Microfinance Loan Defaults Surge, Bihar Worst Hit

The microfinance sector in India witnessed a sharp increase in loan delinquencies during the financial year 2024-25. According to the latest data from Sa-Dhan, the self-regulatory body for microfinance institutions, the percentage of loans overdue by more than 30 days rose steeply from 2.1% in 2023-24 to 6.2% in 2024-25. This trend signals growing stress in the sector, raising concerns about borrower repayment capacity and institutional risk.

Overview of Microfinance Delinquency Trends

Microfinance loans overdue by over 30 days, also called Portfolio at Risk (PAR) 30+, increased nearly threefold in one year. Loans overdue by more than 90 days, a key indicator of non-performing assets, also rose from 1.6% to 4.8%. The rise in delinquency is widespread across the industry, reflecting an emerging challenge for lenders and borrowers alike.

State-Wise Performance and Bihar’s Distress

Among state of Indias, Bihar recorded the highest outstanding microfinance loan amount at Rs 57,712 crore by March 2025. It also showed the worst repayment performance, with 7.2% of loans overdue by more than 30 days, above the national average of 6.2%. Loans overdue by over 90 days stood at 4.6% in Bihar, indicating greater credit risk and potential asset quality deterioration.

Urban-Rural Disparities in Loan Repayment

Rural borrowers faced more repayment difficulties than their urban and semi-urban counterparts. Of the Rs 2.3 lakh crore outstanding to rural customers, 6.4% of loans were overdue beyond 30 days. This compared to 6.1% and 6% for semi-urban and urban borrowers respectively. Similarly, loans overdue by more than 90 days were higher for rural borrowers at 3.7%, compared to 3.2% for both semi-urban and urban groups.

Implications for Microfinance Institutions and Borrowers

Rising delinquency rates increase the risk of loan defaults and reduce the financial health of microfinance institutions. It may constrain their ability to lend further and affect funding costs. For borrowers, especially in rural areas, repayment stress could worsen economic vulnerability. The trend puts stress on the need for better credit assessment, borrower education and risk management.

Factors Contributing to Rising Delinquencies

Several factors may explain the surge in overdue loans. These include economic slowdown, inflationary pressures, agricultural distress, and limited income opportunities for low-income borrowers. External shocks such as floods or pandemics may also impact repayment capacity. The sector requires adaptive strategies to mitigate these risks.