Microfinance Industry (MFI) loan portfolio stood at 2,37,369 crore yen, serving 5.68 crore of single borrowers with 10.3 crore loan accounts: Infomerics report | AFN News


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Microfinance Industry (MFI) loan portfolio was 237,369 crore yen, serving 5.68 crore of unique borrowers with 10.3 crore loan accounts: Infomerics report

Posted on December 24, 2021

  • NBFC-MFIs were the second largest micro-credit provider with an outstanding loan amount of 75,021 crore, representing 31.61 percent of the industry’s total portfolio.
  • The gross loan portfolio (GLP) as of June 30, 2021 showed an increase of approximately 4.2% year-over-year from 2,277,727 crore as of June 30, 2020.
  • Removing the interest rate cap on microfinance loans also provides grounds for abuse, as borrowers can be charged disproportionate interest rates.
  • Need to expand additional MFI relief program under the MFI Credit Guarantee Scheme (CGSMFI) and sincerely work to increase credit penetration.

Bombay : The microfinance industry (MFI) is one of the most important paradigms of the Indian financial sector because of its local coverage and its holistic view of providing credit to the relatively unbanked sections of society – but by no means unbankable – creating meaning and value in people’s lives. This transformation effort is integral to the mainframe economy and to the well-being of society as a whole. The loan amount disbursed, fell in the wake of the devastating COVID pandemic. However, the number of SHGs with savings link increased from around 100 lakhs to around 112 lakhs.

All India APN as a percentage of outstanding SHG-BLP loans increased from 5.19% in 2018-19 to 4.73% in 2020-2021.

West Bengal retained its place as the largest state in terms of outstanding portfolio (₹ 34,587 crore), followed by Tamil Nadu and Bihar (₹ 35,312 crore and ₹ 26,997 crore respectively). Among the top 10 states, West Bengal had the highest average loan per single borrower of 54,159, followed by Assam at 48,697.

These are the main findings of a report titled Micro Finance Institutions: Emerging Contours published by Infomerics Valuation and Rating Pvt Ltd., the renowned SEBI registered and RBI accredited financial services credit rating company.

Institutional initiatives

The report thus also mentions the many initiatives taken by various institutions, such as the exploration of Fintech solutions to ensure the safety and ease of customers during the Covid pandemic. Many organizations have introduced applications and services to facilitate the credit process, for example, Satin Creditcare Network has introduced an application – a one-stop solution for clients for their post-loan services, Muthoot Microfin has introduced ‘Mahila Mitra’, a client app where clients can pay installments, view loan tracking, request new loans, refer prospects, file a complaint, and more. to follow up with them.

The MFI Credit Guarantee Program (CGSMFI) was initiated to provide a guarantee by the National Credit Guarantee Trustee Company (NCGTC) to member credit institutions (MLIs) for the loans they make to NBFC-MFIs and banks. MFIs in the country.

In addition, the JLG NABARD Promotion Support Initiative extends financial support for the training and maintenance of JLGs to banks and other JLG promotion institutions. In 2020-2021, a total of 41.27 JLG lakh were promoted, compared to 41.80 JLG lakh promoted in 2019-20.

Another notable initiative mentioned is EShakti, a self-help group digitization pilot project that was started by NABARD in 2015 in two districts of Ramgarh (Jharkhand) and Dhule (Maharashtra), then expanded to 100 districts across the country in 2016 and 2017. It aims to digitize data from all SHGs to improve the ease of doing business with SHGs. Starting with 2 lakh self-help groups in 2016, the E-Shakti project now covers 12.33 lakh self-help groups and is implemented in 281 districts of the country.

Challenges

Despite the various initiatives taken by the institutions, risk factors for the industry still persist instead of the regulation of microfinance. The recent regulatory framework released by the RBI has also raised concerns. The overall eligible debt limit linked to the borrower’s repayment capacity at the household level has been capped at 50% of household income. This could reduce the flow of formal credit to borrowers, who may necessarily seek informal sources of credit. The industry has requested additional support of 7,500 crore under CGSMFI since the initial 7,500 crore announced in June 2021 ran out.

In addition, the delinquency rates in the MFI sector have increased. Delinquency fell to 2.90% by the end of FY21, but reached a clearly unsustainable level of 10.52% in the devastating second wave in the “30-59 days late” category. The delinquency rate also increased in the “60-89 days late” and “90-179 days late” categories. All this shows that the repayment capacity of the poor class has been severely weakened by the pandemic.

Removing the interest rate cap on microfinance loans also opens the door to abuse, as borrowers can be charged disproportionate interest rates. However, the RBI warned that continued asset growth and good returns should not attract lenders and stressed that lenders are important in aligning growth and well-being.

The path to follow

The report mentions that by operating at the local level, it becomes imperative for regulators to constantly undertake mid-term corrections, whenever necessary, in the light of transnational experience, best practices and experiences at the same time. nationwide and improve the scope, adequacy and timeliness of credit while reducing the cost of credit. At the current stage, there is a need to explore additional assistance program for MFIs under CGSMFI and sincerely work to increase credit penetration. Despite the increase in size, a large number of people still depend on informal credit.

The report is optimistic about the future of the industry in the near term as the economic recovery looks set to hold despite some lingering concerns over supply disruptions, rising input prices, delta variants and omicron. This requires constant support and understanding from regulators.


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