India's microfinance sector rebounded in Q3 FY26 with rising loan disbursements and improved asset quality.

India's microfinance sector showed signs of recovery in Q3 FY26, with disbursement growth turning positive for the first time in five quarters, up 5.2% year-on-year, driven by higher average loan sizes and rebounding volumes, particularly among NBFC-MFIs. Despite a broader decline in gross loan portfolios due to de-risking, early delinquency rates fell to around 1%, the lowest since late 2024, signaling improved asset quality. The sector is shifting toward larger loans above INR 50,000, while smaller loans shrink. JM Financial projects sustained growth through FY28, citing higher ticket sizes, selective lending, and non-MFI expansion, with a 21% CAGR in assets under management expected, though risks remain from borrower leverage and write-offs in small-ticket segments.