Credit and Finance for MSMEs: Credit and Finance for MSMEs: The gross loan portfolio (GLP) of the microfinance sector grew 5.75 per cent year-on-year (YoY) as of September 2021 while Q2 (July-September) growth stood at 2.1 per cent from Q1 in the current financial year 2021-22. The portfolio outstanding grew from Rs 235.4k crore as of September last year and Rs 243.8k crore as of June 2021 to Rs 249k crore as of September 2021. The data was based on the Q2 report on India’s microfinance sector by Crif MicroLend. However, the YoY growth rate of nearly 6 per cent was muted since September last year with 5.8 per cent growth.
Banks continued to dominate the market with a portfolio share of 40.7 per cent that remained flat from last year, while non-banking financial companies-micro finance institutions (NBFC MFIs) had 32 per cent share with 8 per cent QoQ growth in GLP as against 0.6 per cent for banks and 1.7 per cent for small finance banks (SFBs).
However, GLP growth YoY was nearly 17 per cent for NBFCs and 5.5 per cent for banks while SFBs witnessed a degrowth of 11 per cent. The microfinance sector lends to entrepreneurs, small businesses, and individuals who have difficulty accessing formal financial services.
“The reason for muted YoY GLP growth in microfinance was due to high delinquency that microfinance institutions (MFIs) experienced last year due to pandemic and gradually they are increasing their portfolio. But we also see the number of small-ticket loans percentage is higher than what it used to be. However, the average ticket size of the loan has declined.” Vipul Jain, Vice President – Product Management and Business Intelligence, CRIF High Mark told Financial Express Online.
Importantly, early delinquencies (over 30 days overdue) showed improvement from 15 per cent in the June quarter to 10.4 per cent in September while harder bucket delinquencies (over 90 days overdue) remained stable at 3.3 per cent from June to September. However, over 180 days delinquency continued to rise from 3.2 per cent in September 2020 and 6.9 per cent in June 2021 to 8 per cent in September 2021. Write-offs increased from around 3.1 per cent in September last year and 5 per cent in June to 5.1 per cent in September this year.
“To improve recovery last year, MFIs had disbursed more small-ticket loans to help them in their cash flow requirements to existing customer base. As far as the segment is concerned, 90+ days past due (DPD) has been a very stable segment with around 3 per cent delinquency for a few years now. The 180+ delinquencies we are experiencing now but if you look at the trends, this will align to what they were – 300 per cent overall,” added Jain.
Loans of ticket size between Rs 30,000 and Rs 50,000 had the maximum share by value and volume of 43 per cent and 39 per cent respectively as of September 2021. On the other hand, loans of ticket size less than Rs 15,000 had the least share by value of 3.3 per cent while loans of more than Rs 1 lakh had the least share by volume of 0.9 per cent. Share of banks had declined for loans more than Rs 50,000 by 11 per cent while that of NBFC MFIs had increased by 9 per cent and for SFBs had declined by 1 per cent YoY as of September 2021.
In terms of disbursements, the sector recorded 142 per cent QoQ growth in value during Q2 FY22, and 147 per cent growth in the count of loans disbursed. “Not only small businesses but also microfinance institutions lending to such businesses suffered great losses due to the second COVID 19 wave in Q1 FY22. While the effects continue to linger, the second quarter marked a turnaround for the microfinance industry with an increase in disbursements. However, lenders still need to be cautious about asset quality,” the report said.
“Government schemes have a direct comforting co-relation to performance of loans. When the government offers moratorium, microfinance segment is direct beneficiary,” said Jain in response to benefit from schemes like Emergency Credit Line Guarantee Scheme (ECLGS).