New Delhi, June 5 -- The microfinance industry remains a tough sector to navigate. While it offers higher interest spreads, rising defaults during economic slowdown make it a tricky business to be in.

This vulnerability resurfaced once again as the post-pandemic credit boom lost momentum in FY25. Initially driven by low interest rates, credit growth began slowing as borrowing costs rose and economic activity weakened. This shift strained borrower repayment ability, increased asset quality stress, and severely hit profitability across the sector.

To limit further damage, many lenders opted to write off bad loans and reset their books. The intent was to enter FY26 with a cleaner slate, as the industry looks ahead to a potential recovery....