MFIs’ gross loan port­fo­lio grows 48%

Banking Frontiers - - Research Notes - Mfis -

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.

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