Fusion Finance Eyes 20-25% AUM Growth Amid Loan Demand Rebound in H2FY27

Fusion Finance, a non-banking financial company (NBFC) specializing in microfinance and MSME loans, anticipates a revival in credit demand during the second half of fiscal year 2027. The company’s outlook improves as festival activities gain momentum following Navratri, especially across its key operating regions. This seasonal uptick is expected to support a rebound in borrowing by micro, small, and medium enterprises (MSMEs) and microfinance customers.

However, the lender faces challenges from adverse weather conditions that disrupted its operations during the September quarter. Floods and heavy rainfall affected customer accessibility in approximately 140 to 150 branches spread across five states. These disruptions impacted fresh loan disbursements, forcing the company to prioritize collections and engagement with existing borrowers instead. As a result, Fusion Finance anticipates a slight moderation in its previously projected assets under management (AUM) target of around 10,000 crore by the end of FY27.

Despite this, Fusion Finance remains confident about its medium-term growth prospects. Sanjay Garyali, Managing Director and CEO, stated, "Demand was pushed back in some markets during this quarter. So, there could be a little moderation on the AUM figure that we had given. But we are now seeing growth returning in October. We have already given a figure, so we don’t want to give another one. But directionally, we will continue to remove non-productive operating expenses and credit costs will remain within our guidance of 2-2.5 percent. In the medium term, we can safely assume that we will deliver 20-25 percent AUM growth compounded annually."

In the September quarter, Fusion Finance reported a profit of approximately 86.5 crore, a significant turnaround from a loss of around 22 crore in the same period the previous year. This improvement was driven by lower credit costs and reduced borrowing expenses, reflecting the company’s efforts to strengthen its financial position amid challenging conditions.

To mitigate the impact of weather-related risks, the lender has implemented specific credit guardrails in vulnerable markets such as Karnataka and Maharashtra. In Maharashtra particularly, it has tightened controls by imposing stricter limits on ticket sizes and taking steps to retain field employees, ensuring operational stability in affected branches.

Credit costs have improved markedly, coming down from over 5 percent to near 2 percent. Additionally, incremental borrowing costs have decreased to approximately 9.4 percent from a range of 12.5 to 13 percent seen three to four quarters ago. These reductions are expected to bolster net interest margins (NIM), with Fusion Finance projecting a 20 basis point increase in the third quarter followed by another 10 to 15 basis points in the fourth quarter. This margin expansion will be supported by both the decline in borrowing costs and the company’s ability to pass on lending rate increases to customers.

Fusion Finance is also working to diversify its lending portfolio beyond its core microfinance loans. The company plans to leverage its network of around 1,550 branches to grow its presence in premium joint liability group (JLG) loans, unsecured individual loans, and secured MSME lending, including loans against property. This integrated, branch-led approach aims to enhance branch productivity and broaden revenue streams without significantly increasing operating expenses.

While core JLG lending will remain the largest segment of Fusion Finance’s business, the introduction of premium products targets customers whose incomes have risen above the approximately 3 lakh annual threshold. Maintaining disciplined underwriting standards and independent credit oversight will be critical to managing risk as the company expands into these new areas.

The microfinance and MSME lending sectors have been pivotal in supporting small businesses and low-income borrowers, especially in rural and semi-urban regions. As economic activity recovers from pandemic disruptions and seasonal factors improve, lenders like Fusion Finance are positioned to play an important role in facilitating access to credit for underserved segments.

Overall, Fusion Finance’s cautious optimism reflects both the sector’s cyclical nature and the company’s strategic initiatives to stabilize asset quality, control costs, and expand its product offerings. These efforts align with broader trends in the NBFC space, where firms increasingly balance growth ambitions with risk management in a dynamic economic environment.