Budget 2024: Microfinance industry seeks special funding, tax relief on affordable housing

The microfinance sector exhibited robust growth in the January-March quarter of financial year (FY) 2023-24, the Micrometer report by the Microfinance Institutions Network (MFIN) showed.

The microfinance industry (MFI) is hoping for government support for special fund allotment for the sector from the Union Budget for 2024-25, industry players said.

HP Singh, chairman-cum-managing director at Satin Creditcare Network, said that the industry has reported robust growth after the pandemic and funding assistance from the Union Budget could further help the growth cycle. “Considering that a large part of the rural population is still underpenetrated, enhancing financial inclusion is the need of the hour. The NBFC MFIs will welcome any further government support for special fund allotment providing growth capital to the sector.”

Nishant Lakkar, founder and chief executive of AAA Rating Consultants and Advisors, called for dedicated funding support for MFIs with concentrated focus on small and medium enterprises (SMEs).

Also read: Budget 2025: Bankers bat for tax assistance on interest income and funding for small lenders

The industry players also suggested that the budget should bring in reforms for tax relief on profits earned from developing and building affordable housing projects. “To incentivise developers to build more affordable housing, the government should consider reintroducing the 100 percent tax holiday benefit previously available under Section 80-IBA of the Finance Act, 2016. This provision would offer tax relief on profits earned from developing and building affordable housing projects," Singh said.

Past backing from budget 

In the 2023-24 budget, the government announced an expanded corpus under a revamped scheme to enable an additional free collateral guarantee credit of Rs 2 lakh crore for MSMEs. For banks, Budget 2017-18 increased the allowable provision for non-performing assets of banks from 7.5 percent to 8.5 percent.

Tracking the performance 

The microfinance sector put up robust growth in the January-March quarter of the financial year 2023-24, the Micrometer report by the Microfinance Industry Network (MFIN) showed.

The MFI industry’s loan portfolio saw a year-on-year (YoY) growth of 23.6 percent, while banks grew 20.9 percent, small finance banks (SFBs) by 28.4 percent and other NBFCs by 37.5 percent.

MFI industry’s total gross loan portfolio reached Rs 4.33 lakh crore in March 2024, up from Rs 3.99 lakh crore a year back. The number of customers increased by 19.4 percent to 4.3 crore as of March 2024 and the total assets under management (AUM) grew 29.5 percent to Rs 1.56 lakh crore. In FY24, MFIs saw total loan disbursements amounting to Rs 1.38 lakh crore, growing 24.4 percent from the previous fiscal year.

The branch network of NBFC-MFIs expanded significantly with the total number of branches increasing from 17,041 in March 2023 to 20,348 in March 2024, marking a 19.4 percent growth.