Muthoot Microfin Q2: AUM Rises 22% to Rs 15,323 Crore, Collection Efficiency Hits 98.11%

Muthoot Microfin reported strong operational growth in the second quarter of fiscal 2027, with assets under management (AUM) rising 22% year-on-year to Rs 15,323 crore as of September 30, 2026. The microfinance lender also recorded a significant improvement in collection efficiency, which climbed to 98.11%, indicating stronger repayment performance across its loan portfolio. The company disclosed the figures in its Q2 FY27 business update.

Quarterly disbursements rose 28% year-on-year to Rs 2,900 crore, while the company’s cost of funds declined to 9.93%, entering single-digit territory for the first time. Muthoot Microfin also continued to diversify its loan portfolio, with non-Joint Liability Group (non-JLG) loans increasing and digital collections gaining traction.

Muthoot Microfin AUM Rises 22% to Rs 15,323 Crore

Muthoot Microfin’s AUM reached Rs 15,323 crore at the end of September, representing a 22% increase from the year-earlier period. On an annualised quarter-on-quarter basis, AUM increased 23.9%, highlighting the pace of portfolio expansion during the quarter.

The growth came alongside stronger loan disbursements.

The company disbursed Rs 2,900 crore during Q2 FY27, up 28% from Rs 2,263 crore in the corresponding quarter last year. Disbursements also increased 10% sequentially from the June quarter.

Key Q2 FY27 Numbers

Metric	Q2 FY27	Change
AUM	Rs 15,323 crore	+22% YoY
Q2 disbursements	Rs 2,900 crore	+28% YoY
Collection efficiency	98.11%	+477 bps YoY
X-bucket collection efficiency	99.9%	—
Cost of funds	9.93%	Down from 10.13%
Digital collections	47%	Up from 25%
Branches	1,675	—
Active customers	32 lakh	—

The numbers point to simultaneous growth in the loan book, higher credit deployment and improving collection performance.

Collection Efficiency Improves to 98.11%

One of the most important developments in the quarter was the improvement in collection efficiency.

Muthoot Microfin’s overall collection efficiency increased to 98.11%, up 477 basis points from the year-earlier period. X-bucket collection efficiency, excluding advances, stood at 99.9%.

For a microfinance lender, collection performance is a critical indicator because it provides an early view of borrower repayment behaviour and potential asset-quality stress.

The improvement is particularly relevant after a difficult period for India’s microfinance industry, which has faced concerns around borrower overleveraging and elevated delinquencies.

Recent industry data indicates that asset quality has been improving across major microfinance institutions, with lenders reporting lower delinquencies and credit costs.

Loan Portfolio Becomes More Diversified

Muthoot Microfin is also changing the composition of its loan portfolio.

The proportion of Joint Liability Group loans declined to 69%, while non-JLG loans increased to 31%. The comparable mix was 83:17 at the end of March 2026.

This represents a significant shift toward individual and other lending products.

The company’s Small and Micro Enterprise Individual Loan portfolio reached Rs 4,164 crore and reported near-zero delinquency in the Q2 update.

The diversification strategy could help Muthoot Microfin reduce its dependence on traditional group-based microfinance lending while expanding into other segments of India’s underserved credit market.

Portfolio Mix

March 2026

JLG: █████████████████ 83%
Non-JLG: ███ 17%

September 2026

JLG: ██████████████ 69%
Non-JLG: ██████ 31%

The shift is notable because non-JLG loans now account for almost one-third of the portfolio.

Gold Loans Add Another Growth Channel

Muthoot Microfin has also expanded its exposure to gold lending through a referral and co-lending arrangement with its parent company, Muthoot Fincorp.

Gold-loan disbursements under the arrangement reached Rs 453 crore during the quarter.

Gold-backed lending differs from unsecured microfinance because the underlying loan is secured by collateral.

For Muthoot Microfin, the arrangement provides another route for expanding its financial-services offering while leveraging the broader Muthoot group’s presence in gold finance.

Cost of Funds Falls Below 10%

Another important improvement came from the company’s funding costs.

Muthoot Microfin’s overall cost of funds declined to 9.93% in Q2 FY27 from 10.13% in the previous quarter. This was the first time the company’s cost of funds moved into single-digit territory.

