Growth in loan disbursals by microfinance institutions (MFIs), which had dropped to 20-25 per cent following demonetisation, is likely to improve to 40-50 per cent in FY19.
According to P Satish, Executive Director of Sa-Dhan, a self-regulatory organisation for the microfinance industry, the industry was clocking an annual growth rate of 40-50 per cent before announcement of the note-ban in November 2016.
The MFI industry had to bear the brunt of demonetisation, with loan repayments coming to a grinding halt, thereby resulting in the rise in non-performing assets (NPA). The problem was further aggravated following the farm loan waiver announcement by some States, which affected the repayment culture of borrowers.
However, the sector has been showing signs of recovery with NPAs coming down to 4 per cent now from 23 per cent in the period following demonetisation. This is expected to come down further to 2 per cent moving forward.
“Before demonetisation, the industry was growing at 40-50 per cent. In fact, there was a time after the AP crisis had subsided when the industry was clocking a growth rate of close to 60 per cent. The growth is likely to increase in FY19,” Satish told BusinessLine.
The growth, he said, will be supported by an improvement in collection rates and better liquidity. This apart, a steady demand for credit owing to its severe under-penetration in the country will further support growth.
According to data on MFIN (Microfinance Institutions Network) Micrometer, the aggregate gross loan portfolio of MFIs stood at ?38,288 crore as on September 2017, registering a growth of 24 per cent over the same period last year.
The migration of some large MFIs into universal banks and small finance banks and acquisition by some large private sector banks have brought about consolidation in the sector. The share of pure MFIs in microfinance business has come down.
The industry, which includes banks NBFC-MFIs, NBFCs and other MFIs, has a total loan portfolio of over ?1 lakh crore. Banks hold the biggest share of the pie. As of September 2017, NBFC-MFIs provided micro-credit to 2.16 crore clients, an increase of 11 per cent over Q2 FY17.
According to Satish, MFIs and the microfinance vertical of banks and SFBs put together would have extended coverage to close to six crore people. “Compared with the total population of the country, there is still immense scope,” he said.