MFIs overtake banks in giving microfinance loans

In fiscal 2022, banks’ share was 40% in the total outstanding loans, while share of MFIs was 35%, according to CareEdge Ratings.

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MUMBAI:  Microfinance Institutions (MFIs) have outpaced banks in providing small loans for the first time in four years. NBFC-MFIs have overtaken banks with their share reaching 39.7% in the total outstanding microfinance loans at the end of the fiscal ended March 2023.

They emerged as the largest provider of micro-credit with a loan amount outstanding of  Rs 1.38 lakh crore, as per the data released by the Microfinance Institutions Network. Banks’ share was 34.2% with a total loan outstanding of Rs 1.19 lakh crore at the end of FY2023.

In fiscal 2022, banks’ share was 40% of the total outstanding loans, while the share of MFIs was 35%, according to CareEdge Ratings. A year before that the share of MFIs was 31% while banks’ share was 44%.

Regulatory changes and a pick-up in demand after covid-19 have helped microlender to gain ground. Last year in March, the Reserve Bank of India (RBI) had removed caps on the pricing of small loans given by NBFC-MFIs.

The removal of the lending rate cap enabled MFIs to engage in risk-based pricing, which boosted their profitability. Economic recovery after covid-19 fueled the demand for credit. 

The average loan amount disbursed per account during FY23 was Rs 42,010, which is an increase of about 12.9% in comparison to the last financial year.

“The microfinance industry experienced a slowdown in growth in FY21 due to the challenges posed by the Covid-19 pandemic. However, growth rebounded in FY22, with NBFC-MFIs growing at 18% Y-o-Y, supported by strong disbursements in the latter part of the fiscal year. This growth momentum is expected to continue, with CareEdge Ratings projecting a healthy loan growth of around 20% in FY23 and 25% in FY24 for NBFC-MFIs,” Sanjay Agarwal, Senior Director, CareEdge Ratings told this newspaper.

As on March 31, 2023, the microfinance industry served 6.6 crore unique borrowers, through 13 crore loan accounts. The overall microfinance industry currently has a total Gross Loan Portfolio of Rs 3.48 lakh crore. The growth momentum is expected to remain strong in the current fiscal.

Banks’ share in microcredit falls to 34.2 per cent 

NBFC-MFIs emerged as the largest provider of micro-credit with a loan amount outstanding of Rs 1.38 lakh crore, as per the data released by the Microfinance Institutions Network. Banks’ share was 34.2% with a total loan outstanding of Rs 1.19 lakh crore at the end of FY2023