Microlending picked up in December, stress declined, shows MFIN data

The microfinance sector witnessed a jump in loan disbursals in December as demand returned to the sector, recovering from the Covid impact, showed the latest data released by an industry body.

Microfinance institutions (MFIs) borrow money from banks and lend to low-income borrowers at a margin. These institutions play a significant role in expanding financial inclusion in rural areas.

The amount and number of loans disbursed in December 2021 was three times that in June 2021, according to a recent study by the Microfinance Institutions Network (MFIN).

Even in terms of average loan size, there was a rise of nearly 10 percent between Q3FY21 and Q3FY22, data showed. Along with this, the portfolios at risk witnessed a decreasing trend for all entities, the study showed.

Among lenders, banks accounted for the highest share of micro-credit loans outstanding across lenders as of December 2021.

The study showed that banks and non-banking financial companies (NBFCs), the two major players in the microfinance sector, account for 40 percent and 34 percent of the loans outstanding, respectively.

Portfolios outstanding in the microfinance industry went up by more than 20 percent and 5 percent for NBFCs and banks, respectively, between 2020 and 2021, the report said.

The microfinance industry's gross loan portfolio (GLP) is concentrated in 10 states that constitute 81.9 percent in terms of GLP, with West Bengal being the largest state in terms of portfolio outstanding followed by Tamil Nadu and Bihar, the report said.

Even in terms of loan outstanding per borrower, West Bengal has the highest average loan outstanding per unique borrower of Rs 53,110, followed by Kerala at Rs 43,838.

The report further highlighted that while the number of outstanding loans rose, the number of portfolios at risk (PAR) went down significantly between 2020 and 2021.

As per the study, 3.2 crore clients had loan outstanding from NBFC-MFIs, 5.5 percent higher than as of December 31, 2020. But “PAR > 30 days has shown a decreasing trend for all entities signifying recovery of portfolio health,” said the report.

NBFCs and NBFCs-MFIN particularly witnessed a sharp fall in the number of PAR.

“The average loan amount disbursed per account during Q3 FY21-22 was Rs 37,228 which is an increase of around 9.0% in comparison to the same quarter of last financial year,” stated the report.

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