The quality of microfinance loans has been improving since December 2024, with the ratio of delinquencies falling steadily since then and coming in at a four-quarter low in the September 2025 quarter, according to the latest Quarterly Microfinance Report by microfinance self-regulatory body Sa-Dhan. 

For example, the ratio of loans outstanding more than 90 days after their due date has fallen to 3.27% in the quarter-ended September 2025 from 4% in the December 2024 quarter.

“The microfinance sector has shown steady improvement since December 2024, signalling the start of its recovery after an extended period of pandemic-induced financial stress,” the report said. 

Loan stress is categorised into several buckets and is measured in terms of the percentage of the Portfolio at Risk (PAR) in each of these stress buckets. For example, the share of the overall portfolio that is more than 180 days past due is denoted as PAR 180+.

The report pointed out that each of the stress buckets had shown improvement, except the PAR 180+. 

“The elevated levels in this category remain largely a legacy issue carried forward from the pandemic and the portfolio at the end of 2023 and early 2024,” the report said. “This was the period when the sector also reflected an issue of higher leverage.” 

However, it pointed out that the improved performance of more current buckets — such as PAR 30+, PAR 60+, and PAR 90+ — shows that recent loans being given have been of higher quality and that the industry’s self-corrective measures have begun to show themselves in the numbers.

The PAR 30+ figure for the microfinance industry fell from 7.15% in the quarter-ended December 2024 to 5.27% as of September 2025. Similarly, the PAR 60+ figure fell from 5.55% to 4.28% over the same period. The PAR 90+ figure fell from 4% to 3.27%. 

“The implementation of stricter underwriting standards and other preventive measures has contributed to a gradual improvement in overall portfolio quality,” the report said. “Analysing the trend over the past financial year, it’s evident that the loans originated within the last year are performing better.” 

It added that the overall PAR values are expected to further improve and could return to pre-2024 levels by the end of the third quarter of 2025-26.