Microfinance sees 29% fall in Q2 loan delivery as lenders avert risks

Kolkata: Credit delivery to bottom of the pyramid customers has shrunk by nearly a third in the second quarter of the fiscal compared with the year-ago period, with banks slowing down businesses more than non-bank lenders in an overheated microfinance market.

The size of the microfinance market has also declined successively in the past two quarters.

According to the latest sectoral data collated by credit information company Crif High Mark, overall loan disbursement in the second quarter stood at Rs 69,296 crore, 29% lower than what it was in the same period last year.


Quarterly loan disbursement

	Q2 FY25	Q2FY24	Fall
Banks	Rs 25154 cr	Rs 38639 cr	35%
SFBs	Rs 9260 cr	Rs 13926 cr	34%
NBFC-MFIs	Rs 26468 cr	Rs 34606 cr	24%
NBFCs	Rs 8081 cr	Rs 9510 cr	15%
Others	Rs 332 cr	Rs 429 cr	23%

Banks -- both in mainstream and in the small finance bank category -- squeezed loan delivery to microfinance borrowers by about 35%. The fall in loan disbursement by non-banking finance companies (NBFC) during the quarter was the lowest at 15%, albeit on a lower base.

NBFC-MFIs, the leaders in microfinance with 38% market share, disbursed 24% less during the quarter against the year-ago period.

"The decline in credit growth was a deliberate step. In the past two years, microfinance grew very significantly, clocking 25% or more and in some geographies going beyond 30 to 35%. It has caused an over-supply of credit, leading to some stress as we see today," said Jiji Mammen, executive director at Sa-Dhan, one of the self-regulators for the sector.

Outstanding microfinance portfolio

	Sep-end	March-end
Banks	Rs 132957 cr	Rs 146909 cr
SFBs	Rs 69421 cr	Rs 74712 cr
NBFC-MFIs	Rs 162324 cr	Rs 173504 cr
NBFCs	Rs 46784 cr	Rs 45236 cr
Others	Rs 2552 cr	Rs 2338 cr

The outstanding gross loan portfolio has come down to Rs 4.14 lakh crore at the end of September, as compared with Rs 4.33 lakh crore at the end of Juneand Rs 4.43 lakh crore at the end of March.

Banks' outstanding portfolio was squeezed to Rs 1.33 lakh crore from Rs 1.47 lakh crore, while NBFC-MFIs portfolio fell to Rs 1.62 lakh crore from 1.74 lakh crore over the six month period. Small finance banks' outstanding portfolio stood at Rs 69421 crore against Rs 74712 crore. In contrast, NBFCs and other not for profit MFIs saw their outstanding loan rising to Rs 46784 crore from 45236 crore and to Rs 2552 crore from Rs 2338 crore respectively.

"The microfinance sector has been facing headwinds and witnessing elevated risk in portfolio quality... As of now, I would say we will be more careful in containing the portfolio quality rather than focusing too much on growth in
the microfinance portfolio," Bandhan Bank executive director Ratan Kumar Kesh said in post-earnings analyst call.

The sector is facing problems of over-leveraging. Gaps were found on assessment of monthly household income, which has been at the heart of Reserve Bank of India's policy prescription to reduce over-indebtedness of micro borrowers. Sources in the industry said that many a time monthly household income was overstated by field staffers who have typically been under pressure to grow business.