The Bihar Assembly has passed the ‘Bihar Micro Finance Institutions (Regulation of Money Lending and Prevention of Coercive Action) Bill, 2026', introducing new regulations for the regional micro-lending sector. However, despite the regulatory tightening in this critical market, major brokerages anticipate limited immediate downside for listed entities.
The legislation specifically targets individuals, partnership firms, companies, societies, and trusts that are actively involved in providing micro-loans or small loans within the state. A central provision of the bill states that to avoid excessive over-leveraging, not more than two microfinance institutions (MFIs) shall lend to the same borrower.
This legislative move is highly significant given that Bihar is the largest state for the MFI industry. The state's Asset Under Management (AUM) stands at Rs 45,500 crore, constituting 16% of the total national MFI AUM.
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Several prominent lenders have substantial exposure to Bihar as a percentage of their overall MFI portfolio:
* Utkarsh SFB: 45%
* IIFL Samasta: 21%
* L&T Finance: 17%
* Fusion MFI: 16.7%
* Asirvad Microfinance: 13%
* Ujjivan SFB: 11.1%
* Satin Creditcare: 9%
* AU SFB: 5%
* CreditAccess: 4.6%
Brokerage's Take
According to Citi, the new bill explicitly exempts the lending operations of banks and Non-Banking Financial Companies (NBFCs). As a result, Citi foresees no direct repercussions for listed entities. However, the brokerage notes that multiple lending or adverse shifts in repayment behavior stemming from cultural influences could still have indirect ramifications for these institutions.
Morgan Stanley (MS) highlights that the MFI industry has been seeing a recovery in asset quality and a gradual pick-up in disbursements in recent quarters. While this legislative development could create an overhang on investor sentiment toward the industry—even if it lacks an actual financial impact—MS believes asset quality should continue improving.
However, the brokerage cautions that loan growth is unlikely to see the high levels recorded in the past. Moving forward, MS thinks lenders are likely to maintain or lower the share of microfinance within their overall loan books, given the volatility it brings to both earnings and stock valuation multiples.
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