By Christina Titus
Microfinance institutions’ (MFIs) business will pick up in the next couple of quarters, said Jiji Mammen, CEO & ED of Sa-dhan – the self-regulatory organisation (SRO) of MFIs. His assessment comes at a time, when the industry is going through a rough phase, in terms of asset quality.
“We hope that business will pick up again in a quarter or maximum two. Also, with the reduction in qualifying assets from 75% to 60% and improvement in RBI risk weightages, we expect more innovations in the product offerings available to end borrowers.”
The good news is that the Reserve Bank of India lowered the qualifying asset threshold for MFIs to 60% from 75% — a move that will help them lend more to profitable segments. .
The loan disbursement of MFIs declined 25.4% on year to Rs 1.12 lakh crore in the financial year ended March. The total assets under management of the MFIs were Rs 1.47 lakh crore as of March, according to the report by Micro Finance Industry Network.
As far as asset quality goes, Mammen said that the recent higher delinquencies is a temporary phenomenon and will improve soon, adding that there is already a sign of progress in PAR (portfolio at risk) 30 DPD (days past due). The stress in the asset quality was caused by several factors including the economic conditions, climate-related events, general elections, and some disruption in recovery due to external interventions, including Karnataka and TN Bills, he said. However, Mammen added that the Tamil Nadu Money Lending Entities Bill has not impacted the MFI operations in the state.
The Sa-dhan chief also stressed on the necessity of diversifying the funding sources of microfinance lenders with better pricing and easy availability, which will help them to lend at affordable rates. “Presently, many MFIs face difficulties in accessing credit, especially the smaller and mid-segment ones. That is the reason we have been requesting a funding mechanism for the MFIs with the Government and the RBI,” said Mammen.
He further said that the recent policy rate cut and reduced CRR requirement will help the microfinance institutions in accessing more cheaper funds.
In FY25, debt funding received by MFIs declined 35.7% on year to Rs 57,307 crore, whereas banks contributed 78.4% of the total borrowing received, followed by non-bank lenders at 11.9%.
