Why are overleveraged microfinance borrowers falling so sharply?

Overleveraged borrowers in Indian microfinance, defined as low income customers taking loans from four or more lenders, have almost halved in a year, both in number and in value of outstanding loans. This shows how sector wide guardrails and stricter discipline are reshaping behaviour and portfolio quality. The trend offers hope but also exposes fresh stress for vulnerable households.

Exposure to these high risk borrowers has fallen from about Rs 70,000 crore to about Rs 30,000 crore, and their share in the total microfinance book has dropped from nearly 17 per cent to under 9 per cent. The actual borrower count slipped from around 5 million to 2.8 million, which is only about 3.7 per cent of 75 million borrowers. So the risk is now more contained at system level even though it still matters a lot at household level. 

Industry wide rules are stopping lenders from giving repeat loans to already stretched clients, so many families are seeing lower cash inflows and are struggling to repay past dues. This is pushing up non repayment for some but it is also cleaning up books and supporting expectations of a business turnaround by 2025 to 2026, although a few smaller MFIs are still fighting for survival.