adversity. Analysts foresee recovery by FY-26 as provisions peak and cost discipline stabilises spreads.

Altifi — Bringing Institutional Discipline Home

For individual investors, the lesson is timeless: quality over haste. Altifi offers the same disciplined approach through curated bond investments. Each opportunity is screened using institutional credit standards, enabling investors to earn predictable income while understanding risk transparently. Altifi’s platform combines analytics, expert diligence, and ease of access, letting retail participants apply the same prudence NBFCs use to navigate volatility.

Looking Ahead

The FY-25 reset is less a setback than a strengthening pause. NBFC-MFIs are enhancing governance, building buffers, and aligning operations with regulatory expectations. With adequate capital and liquidity, they are poised for moderate 10–15 % growth in FY-26. For investors, the parallel is clear: endurance outperforms excitement. The best way to embody that discipline today is to
invest online, steadily and informed.