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Sa-Dhan’s Quarterly Microfinance Report

19 Dec 2025 GS 3 Economy
Sa-Dhan’s Quarterly Microfinance Report Click to view full image

Context

  • According to Sa-Dhan’s Quarterly Microfinance Report, the quality of microfinance loans has improved steadily since December 2024.

  • Loan stress indicators reached a four-quarter low in September 2025, signalling recovery from pandemic-induced stress.

Key findings of the report

1. Decline in loan delinquency

  • Loans overdue by more than 90 days (PAR 90+):

    • December 2024: 4%

    • September 2025: 3.27%

  • Indicates improving repayment behaviour among borrowers.

2. Portfolio at Risk (PAR):

Portfolio at Risk (PAR) measures the percentage of loan portfolio overdue beyond a certain number of days.

3. Stress in PAR 180+

  • PAR 180+ (loans overdue >180 days) remains high.

  • Reason:

    • Pandemic-era disruptions.

    • Higher borrower leverage during 2023–early 2024.

  • This stress is considered structural and historical, not reflective of current lending quality.

4. Quality of recent loans

  • Better performance in PAR 30+, 60+, and 90+ buckets indicates:

    • Improved credit assessment.

    • Better borrower selection.

    • Effective self-corrective measures by MFIs.

5. Reasons for improvement

  • Stricter underwriting standards.

  • Preventive risk management measures.

  • Focus on controlling borrower over-indebtedness.

  • Regulatory and industry-led corrections post-pandemic.

6. Outlook

  • Overall PAR expected to continue improving.

  • Likely to return to pre-2024 levels by Q3 of 2025–26.

  • Indicates strengthening of the microfinance sector’s resilience.

What is Sa-Dhan?

Sa-Dhan an association of Impact Finance Institutions is a RBI appointed self-regulatory organisation (SRO) for the microfinance sector in India.

About Sa-Dhan

  • Established in 1999.

  • Registered as a not-for-profit association.

  • Represents:

    • Microfinance Institutions (MFIs)

    • NBFC-MFIs

    • Other institutions engaged in microfinance

Functions of Sa-Dhan

  • Promotes responsible lending practices.

  • Develops industry standards and codes of conduct.

  • Collects and publishes sectoral data and reports.

  • Acts as a bridge between:

    • MFIs

    • Regulators (RBI, Government)

    • Other stakeholders

  • Supports financial inclusion and borrower protection.

Regulatory role

  • Recognised as an SRO under RBI’s regulatory framework.

  • Helps in:

    • Monitoring borrower over-indebtedness.

    • Improving transparency.

    • Enhancing governance standards in microfinance.

Prelims Practice MCQs

Q. With reference to the term “Portfolio at Risk (PAR)” used in microfinance, consider the following statements:

  1. PAR measures the proportion of loan portfolio that is overdue beyond a specified number of days.

  2. PAR 90+ refers to loans overdue for more than 90 days.

  3. A decline in PAR indicates deterioration in asset quality.

Which of the statements given above are correct?

A. 1 and 2 only
B. 2 and 3 only
C. 1 and 3 only
D. 1, 2 and 3

Answer: A

Explanation:

  • Statements 1 and 2 are correct.

  • Statement 3 is incorrect: a decline in PAR indicates improvement, not deterioration, in asset quality.

Q. With reference to Sa-Dhan, consider the following statements:

  1. Sa-Dhan is a self-regulatory organisation (SRO) for the microfinance sector in India.

  2. Sa-Dhan functions as the statutory regulator for microfinance institutions.

  3. Sa-Dhan publishes periodic reports on the performance of the microfinance sector.

Which of the statements given above are correct?

A. 1 and 2 only
B. 1 and 3 only
C. 2 and 3 only
D. 1, 2 and 3

Answer: B

Explanation:

  • Statement 1 is correct.

  • Statement 2 is incorrect: Sa-Dhan is not a statutory regulator (RBI is).

  • Statement 3 is correct.



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