India’s small business credit ecosystem saw a stable rise in the December 2025 quarter, with total credit exposure increasing by 14.9% year-on-year to Rs 47.8 lakh crore. Sole proprietors continued to dominate the small business lending sector, constituting nearly 80% of the total outstanding portfolio. Among active loans, pure sole proprietors represented 62.5%, with 73% of total borrowers falling into this category.
Overall, the origination value surged by 13.3% year-on-year from December 2024 to December 2025. Sole proprietor originations specifically grew by 15%, driven by increased participation of women borrowers at 23.9% and borrowers under 35 years of age. The average ticket size for the sole proprietorship segment remained steady at Rs 3.34 lakh.
Non-banking financial companies (NBFCs) expanded their share in the small business loan portfolio to 28% in December 2025, up from 26.8% a year earlier. In sole proprietor lending, NBFCs held 41.6% of the outstanding portfolio. Portfolio quality remained stable, with the portfolio at risk for 31-90 days at 3.5% and 91-180 days at 1.3%, similar to September 2025 figures.
Credit penetration extended beyond major urban areas, with beyond-top-100 cities now accounting for nearly 40% of sole proprietor credit. The top ten states contributed to almost 72% of the total portfolio, with Uttar Pradesh, Telangana, and West Bengal leading in incremental growth. Credit in aspirational districts surged by 18.4% year-on-year to Rs 3.2 lakh crore, accompanied by an improvement in asset quality as the portfolio at risk for 91-180 days decreased from 1.8% to 1.4%.
Formalization efforts deepened, with 23.3% of sole proprietor originations and 11% of enterprise originations in the last 12 months coming from new-to-credit borrowers. The proportion of very low and low-risk borrowers increased for enterprises from 64.8% to 69.1% and for sole proprietors from 50.3% to 55.8% between December 2023 and December 2025.
