Weekly Current Affairs

‘Microfinance sector could treble in 4 years’ [Economy]

  • The country’s microfinance sector will grow nearly three-fold to reach up to Rs 4.3 trillion over the next three years on account of expansion into newer segments and enhanced average loan sizes.
  • Estimate includes micro credit across self-help groups, microfinance institutions and banks. Assumption on doubling of ticket sizes is based on improving income levels, inflation, higher eligibility of borrowers moving to higher loan cycles.
  • The Indian microfinance institution (MFI) sector grew 40 per cent in 2015-16 to Rs 1.4 trillion (including the Bandhan Bank) as against a 38 per cent growth in the previous fiscal, while the average ticket sizes were Rs 20-25,000.
  • The MFI loan growth was on the back of a 72 per cent growth in the portfolio of MFIs, small finance bank licensees and banks, while the SHG bank linkage credit grew only 11 per cent.
  • The MFI sector, excluding Bandhan Bank and teh SFBs, will need external capital of Rs 16-47 billion over the next three to four years.
  • The rating agency said while the business opportunity is exciting, there is a need for establishing a credit culture in the new geographies and strengthening the credit appraisal processes.
  • The two operational credit bureaus have helped sector maintain asset quality, but few issues are yet to be addressed like limited coverage of SHG bank linkage programme data, issues related to multiple id cards being used by borrowers for availing loans from more than two MFIs and interlinking of retail credit.
  • The sector remains vulnerable to asset quality shocks owing to the risks associated with unsecured lending business, political risks, and operational risks arising out of cash handling.
  • Largely on the bank of recognition as priority sector lending (PSL), the banking system’s credit to the NBFC-MFIs grew 60 per cent in the last fiscal.