The gross loan portfolio of micro finance institutions (MFIs) has grown by 53 per cent in June quarter, clocking the highest growth rate since demonetisation (November 8, 2016). However, they have not got back to the pre-demo growth level. Debt funding received by MFIs too has grown by 160 per cent. While Kerala floods would increase demand for micro finance, they would cast a shadow on the delinquency levels, which had made significant improvement in the past few quarters. 

At the end of June quarter, aggregate gross loan portfolio (GLP) stood at Rs 51,878 crore against Rs 33,950 crore in the same quarter last year. GLP also has grown sequentially by 8 per cent from Rs 48,211 crore in March quarter. Loans disbursed during the quarter too grew by 52 per cent to Rs 17,836 crore from Rs 11, 701 crore in the year ago quarter, as per the data from MicroFinance Institutions Network (MFIN).

The micro finance sector had suffered severely post demonetisation. It took some time for the sector to rebound. While the sector has achieved 53 per cent growth in GLP, it is yet to catch up with the 80 per cent growth levels prior to demonetisation.

While the number of clients having loan outstanding in MFIs grew by 31 per cent to 2.65 crore, the average loan amount disbursed per account too grew to Rs 23,510, an increase of 12 per cent from Q1 FY 17-18.

“Micro finance industry has gained pace, showcasing promising growth in the past quarters. As we see more new players entering the space and the current ones growing larger realising their IPO plans, the coming period will mark a new chapter for the sector. Additionally, improved investors’ confidence, due to proper regulations in place and the increased transparency in the sector, will also support the growth story,” said Harsh Shrivastava, CEO, MFIN.

Better growth also saw financial health of MFIs improving. Portfolio at Risk for more than 30 days declined to 3.2 per cent, from 10.7 per cent in the same quarter last year. PAR-90 too bettered from 6.7 per cent to 2.6 per cent. Better health helped MFIs garner higher debt funding, which went up by 160 per cent to Rs 10,237 crore.

However, market share within the NBFC-MFI industry is clearly concentrated in the group of large MFIs, which account for 91 per cent of the industry GLP, 89 per cent of the client base, 91 per cent of loan amount disbursed and 94 per cent of debt funding. There are 19 large MFIs which have GLP higher than Rs 500 crore.

This higher concentration of business among a few MFIs also poses higher risk of delinquencies during adverse events. The Kerala floods can cause some strain to MFIs with delinquencies shooting up in short term.

India Ratings and Research finds that exposure of MFIs to the state is around Rs 2,100 crore and PAR30 was at 2.7 per cent in FY18. Post the floods there could be a spike in PAR-30 number for the eight players operating in Kerala. The portfolio behaviour would remain vulnerable, largely due to the loss of livelihood for many borrowers in the affected districts. Eight districts comprising 56 per cent of state population have suffered major losses. MFIs also will have to take haircuts depending upon their exposure. As per Ind Ra, micro finance being unsecured lending is at the highest level of risk.

However, reconstruction post floods will require more funds and hence the disbursals can go up.