MFI loan disbursements likely to be muted in November

microfinance

It may be another month of muted disbursements for the microfinance sector. According to industry sources, banks and non-banks operating in this segment have significantly curtailed handing out fresh loans to borrowers in the month of November. If that be the case, it would be the third consecutive month of weak disbursements for the microfinance industry. “Most lenders have resorted to curtailing credit and hence disbursements have been week for another month in a row,” said a CEO of non-banking finance company operating in the MFI space (NBFC-MFI).

Agreeing with him, CEO of a bank also said that his board took a collective decision to focus on keeping the pool of MFI borrowers who have not slipped into non-performing assets as standard accounts rather than focusing on growth at this juncture. “We have become more selective on disbursements this month and we are lending only to borrowers who are current in our books,” he said without wanting to be named.

While exact numbers may take a while to be collated by the MFI industry associations, disbursements for September quarter declined by 11 – 17 percent for listed NBFC-MFIs on a quarter on quarter basis. The trend was similar for small finance banks and universal banks, which collectively account for 50 percent of total MFI loans as per MFIN data.

However, not all industry leaders agree with this view. Those operating in the NBFC-MFI sector feel prolonged period of curbing disbursements could trigger fresh set of issues for the industry. According to a CEO of a NBFC-MFI outfit most lenders are looking at preserving the portfolio rather than growing. “However, if this trend continues, it may become adverse for the microfinance industry rather than help solve the problem of borrower overleveraging,” he warned.

Explaining further, he said that while the incremental addition to stress may be contained by focusing more on collections, without loan growth, some of the key numbers such as slippages and non-performing assets may look exaggerated in December quarter. “This could lead to a fresh set of problem for the industry,” he cautioned.

To be sure, among the listed players, post the September quarter results for FY25, Fusion Finance, for second consecutive quarter, was in breach of certain loan covenants while Spandana Spoorthy Financial was also in breach of a few covenants with lenders.

“MFI loans are like working capital loans and the longer as an industry we curb on disbursments, access to bank funds will become a serious problem,” said another CEO of non-bank MFI outfit.

Monthly disbursements for the sector across categories such as banks, SFBs, NBFC-MFIs is anticipated at Rs 25,000 – 28,000 crore. However since September there has not been a de-growth in disbursement numbers, with the sector containing monthly disbursements at less than Rs 25,000 crore.

Assets under management of the microfinance, according to CRIF High Mark data, stood at Rs 4,32,700 crore as on June 30, 2024.

Industry leaders say that with most lenders incorporating an element of collections in rating the performance of field officers, most field officers has themselves turned very cautious on disbursements. “In many cases, field officers end up acting like collection agents and since they have increased their focus on collections, disbursements is taking a back seat in some cases,” said a CEO of a NBFC-MFI.