Microfinance institutions (MFIs) are confident that the asset quality stress in the segment will be managed going ahead owing to robust loan underwriting systems, improvement in loan collections and a rise in economic activity across sectors.
“Currently, most of the new portfolios that are being created are witnessing a better performance with more than 99% credit recoveries. I believe this performance will hold good going forward unless there is a systemic or a social impact on the segment,” Pravash Dash, managing director and chief executive officer, Arthan Finance, said.
“In some of the large MFIs, you will find that digital collection is happening onwards of 75% of the entire collections that have come in. That is also helping them reduce their overall NPA numbers,” he said.
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To put things in perspective, microfinance lenders saw a deterioration in asset quality in several loan buckets in July-September.
The non-performing asset ratio in the portfolio of risk (PAR) of more than 60 days rose to 3.83% as on September 30, from 3.56% as on June 30, data from a press release by non-governmental organisation Sa-Dhan showed.
Similarly, the non-performing asset ratio in the PAR of more than 90 days rose to 2.27% as on September 30, from 1.85% as on June 30. The non-performing asset ratio in the PAR of more than 180 days rose to 11.02% as on September 30, from 10.25% as on June 30.
At the same time, outstanding loans among microfinance providers rose 20% year-on-year (y-o-y) in the September quarter, suggesting that an inclination to lend remains strong among these lenders.
While bad loans in the micro-loan segment had ballooned as a result of Covid-led restrictions, bankers take solace in the fact that the portfolios of these lenders have been improving since these restrictions were eased.
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“The Covid slippages in the sector were reflective of the overall pan-India situation, but still the slippage was not as steep as in other sectors,” said Devesh Sachdev, founder and chief executive officer, Fusion Micro Finance
“The bounce-back has been much faster due to the resilience of microfinance clients,” he said.
Broadly, micro lenders bring a ‘high-touch’ approach when engaging with their clients, which helps them keep the asset quality in check. The use of group-based lending model to women borrowers with shorter repayment frequencies and regular touch points through weekly, fortnightly, monthly meetings enables them to strengthen client relationships, said experts.
Since adequate loan loss reserves have already been created by MFIs, write-offs would not affect the sustainability of the institutions, say bankers. “Traditionally, most of these MFIs were operating on a sale-and-collect model where the same team would bring disbursements and collections,” Dash said. “But now, invariably you will find that there is a separate collection team which is working with delinquent customers. This model is very affordable and profitable for MFIs as they make money even if this team collects Rs 15,000 from customers.”