he Indian microfinance sector (including the SHG Bank Linkage Programme) grew 25% (annualised) in Q1 FY2019 to Rs. 2.25 lakh crore. The growth was supported by good collection efficiency, continued investor support to microfinance institutions (MFIs), funding availability and demand for microcredit.
Commenting on this Supreeta Nijjar, Vice President and Sector Head, Financial Sector Ratings, ICRA says, “The Growth prospects remain good and the industry is expected to grow at 20-22%. The industry has diversified geographically at the state as well as the district level. While Karnataka and Tamil Nadu remained the top two states in terms of portfolio share, with the increased focus of industry participants on expanding their reach in the underpenetrated states of Bihar and Odisha, where the asset quality indicators remained benign even after demonetisation, the share of these two states put together increased from 13% to 18% as on June 2018. Even at the district level, the share of the top 20 districts declined to around 18% of the portfolio outstanding as on June 30, 2018 from 25% in September 2016.”
Including the SHG Bank Linkage Programme, banks were the most significant providers of microcredit (60%) as on June 30, 2018, followed by Non-Banking Finance Companies(NBFC-MFIs) at 26% and Small Finance Banks(SFBs) at 14%. ICRA expects the share of banks to expand with the expected merger of Bharat Financial Inclusion Limited and IndusInd Bank Limited, and the increased focus of banks on growing their business correspondent (BC) portfolios. ICRA has also noticed the trend of banks/larger NBFCs taking partial/majority stakes in MFIs. In some cases, MFIs are also working on increasing lending through the BC model and developing co-lending arrangements, which are likely to be more efficient from a credit risk and capital management perspective.
