The microfinance sector in India saw a growth of 29.26% in its gross loan portfolio (GLP) on a year-on-year basis in the last financial year, according to data released by the Microfinance Institutions Network (MFIN). The GLP of the microfinance sector stood at Rs. 2,31,788 crore as on March 31, 2020, as compared to Rs. 1,79,314 crore on March 31, 2019. However, the portfolio at risk (PAR) continued to be on the higher side, with PAR>30 increasing from about 1% at the end of Q4 FY19 to nearly 1.79% at the end of Q4 FY20.
The MFIN publication stated that the PAR figures continue to show an increasing trend compared to previous quarters, but the portfolio health is still within acceptable limits. Despite this, the NBFC-MFIs received a total of Rs. 42,150 crore in debt funding during FY20, which represents a growth of 33% compared to FY18-19, when they received Rs. 31,688 crore.
Banks hold the largest share of portfolio in microcredit with total loan outstanding of Rs. 92,281 crore, which is 39.8% of the total micro-credit universe. NBFC-MFIs are the second-largest provider of micro-credit with a loan amount outstanding of Rs. 73,792 crore, accounting for 31.8% of the total industry portfolio. Small finance banks have a total loan amount outstanding of Rs. 40,556 crore with a total share of 17.5%. NBFCs account for another 9.8%, and other MFIs account for 1.1% of the overall portfolio.
The five top states in terms of loan amount outstanding are Bihar, Karnataka, Tamil Nadu, Maharashtra, and Odisha. They account for 49% of GLP, and the top 10 states account for 79% of the total loan amount outstanding. During FY19-20, NBFC-MFIs disbursed loans worth Rs. 77,072 crore, nearly 23% in loan amount disbursed. The top 10 MFIs in terms of loan amount disbursed accounted for 70% of industry disbursements in FY19-20.
MFIN CEO Harsh Shrivastava said that microfinance was able to get more liquidity from its lenders in a difficult year and, in turn, increase its outreach by adding new branches, hiring more staff, and reaching more borrowers. The average loan disbursement per account for FY 2019-20 stood at Rs. 27,754 as compared to Rs. 26,196 for FY2018-19. More than 92% of MFI loan disbursements in FY20 were in cashless mode, compared to 85% in FY19.
While the growth in the GLP of the microfinance sector is a positive sign, the increase in PAR indicates that there is a risk of borrowers defaulting on their loans. It is essential for the sector to monitor this risk and take steps to mitigate it. The increase in debt funding received by the NBFC-MFIs is a good sign as it will help them to reach out to more borrowers and improve their portfolio quality. However, it is crucial for the microfinance sector to focus on responsible lending practices and ensure that borrowers can repay their loans without falling into debt traps.