The incremental cost of funds also improved to 9.69%.

Lower borrowing costs can be important for an NBFC-MFI because the spread between lending yields and funding costs directly influences profitability.

The company raised Rs 3,213 crore during the quarter, taking its total borrowings during the first half of FY27 to Rs 5,946 crore.

Liquidity Position Remains Strong

Muthoot Microfin ended the quarter with Rs 1,701 crore of liquidity and Rs 4,328 crore of unavailed sanctioned credit lines.

The liquidity buffer gives the company additional flexibility to fund loan growth and manage near-term funding requirements.

For a lender expanding its AUM at more than 20% annually, access to diversified funding sources is particularly important.

The combination of fresh borrowing, available sanctioned lines and lower funding costs could support continued portfolio expansion if credit demand remains strong.

Digital Collections Rise Sharply

Digital adoption was another area of improvement.

Digital collections accounted for 47% of total collections in Q2 FY27, compared with 25% in the same quarter last year and 40% in Q1 FY27.

Muthoot Microfin’s Mahila Mitra application also crossed 22 lakh downloads.

The increase in digital collections can potentially reduce the operational dependence on physical collection infrastructure while improving transaction tracking and convenience for borrowers.

The company’s technology push is therefore becoming an increasingly important part of its operating model.

Branch Network Reaches 1,675

Muthoot Microfin operated 1,675 branches at the end of September and served approximately 32 lakh active customers.

The company has been expanding its presence in markets including Telangana, Andhra Pradesh and Assam.

Its focus remains largely on underserved customers, including women entrepreneurs in rural and semi-urban markets.

This gives the company exposure to India’s broader financial-inclusion opportunity, although regional economic conditions and borrower indebtedness remain important risks for microfinance lenders.

What the Q2 Update Means for Muthoot Microfin

The Q2 business update shows improvement across several operating indicators at the same time.

AUM growth → Higher disbursements → Better collections → Lower funding costs → Greater operating flexibility

The combination is important because rapid AUM growth by itself does not necessarily indicate improving business quality. In Muthoot Microfin’s case, the higher loan book has been accompanied by stronger collection efficiency and a reduction in funding costs.

However, investors will still need to watch the company’s detailed financial results for profitability, credit costs, gross and net non-performing assets and return ratios.

The business update provides operational numbers but does not represent the company’s complete quarterly financial results.

Microfinance Sector Recovery Remains in Focus

Muthoot Microfin’s performance comes as India’s microfinance sector shows signs of recovery after a period of stress.

Financial Express reported that major MFIs and small finance banks recorded stronger lending growth in Q2 FY27 alongside improving asset quality and declining delinquencies. ICRA has also moved its sector outlook from negative to stable, citing improved guardrails around borrower indebtedness and lender exposure.

However, regional risks remain.

Economic shocks, weather-related disruptions and borrower overleveraging can affect repayment capacity, particularly in rural markets.

For lenders, maintaining collection discipline while expanding rapidly will therefore remain a central challenge.

The Bigger Picture

Muthoot Microfin’s Q2 FY27 update suggests that India’s microfinance sector is moving toward a more diversified and disciplined growth model. AUM has reached Rs 15,323 crore, disbursements are growing at 28%, collection efficiency has improved to 98.11% and the cost of funds has moved below 10%.

The shift in portfolio mix is equally important. With non-JLG loans now accounting for 31% of the portfolio, Muthoot Microfin is reducing its reliance on traditional group lending while expanding individual enterprise loans and gold-loan partnerships. The success of this strategy will depend on whether the company can maintain asset quality as these newer segments scale.

Looking Ahead

The next focus will be Muthoot Microfin’s full Q2 FY27 financial results, where investors will look beyond operational indicators to assess profitability, credit costs, asset quality and return ratios. Sustaining collection efficiency near current levels while growing AUM at more than 20% will be important for the company’s earnings trajectory.

The broader microfinance recovery could also create room for further expansion, particularly if funding costs remain below 10% and borrower repayment behaviour continues to improve. At the same time, Muthoot Microfin will need to manage regional credit risks and ensure that its shift toward individual lending does not create new asset-quality pressures as the portfolio becomes larger and more diversified.