MFIs’ gross loan portfolio grows 48%
Arecent ASSOCHAM-Ernst and Young study shows that the gross loan portfolio (GLP) of MFIs grew at a CAGR of 48% during FY12-16 to reach `532.3 billion and the number of clients benefited crossed 32.5 million (as of March 2016). Notably, the sector reported a significant surge of 84% in GLP from `289.4 billion in FY15 to `532.3 billion in FY16, since MFIs indulged in issuing large loans to clients after the RBI relaxed indebted exposure to single borrower from `50,000 to `100,000, says the study, titled ‘Evolving landscape of microfinance institutions in India’. It also brings to the fore that 60% of the GLP was attributed to the rural sector while the remaining 40% was from metros, urban and semi-urban areas (as of March 2016). South India had the highest share at 35% of GLP followed by west and north India at 25% share each. As much as 31% of the loans were given for agriculture and allied activities while 64% were given for non-agriculture and 5% for household finance. Large MFIs, some of which are in the process of converting to small finance banks, reported the highest surge in their loan books.
The report found that after 2010, MFIs consolidated their operations, since the sector faced more stringent regulatory requirements. The number of MFIs declined from ~70 in pre-2010 to 55 in early-2016. Growth slowed after FY11 and in FY13, there was a decline in both branch network and employee base. However, following the initial consolidation, microfinance companies started aggressively expanding operations. From FY13 to FY16, branch network expanded at a CAGR of 16% while the employee base increased at a CAGR of 27%. Of the total base of 85,888 employees, 63% are loan officers who provide door-todoor credit as on March 2016. The MFIs have reported a 58% jump in average loan size per customer from `10,364 in FY14 to `16,394 in FY16, since during the same period gross loan portfolio has increased 3X while client base has only increased 2X.
The report, however, says despite rationale and a strong institutional credit network, India’s financial services ecosystem lags in terms of physical infrastructure and has failed to reach the poor, more than 19% of the population who are unbanked or financially excluded.