Fusion Finance expects demand for microfinance and micro, small and medium enterprise (MSME) loans to recover in the second half of FY27, supported by improving business activity and festive-season demand. The non-banking financial company-microfinance institution (NBFC-MFI) is targeting annual assets under management (AUM) growth of 20–25% over a three-year period, although weather-related disruptions during the September quarter could moderate its earlier AUM target of Rs 10,000 crore by the end of FY27.

Key Highlights

• Fusion Finance expects 20–25% annual AUM growth over three years as microfinance and MSME loan demand recovers.
• Weather disruptions may moderate its Rs 10,000 crore FY27 AUM target, while credit costs have declined to around 2%.

The lender reported a return to profitability in Q2 FY27, posting a profit of approximately Rs 86.5 crore against a loss of around Rs 22 crore in the corresponding quarter last year. Lower credit costs and borrowing expenses supported the improvement.

Fusion Finance Expects Microfinance Loan Demand to Recover in H2FY27

Fusion Finance has seen loan demand begin to recover in October after business activity was affected by heavy rainfall and floods during the September quarter.

Sanjay Garyali, managing director and chief executive officer of Fusion Finance, said the lender expects the recovery observed over the past two months to continue through the rest of FY27.

He indicated that the company may moderate its earlier AUM target of around Rs 10,000 crore by the end of FY27 because demand was deferred in some markets during the September quarter. However, the lender remains confident about delivering annual AUM growth of 20–25% on a compounded basis over the medium term.

The company is focusing on premium joint liability group (JLG) lending and secured MSME loans to support its growth plans.

Heavy Rainfall and Floods Affect Loan Disbursements

Excessive rainfall and flooding affected customer accessibility across approximately 140–150 Fusion Finance branches in five states during the September quarter.

As a result, the lender prioritised collections and engagement with existing borrowers over fresh loan disbursements. Customers also deferred business investments amid uncertainty about their income and economic activity.

To manage weather-related risks, Fusion Finance has introduced separate credit guardrails for vulnerable markets, including Karnataka and Maharashtra.

In Maharashtra, the company has ring-fenced certain branches through tighter loan ticket-size limits and measures aimed at retaining field employees. These steps are intended to strengthen collections and manage credit exposure in areas vulnerable to weather disruptions.

Fusion Finance Credit Costs Decline to Around 2%

Fusion Finance has reduced its credit costs from more than 5% to approximately 2%, reflecting an improvement in its asset-quality performance.

The lender has also brought down incremental borrowing costs to around 9.4%, compared with 12.5–13% recorded three to four quarters earlier.

The company expects its net interest margin (NIM) to improve by around 20 basis points in Q3 FY27 and another 10–15 basis points in Q4. Lower borrowing costs and the pass-through of increases in lending rates are expected to support the improvement.

Garyali also indicated that the lender would continue removing non-productive operating expenses while keeping credit costs within its guidance range of 2–2.5%.

Fusion Finance Plans to Diversify Its Lending Portfolio

Fusion Finance is looking to diversify its lending mix through an integrated, branch-led model covering core microfinance, premium JLG lending, individual loans and secured MSME financing.

Core JLG lending will continue to account for the largest share of its business. However, premium lending products are expected to help the company serve customers whose annual incomes have increased beyond the Rs 3 lakh threshold.

The lender plans to use its network of approximately 1,550 branches to expand premium JLG lending, unsecured loans and loans against property. It also aims to improve branch productivity and diversify its earnings without significantly increasing operating expenses.

The company intends to maintain disciplined underwriting practices and independent credit oversight as it expands into these lending segments.

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Fusion Finance Focuses on Growth and Operating Efficiency

Fusion Finance's outlook for the second half of FY27 is supported by a gradual recovery in loan demand, lower borrowing costs and improving credit costs. However, the weather-related disruption during Q2 has introduced some uncertainty around its earlier AUM target.

The lender's ability to sustain the recovery in loan disbursement, strengthen collections and manage operating expenses will remain important to achieving its medium-term growth objective of 20–25% annually.