Tamil Nadu’s Microfinance Loans Shrink by 23.5% in June Quarter

Rapid summary

• The Gross Loan Portfolio (GLP) of Tamil NaduS microfinance industry declined by 23.5% year-on-year to ₹43,700 crore as of Q1 FY2025-26 from ₹57,100 crore in the same period last year.
• Quarter-on-quarter, the state’s GLP dropped by 6.7%, compared to ₹46,800 crore at the end of March 2025.
• The Tamil Nadu money Lending Entities (Prevention of Coercive Actions) Act,enacted in June 2025,regulates money-lending practices and applies to non-banking financial companies (NBFCs),cooperative banks,and societies.
• Industry experts report no significant disruption from this legislation on loan collections despite initial hurdles after its ordinance phase.

– Sadaf Sayeed (CEO of Muthoot Microfin): Collections unaffected; stricter self-regulatory measures impacted disbursements but improved portfolio quality.
– Jiji mammen (CEO of Sa-Dhan): Minor localized issues emerged due to misuse of the Act but are largely resolved with near-normal collections now observed statewide.

• All states except West Bengal experienced double-digit GLP declines in June 2025; Odisha (-24.7%) led sharp reductions followed closely by Tamil Nadu (-23.5%) and Karnataka (-22.9%).

Indian Opinion Analysis

The decline in Tamil Nadu’s GLP reflects challenges facing the microfinance industry amidst regulatory shifts brought about by new legislation intended to curb coercive recovery methods. While concerns existed initially regarding disruptions tied to stricter guidelines under the Tamil Nadu Money Lending Entities Act, analyses suggest portfolio quality improvements alongside normalizing collection operations post-adaptation.

It points toward a balancing act between regulatory control ensuring borrower protection and operational continuity for microfinance companies-a complex issue critical for both financial inclusion efforts and economic stability among vulnerable populations reliant on small loans.

Moreover, these trends highlight broader industry difficulties across multiple states as India recalibrates norms around lending practices within rural economies. A clearer picture will emerge beyond Q2 FY2025-26 as stakeholders continue addressing evolving market dynamics shaped by law enforcement strategies.

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