Navigating the Storm — NBFC-MFIs Balance Risk and Reform

 

Invest in bonds—because capital preservation is the first step toward wealth creation. That philosophy now guides India’s microfinance institutions as they navigate a challenging FY-25. Northern Arc’s sector analysis captures a year defined by rising delinquencies, regulatory guardrails, and the pursuit of sustainable lending.

Sector Overview

As of March 2025, NBFC-MFIs managed ₹98,458 crore in loans, reaching more than 3 crore borrowers. Their presence spans 26 states, but exposure remains concentrated: Bihar 17 %, Uttar Pradesh 14 %, Tamil Nadu 11 %. The top ten states hold 81 % of the portfolio. After strong growth through FY-23, the sector’s AUM declined 17 %, reflecting self-imposed restraint rather than contractionary shock.

Asset Quality and Collections

The slowdown coincided with weaker asset quality. Current loans fell from 95 % to 89 %, and PAR > 90 doubled to 5 %. Larger MFIs showed pronounced stress—PAR 30 = 10 %, PAR 90 = 6.5 %. States such as Jharkhand and Odisha recorded > 9 % delinquencies. District-level data pointed to hotspots like Gurdaspur (Punjab) and Balrampur (Chhattisgarh).

Collection efficiency slipped to 90 % for large MFIs, 92 % for smaller ones. Institutions responded by tightening borrower exposure, deploying digital repayment tools, and setting up dedicated risk-containment units.

Funding Resilience

Even under stress, capital adequacy remained robust. CRAR > 28 % and leverage ≈ 3.5× kept balance sheets stable. Funding composition changed: banks supplied 51 %, foreign investors 18 %, domestic FIs 9 %. Smaller MFIs relied more on overseas lines. Liquidity buffers—7–9 % of assets—ensured near-term obligations were comfortably met.

Profitability and Provisions

FY-25 profitability was squeezed as credit costs escalated. Large MFIs wrote off 8.9 % of AUM, and provisions rose to 5 %. PAT/GLP turned negative for big players and barely positive for small ones. Yields climbed to 25 %, yet spreads narrowed as cost of funds rose. Analysts expect a gradual rebound in FY-26 when credit costs normalise near 4 %.

Altifi — Translating Sector Discipline to Personal Wealth

The same prudence steering NBFC-MFIs can guide investors. Altifi provides a transparent, technology-driven platform to access pre-screened bond investments, enabling individuals to participate safely in India’s debt market. Its credit-assessment framework mirrors institutional standards—offering data clarity, diversification, and predictable income. For investors seeking calm amid volatility, Altifi’s disciplined approach is the fixed-income counterpart to microfinance reform.

Conclusion

FY-25 demonstrates that India’s microfinance sector can withstand turbulence without systemic cracks. Strong capital, liquidity buffers, and regulatory tightening are paving the way for stability. Profitability may be under pressure, but fundamentals remain intact. The broader takeaway extends beyond institutions: in uncertain times, resilience stems from discipline. For those planning their next move, the wisest step is to invest online—with the same patience and prudence now defining the NBFC-MFI sector.