Microfinance industry witnesses 10% rise in gross loan portfolio at Rs 2.56 trillion in Q3FY22

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The country’s overall microfinance industry witnessed around 10% year-on-year rise in its total gross loan portfolio (GLP) to Rs 2.56 trillion for the third quarter this fiscal from Rs 2.32 trillion for the same period last fiscal, industry body MFIN said on Tuesday.

As on December 31, 2021, thirteen banks held the largest share of portfolio in micro-credit with total loan outstanding of ` 1.03 trillion, which was 40.4% of total micro-credit universe. “NBFC-MFIs are second largest provider of micro-credit with a loan amount outstanding of Rs 87,444 crore, accounting for 34.2% to total industry portfolio. Small finance banks (SFBs) have a total loan amount outstanding of Rs 42,847 crore with total share of 16.7%. NBFCs account for another 7.6% and other MFIs account for 1.1% of the universe,” Microfinance Institutions Network (MFIN) said in release.

MFIN, the microfinance industry association and an RBI recognised self-regulatory organisation, on Tuesday released the 40th issue of its Micrometer report for October to December, 2021. Speaking on the third issue of Micrometer for FY22, Alok Misra, CEO & director, MFIN said, “Q3 FY21-22 saw continuation of growth momentum of microfinance operations which were impacted due to second wave of Covid in the early part of this financial year. Portfolio quality continued to improve, and the portfolio growth is showing promising signs as well. Historically, fourth quarter brings highest growth in the sector and therefore Q4 FY21-22 should show further consolidation in the industry.”

According to Misra, the announcement of the ‘Regulatory Framework for Microfinance Loans, 2022’ by the Reserve Bank of India (RBI) came at a very opportune time when the industry seemingly navigated the stressful Covid period well and started showing signs of normalcy. 

“The new regulation is expected to usher in a new phase of growth in the microfinance sector which is more client centric and responsible and will enable regulated entities to reach out to new unreached areas/excluded households,” he said, adding the regulation was applicable to all regulated entities and created a level playing field, which will encourage healthy competition and challenge regulated entities to innovate and become more efficient, and in the process benefit the customers and contribute further towards achievement of financial inclusion.

RBI’s revised framework for microfinance loans will engender ‘greater harmonisation’ in the business landscape of different types of lenders, enhance operational flexibility of NBFC-MFIs and support their profitability, rating agency Crisil said on Monday.

Krishnan Sitaraman, senior director and deputy chief ratings officer, Crisil Ratings, said: “The last two years have been extremely challenging for microfinance lenders as they grappled with high credit costs. The changes announced will help NBFC-MFIs adopt risk-based pricing and improve their profitability, expand their addressable market and also address concerns on over-indebtedness of borrowers. These augur well for the next phase of growth in the industry.”

The agency said with the removal of interest margin cap on lending rates, NBFC-MFIs will have the flexibility to adopt risk-based pricing and this will support their profitability. Specifically, this will benefit mid-sized entities, which were handicapped by the lending rate cap linked to the base rate, given their relatively higher borrowing costs. NBFC-MFIs with rural focus, where competition is less and borrowers are relatively less sensitive to interest rates, will also benefit from this revised framework.