ENA Sectors 2025-10-08 17:13:17 <p><span style="font-size:14px"><strong>New Delhi, Oct 8 (KNN)</strong> The Indian microfinance sector is facing a critical turning point, as improved credit discipline is being overshadowed by a severe liquidity crunch, slowing its recovery, according to top industry experts.</span></p> <p><span style="font-size:14px">While the asset quality stress seen in FY25 has largely eased, limited access to fresh capital now poses a serious challenge to sustaining recent gains.</span></p> <p><span style="font-size:14px">Alok Misra, CEO and Director of the Micro Finance Industry Network (MFIN), said that credit underwriting discipline has improved by nearly 99 per cent after new regulatory measures were introduced, according to CNBCTV18.</span></p> <p><span style="font-size:14px">However, loan disbursements have sharply fallen&mdash;from around Rs 85,000 Rs 90,000 crore per quarter to just Rs 48,000 Rs 50,000 crore&mdash;due to tight liquidity.</span></p> <p><span style="font-size:14px">Misra warned that without adequate funding, it will be difficult to maintain the sectors progress. Currently, stressed loans (1 60 days past due) stand at 2.28 per cent. If borrowers see no chance of future loans, their motivation to repay existing ones reduces, he cautioned.</span></p> <p><span style="font-size:14px">Jinay Gala, Director at India Ratings &amp; Research, said that the sectors peak stress occurred in late FY25 but added that the July September 2025 quarter could bring seasonal challenges due to monsoons and festivals.</span></p> <p><span style="font-size:14px">He expects stress levels to stabilise, though smaller microfinance institutions (MFIs) remain vulnerable. Many mid-sized and small players have seen their loan books shrink by up to 50 per cent, worsening their asset quality ratios and pressuring debt covenants.</span></p> <p><span style="font-size:14px">Gala attributed much of the funding shortage to banks and small finance banks slowing their purchase of MFI portfolios, a key liquidity source.</span></p> <p><span style="font-size:14px">Misra added that structural shifts, such as the weakening of the joint liability group (JLG) model, have further strained operations.</span></p> <p><span style="font-size:14px">He expressed optimism that a government-backed credit guarantee fund and strong rural demand could revive lending, calling the October December 2025 quarter critical for the sectors recovery.</span></p> <p><em><strong><span style="font-size:14px">(KNN Bureau)</span></strong></em></p> 43739 https://knnindia.co.in/news/newsdetails/sectors/liquidity-crunch-threatens-recovery-of-indias-microfinance-sector 2025-10-08 17:13:17 knnindia.co.in