This is about a quarter of the 87 million microfinance customers at the peak level seen at the end of March 2024. The number of unique microfinance borrowers across lenders fell to 66 million at the end of December 2025, showed credit bureau data from Crif High Mark.
A big chunk of those who had dropped out are now believed to have returned to private moneylenders to meet their cash needs, said people familiar with the matter. According to industry estimates, about 20-25% could possibly be borrowing from informal sources.
While the stoppage of institutional lending to delinquent customers is the primary reason behind the sharp fall in customer base, it also reflects re-classification of micro loans as retail loans by a private sector lender, people in the know said.
Under lending guardrails suggested by self-regulator Microfinance Industry Network, no lender is supposed to give loans to delinquent borrowers who have outstanding loan of more than ‘3,000 and unpaid loans for more than 60 days.
The exit from institutional credit is in sync with the squeeze in the country’s microfinance market, which stood at ‘3.22 lakh crore after the third quarter of this financial year, falling steadily from the peak of ‘3.43 lakh crore seen seven quarters ago.
Another credit information company, Equifax India, pegged the borrower count at 68 million. It said that 13 million customers out of the total count have unpaid dues which have not been serviced for more than 180 days.These customers are facing the risk of getting eliminated from the microfinance universe as lenders tend to write off loans after 180 days, a senior executive of a non-banking financial company-microfinance institution said on condition of anonymity. The number of dropouts is calculated on a net basis since lenders have also added new customers in the past two years. The gross dropout number would be more, said people with knowledge of the matter.
This trend coincides with lenders giving bigger loans to borrowers with a good track record.
The market contraction reflects tighter underwriting, moderated expansion strategies and the introduction of stricter guardrails to restrict the number of loans and leverage at borrower level, said a microfinance report published jointly by Equifax and Small Industries Development Bank of India.
Borrower leverage also turned stable, with the share of single-lender borrowers increasing to 73% in December 2025 from 72% three months earlier, suggesting improved credit discipline, the report said.
Overleveraging was at heart of the two-year long microfinance stress from which the market is slowly getting back on track. The sector saw a 6% year-on-year increase in loan disbursements during the October-December 2025 period to ‘63,348 crore.