Arohan Financial Services is gearing up for an IPO — but the numbers tell a nuanced story

Aavishkaar Group-backed Arohan Financial Services, one of India’s largest microfinance lenders, is planning to go public in the next 12–15 months, likely by FY27. The update came from Vineet Rai, Founder and Chairman of Aavishkaar Group. On the surface, it looks like a classic microfinance IPO: deep rural reach, a strong women borrower base, and credible long-term investors like ASK Financial Holdings and the Michael & Susan Dell Foundation. But a closer look at the financials shows a business that’s strong on impact, yet exposed to the usual microfinance cycles. First, what does Arohan do? Arohan Financial Services operates as an East India-focused microfinance institution (MFI), lending primarily to low-income women borrowers in financially underserved states. By scale, it ranks as the 5th-largest microfinance lender in India. Its core thesis is simple: Small-ticket loans High demand in underbanked regions Long-term financial inclusion play But MFIs also face sharp swings when asset quality deteriorates. Loan book growth: Strong till FY24, then a reversal Arohan’s advances grew aggressively between FY22 and FY24: ₹3,710 crore (FY22) ₹4,782 crore (FY23) ₹6,616 crore (FY24) However, in FY25, the loan book contracted to ₹5,705 crore. That matters because: Loan growth drives earnings for MFIs A shrinking book often signals higher risk sensitivity or tightening credit conditions For a company approaching an IPO, a pre-listing slowdown raises investor eyebrows. Income kept rising, profits didn’t At an income level, Arohan looked solid: Total income nearly doubled from ₹920 crore (FY22) to ₹1,695 crore (FY25) Interest income continued to rise steadily But profitability told a different story: PAT peaked at ₹314 crore in FY24 Dropped sharply to ₹110 crore in FY25 So what changed? The real spoiler: Provisions The biggest hit came from provisions and contingencies: FY24: ₹179 crore FY25: ₹389 crore Despite higher income, Arohan had to set aside significantly more money to cover potential loan losses. That single line item wiped out operating gains and dragged profits lower. In microfinance, provisions are often an early signal of stress. Asset quality: From pristine to cautious To Arohan’s credit, asset quality improved sharply over time: Gross NPA fell from 4.5% (FY22) to 1.64% (FY24) Net NPA dropped to 0% in FY24, a rare feat for MFIs But FY25 saw mild deterioration: Gross NPA rose to 2.77% Net NPA climbed to 0.47% Still manageable, but enough to force higher provisioning. ROE: One standout year, then normalization Return on Equity (ROE) mirrors the profit cycle: ~5–6% in FY22–FY23 Jumped to 16.4% in FY24 Fell back to 5.43% in FY25 This suggests FY24 may have been a cycle peak, helped by low credit costs and operating leverage, rather than a new normal. Valuation expectations: No froth here Arohan’s Price-to-Book ratio stabilized between 1.5x–2.0x from FY23 onwards. That’s broadly in line with listed microfinance peers. Translation? This won’t be pitched as a flashy fintech IPO It’s more likely positioned as a steady, impact-driven lending story The bottom line Arohan’s IPO story rests on three pillars: A strong franchise in underserved regions Historically improving asset quality Backing from long-term, impact-focused investors But the risks are just as clear: Profit volatility resurfaced in FY25 Loan book contraction before listing Early signs of asset quality normalization So when Arohan finally files its DRHP, investors will ask one key question: Was FY24 the true earnings power — or just the best year of the cycle? The answer will shape how warmly the market receives this microfinance IPO.