Muthoot Microfin Ltd (MML), a microfinance lender, has received a Positive outlook from CareEdge Global Ratings on its long-term foreign currency rating of CareEdge BB, reflecting improvements in asset quality and operating performance.
The agency has reaffirmed the BB rating while revising the outlook from Stable to Positive for the company’s $50 million external commercial borrowings (ECBs), comprising $15 million in existing borrowings, including an ECB listed in GIFT City, and $35 million in proposed borrowings.
The outlook revision follows CRISIL Ratings’ upgrade of MML’s long-term bank loan facilities and non-convertible debentures to Crisil AA-/Stable from Crisil A+/Positive in June 2026, indicating improved confidence in the lender’s credit profile.
Asset quality and profitability improve
MML’s gross non-performing assets (NPAs) declined to 3.7% as of June 30, 2026, from 4.8% as of March 31, 2025, according to the rating rationale.
Credit costs, measured against adjusted total assets, fell to 3% in FY26 from 7.5% in FY25. Return on total assets also improved to 1.1% in FY26 from a negative 1.6% in the previous financial year.
The improvements indicate a recovery from the stress that affected the microfinance sector, although sustaining asset quality amid inflation and higher interest rates remains important.
AUM rises 22% as collections strengthen
According to MML’s provisional business update for Q2 FY27, assets under management (AUM) increased 22% year-on-year to ₹15,323 crore as of September 30, 2026.
Disbursements during the quarter rose 28% year-on-year to ₹2,900 crore, while collection efficiency improved by 477 basis points to 98.11%.
The lender is also diversifying beyond its joint liability group (JLG) business. The JLG and non-JLG portfolio mix stood at 69:31, compared with 83:17 as of March 31, 2026.
Its small and micro enterprise individual loan portfolio reached ₹4,164 crore, with near-zero delinquency. The cost of funds declined by 20 basis points sequentially to 9.93%.
Diversification and parent support
CareEdge Global Ratings cited MML’s established microfinance franchise, experienced management, comfortable capitalisation and diversified funding sources as rating strengths.
The agency also factors in expected support from parent Muthoot Fincorp Ltd, which holds a 50.2% stake in MML and provides strategic oversight.
Muthoot Microfin CEO Sadaf Sayeed said the Positive outlook recognises the progress made in strengthening asset quality and operating performance following the CRISIL upgrade in June.
Sayeed said the company would maintain disciplined underwriting and collections as it expands into individual and secured loans. He added that the lender remained committed to empowering women borrowers and building a resilient institution.
The Positive outlook indicates that CareEdge expects MML’s credit profile to strengthen further if the improvements in operating performance and asset quality are sustained. The assessment also considers the parent’s enhanced financial flexibility to provide support when required.