Ever since the AP crisis in 2010 and the creation of a new category of NBFC-MFIs in December 2011, the regulations have carefully nurtured the growth of microfinance in India. Globally, the Indian microfinance sector is perhaps the second largest after China. The number of borrowing customers in India is about three times the next biggest market—Indonesia.
According to a latest report by ACCESS Development Services, MFIs acquired 13 million new clients with an increase in disbursements by 28 per cent in FY23-24. The total loans managed by MFIs comprising own account loans and managed portfolio increased by 12 per cent, while the own portfolio (excluding the managed portfolio on behalf of others) increased by 11 per cent.
About 67.5 per cent of the portfolio outstanding was ‘own’ portfolio of MFIs, indicating a marginal fall of about 1.5 per cent from the previous year. The average loan size increased by about 25 per cent. Operating costs increased during the year on account of the changed processes in loan origination and appraisal to comply with the regulatory requirements imposed during the year.
The performance and profitability ratios during FY23 provide a picture of good health and improving prospects of the industry as a whole. The industry managed to pare operating costs while retaining finance costs at more or less the same level as that of previous year, said the report.
There was a significant hike in yield (more than 4 per cent), with a resultant increase in margins by 1.26 per cent. Return on Assets (ROA) at 2.49 per cent is a comfortable level for most MFIs regardless of form.
During FY23, good progress in enhancing portfolio quality has been achieved. The sector in general and MFIs in particular have been able to rein in defaults, improve recoveries, and deal with more chronic cases through settlements and write-offs, the report further stated.
The leaderboard of MFIs has seen some small changes in FY 2023. Credit Access Grameen (CA Grameen henceforth) became the largest in terms of gross loan portfolio (GLP), taking over from Shri Kshethra Dharmasthala Rural Development Project (SKDRDP). IIFL Samasta entered the top five list, edging out Muthoot Microfinance.
Sources of Finance for MFIs
Out of the total resources deployed by MFIs, about 21 per cent were in the form of owned funds. Equity constituted 9.2 per cent of total funds at Rs 131.8 billion. During FY23, 70 MFIs raised Rs 16 billion in fresh equity, with most of it raised by the top ten MFIs in the industry.
There was an increased flow of funds to MFIs reflecting the overall improvement in the credit environment and the increased attractiveness of MFIs as an asset class. The outstanding borrowed funds of MFIs increased to Rs 1,133 billion in March 2023, the report highlighted.
Banks were the dominant funding source for MFIs.ICICI Bank was the top lender to the MFIs, of the top five lenders, two were public sector banks and of the three private sector banks, two were new generation banks. But many banks were taking microfinance loans directly on their books through the BC route or securitisation/ assignment structures. The amount of securitisation transactions were of the order of Rs 262 billion, it added.
Geographical Spread of MFIs
The Indian microfinance coverage (self-help groups or SHGs and joint liability group or JLG-based microfinance institutions or MFIs) is more than 50 per cent of households and 10 per cent of the Indian population. The geographical coverage of MFIs extended to 730 districts by March 2023, across all the states, the report revealed.
The number of branches of NBFC-MFIs increased by about 16 per cent (compared to 11 per cent in FY 2022). There was a net increase in staff employed by all MFIs by 13 per cent, taking the number of staff to 174,000, the report highlighted.
Additionally, seventy four percent of Microfinance loans were in rural areas, this was marginally less than the previous year’s level of 75 per cent. While southern and eastern regions were well placed, northern, western, and north-eastern regions had shares of 9 per cent, 9 per cent, and 3 per cent, respectively of the client base.
