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Banking Central | Microlenders at critical juncture, giving mixed signals on business recovery

Cues from micro borrowers are important as this segment gets impacted at the first hint of an economic shock but also recovers quickly. If the third wave is contained, microloans may rebound sharply.

September 06, 2021 / 12:21 PM IST
Representative image (Source: ShutterStock)

Representative image (Source: ShutterStock)

Microlending business isn’t for everyone. Even bigger banks typically shy away from the segment due to the high-risk nature of the business. It needs a special skill set. Microfinance is also the segment which tells us the lending patterns among the borrowers at the bottom of the pyramid. Analysing these trends becomes even more important in the pandemic era. The trend is mixed so far this year.

The latest data from one of the largest microlenders in the country shows significant improvement in collection efficiency and disbursements, almost back to pre-pandemic levels. CreditAccess Grameen Limited, in a business update, said there was an overall improvement in its business profile in recent months.

During August 2021, its gross loan portfolio (GLP) grew significantly, monthly disbursement run-rate got back to pre-covid levels, a strong collections trend was witnessed and strong asset quality control was seen.

To put it in numbers, CA Grameen’s standalone collection efficiency excluding arrears improved to 92.5 percent in August 2021 from 91 percent in July 2021 and 81 percent in June 2021. Similarly, standalone collection efficiency including arrears improved to 99 percent in August 2021 from 97 percent in July 2021 and 84 percent in June 2021, indicating consistent improvement in overdue collections, the company said.

Overall, on a consolidated basis, CA Grameen reported 16.7 percent Y-o-Y growth in gross loan portfolio to Rs 13,259 crores.


Similarly, for Madura Microfinance, subsidiary of CA Grameen, collection efficiency excluding arrears increased to 86 percent in August 2021 compared to 83 percent in July 2021 and 66 percent in June 2021. MMFL’s GLP grew 6.9 percent YoY and 3.2 percent compared to June 2021 to Rs 2,104 crores. Disbursement during August 2021, increased 63 percent Y-o-Y to Rs 145 crores.

Why the numbers are important?

As said above, cues from micro borrowers are important as this is the segment that is most vulnerable to economic cycles due to the nature of its borrowers. Microfinance borrowers are mostly those in low-income segments who are daily labourers or small businesses.

The microlending industry has the ability to recover quickly as the economic situation improves on the ground.  Hence, recovery signals here are promising for the whole banking industry. The first wave had hit the micro borrowers segment severely with collections coming to a standstill in many states as localised lockdowns impacted operations.

banking centralMoneycontrol had earlier had highlighted that the second wave of the pandemic did not hit MFIs as severely as the first one.

Collections had shown improvement since May, which continued to June and July. Industry officials had pointed out that the overall impact on the microfinance industry is unlikely to be as severe as last year because lockdowns were more localized and progress in the vaccination drive would reduce the risk of infections.

But, on the other hand, there are cases where stress is building up.

One example is Ujjivan Small Finance Bank which has seen its overall recognised stress pool standing at 15.6 percent of the loan book (including GNPA of 9.8 percent/restructured loans of 5.8 percent) and the portfolio-at-risk swelling to 30 percent as of June 2021.

According to Ujjivan SFB’s June quarter investor presentation, micro banking constitutes 68 percent of the gross advances. This portfolio grew 14 percent on a year-on-year basis.

Even for CA Grameen’s subsidiary, Madura Microfinance, the portfolio at risk moderately increased in August 2021, with portfolio at risk (PAR) 30 days at 13.1 percent , PAR 60 at 9.5 percent and PAR 90 at 7.3 percent. The firm is however hopeful that it is expected to gradually decrease with an improvement in collections trends.

What is the takeaway here? The sector is at a critical juncture. If the third wave is contained without much damage, there is a possibility of sharp rebound in the microloans segment. Else, it is a long road ahead.

(Banking Central is a weekly column that keeps a close watch and connects the dots about the sector's most important events for readers.)
Dinesh Unnikrishnan is Deputy Editor at Moneycontrol. Dinesh heads the Banking and Finance Bureau at Moneycontrol. He also writes a weekly column, Banking Central, every Monday.
first published: Sep 6, 2021 12:19 pm

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