MUMBAI: The microfinance sector is headed for a bumpy ride with overleveraged borrowers missing installments, forcing the lenders to go slow on new loan sales in the first quarter of the current fiscal. There has been a steep 24% drop in disbursals, came on top of the 30% plunge in the previous quarter.
In the June quarter, MFIs saw their collections falling, leading to higher delinquencies as well as a slowdown in the growth of assets under management, which is 24% in the reporting quarter, came in on top of a 30% fall in new loan sales in the March quarter, India Ratings said in a report on Tuesday.
Bihar and UP grew at a major pace over the past three-to-four years, making Bihar as the largest MFI market since July 2023. Bihar and UP grew 30.5% and 35.7%, resepectively, during fiscal 2022 through fiscal 2024, as gainst overall industry growth of 18.1%. Tamil Nadu clipped at 21% during this period.
The industry was on a song since the pandemic along with the harmonisation guidelines including the removal of interest rate caps, easy funding from banks along with banks’ own growing need for priority sector loans. All these led to substantial loan growth.
“MFIs are facing headwinds due to many events, including the heatwave conditions across the country, general elections, and field-level attrition, among others. Further, overleveraging in some pockets also continues to be a reason for concern forcing MFIs to take corrective actions which can take one or two quarters to show full results even thogh already the new loan generation has fallen by 24 percent in Q1.”
Further, seasonality should also provide some relief in the second half contributing higher share of the annual business, says the report.