Weak rains clouds recovery in Rs 3.3 lakh crore microfinance sector

Kolkata: India's ₹3.30-lakh crore microfinance market is facing fresh concerns over credit risks as deficient and uneven rainfall across states potentially dents rural household incomes.

The bottom of the pyramid loan sector, having higher exposure in rural areas, has been showing signs of recovery from a downward credit cycle but weak monsoon may potentially delay the process, experts tracking the sector said.

Drought in five states-Karnataka, Maharashtra, Andhra Pradesh, Telangana and Rajasthan-made the situation worse. Overall, the cumulative rainfall was 12.6% below the long period average at the end of September.


"We are closely monitoring the drought situation. As a prudent measure, we have adopted a calibrated approach in a few affected districts while continuing to support our customers," said Ganesh Narayanan, managing director at CreditAccess Grameen, the country's largest non-banking financial company-microfinance institution (NBFC-MFI).

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He said that there is not much impact on its portfolio so far given a limited exposure to crop-based farming. "Our borrowers are engaged in diverse livelihood activities providing steady cash flows," he said.

Rating company S&P Global, however, has a different take on rural incomes.

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Farmgate Proceeds

"The impact on microfinance institutions could be more pronounced. A larger share of micro borrowers have their income linked to the agricultural sector," S&P Global's financial institutions ratings director Nikita Anand Tuesday. While farm loans in India are generally linked with crop insurance through the Pradhan Mantri Fasal Bima Yojana, rural sector microfinance loans, are not covered with insurance products, sectoral leaders said, raising the risk further.