MFI sector upbeat as banks open fists, Bill

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CNBC-TV18's Gopika Gopakumar explains that despite all the talk of inclusion, the fiscal year 2011-12 was a period that did not see any growth in the microfinance industry, even if one were to exclude the sharp fall in business in Andhra Pradesh. Clearly, the debilitating impact of the washout in Andhra Pradesh has impacted MFIs’ growth plans all over the country.

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If FY11 was a nightmare year for microfinance companies, the fiscal of FY12 was no different. According to data released by microfinance industry body MFIN, MFIs’ business remained static in FY12. The total number of clients for MFIs fell by 17%. For MFI companies in Andhra Pradesh, the fall was 28%, while for MFI companies in other parts of India client base was static.

Overall disbursements for the sector fell 38% year-on-year. Andhra Pradesh-based MFIs contributed the most with a 67% fall in disbursements whereas the better-off rest of India based MFIs saw just a growth of 5%.

A majority of MFIs have scaled down their operations by closing branches and reducing the employee base.

Alok Prasad, CEO, MFI Network, "On a national-level, the Andhra Pradesh portfolio has shrunk. It was a large sector. When we look pan India, the news has been positive."

But microfinance companies are hopeful that business could turn around this fiscal. SKS, for instance, believes that business return to the black in the second quarter of FY13 and banks are beginning to loosen their purse strings.

PH Ravikumar interim non-executive chairman, SKS Microfinance , "This year growth is expected on loosening purse-strings at banks and the MFI Bill being tabled in Parliament. If it is passed as an act, it will aid us in recovering loans in Andhra Pradesh."

Separately, the MFIN is also in dialogue with the Reserve Bank of India to extend the deadline for meeting the new provisioning and capital adequacy norms beyond April 2013. If the central government also obliges with the new MFI Act, hopefully a new chapter could be opened in the microfinance sector.