Microfinance loan portfolio to grow at 10-15%: Report

The gross loan portfolio of Non-Banking Finance Companies-Microfinance Institutions (NBFC-MFIs) is likely to grow at 10-15% in the current fiscal year, aided by an expected pick-up in disbursements and the expected recovery in economic activity, said a report on August 10.

The gross loan portfolio of NBFC-MFIs is expected to grow largely owing to expansion plans that were halted due to the COVID-19 pandemic and increased need for credit among low-income segments, according to a report of Bengaluru-based Brickwork Ratings.

However, the second wave of COVID-19, which has spread faster in rural areas and has resulted in much higher infections, and the resultant local lockdowns, may restrict fresh disbursements as well as collections, although normalcy is expected to resume in the financial year 2021-22, which will also result in release of pent-up demand for credit.

However, the Portfolio At Risk (PAR) of NBFC-MFIs may inch up to 5.5-6% this fiscal from 5.40% in the previous financial year due to uncertainties over the pandemic situation in India, it said.

The Gross Loan Portfolio (GLP) for NBFC-MFIs had grown only 11% year-on-year in the financial year 2020-21.

The report said the recent RBI announcements on increasing the flow of credit to Micro, Small and Medium Enterprise (MSME) borrowers, along with allowing loans given to MFIs for onward lending by small finance banks to be treated under priority sector lending, will give impetus to growth in credit by MFIs.

As transactions with microfinance customers are cash-intensive, requiring field visits, the lockdown had a strong impact on asset quality as their collections were badly hampered, it said.

Additionally, with the absence of a moratorium and other measures, livelihood in rural areas has been badly hit. “These factors may result in MFIs facing challenges in collection and recovery of loans, thereby resulting in higher credit costs for players,” the report said.