MFI’s loan portfolio rises 4.2% to Rs 2,37,369 crore in Q1, credit cost could remain high

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The microfinance loan portfolio as on June 2021 end increased by 4.2 percent and stands at Rs 2,37,369 crore, according to a report by Microfinance Institutions Network (MFIN). MFIN is an industry association and self regulatory organisation of the microfinance industry.

The loan disbursals in the first quarter of FY22 showed improvement at Rs 25,503 crores as compared to first quarter of FY21 at Rs 6,186 crore when the country was under national lockdown. A similar uptake was seen in the number of loans disbursed during Q1FY22 to 71 lakhs as compared to 21 lakhs in Q1FY21.

MFIN said in a statement that the microfinance industry served 5.68 crore unique borrowers through 10.30 crore loan accounts.

According to the report, 13 banks hold the largest share of the portfolio in micro-credit. The total loan outstanding of these 13 banks is at Rs 1,02,405 crore which is 43.14 percent of total microcredit industry.

NBFC-MFIs are the second largest provider of micro-credit with loan outstanding at Rs 75,021 crore and Small Finance Banks have a total loan amount outstanding of Rs 38,624 crore with a total share of 16.27 percent, as per the report.

The average loan amount disbursed in Q1FY22 was at Rs 36,243 a 28.8 percent increase as compared to Q1FY21.

On September 6, Moneycontrol analysed how microlenders are at a critical juncture with mixed signals on business recovery.

Credit cost outlook

India Ratings and Research (Ind-Ra) on September 8 said it has maintained an overall negative outlook for the overall microfinance sector in the second half of FY22, while it continues to have a stable outlook on the large and sponsor backed MFIs, small and mid-sized non-bank MFIs continue to be on negative outlook in view of their need to conserve liquidity and hence their disbursements could be constrained.

The rating agency expects the credit cost to remain elevated for MFIs in the range of 5-10 percent in FY22 depending on their size and scale, access to liquidity (ability to continue to disburse) and geographic concentration.

ICICI Securities on August 22 said credit cost will continue to remain significantly higher than historical averages, it will be lower than FY21 levels for players who are carrying an adequate provisioning pool as on June 21.

Harmonisation Norms

In June 2021, the RBI had released a consultative document on the regulation of microfinance. The proposals include defining microfinance loans, pricing guidelines, a standard fact-sheet for NBFC-MFIs on pricing of loans, board-approved policies, etc.

Ind-Ra said the proposed harmonisation guidelines are the need of the hour to address the diverse interpretation of regulation by the multiple forms of entities (mostly regulated) involved in microfinance.

The proposal of removing caps on lending rates could provide small NBFC-MFIs some breathing space and the opportunity to have reasonable operating buffers, Ind-Ra said.

“In the medium to long-term, the asset-class based regulations proposed in RBI’s consultative document, expected soon, would provide the much-needed impetus to industry to transform for a better future, leveraging on the past experience,” Dr Alok Misra - CEO & Director, MFIN said in a release.