MFI disbursals drop 10 percent in Q2 as credit quality takes a hit

Disbursements by microfinance institutions dropped by more than 10 per cent in the July-September period compared to the year-ago period as the industry started witnessing stress on asset quality, according to data shared by a self-regulatory organisation on Monday.

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The proportion of loan amounts unpaid for 31-180 days more than doubled to 4.4 per cent as of September 30 as against 2 per cent in the year-ago period, the Microfinance Industry Network (MFIN) said. "... considering the ongoing challenges, the industry decided to moderate the disbursement growth, focus on strengthening underwriting as per MFIN guardrails and repayment collections," the body's chief executive and director Alok Misra said. He added that the SRO expects credit quality to "stabilise" in the next few months on the back of better underwriting, bumper summer crop and the ongoing trends in sowing the winter crop.

Last week, RBI Deputy Governor Swaminathan J opined that the stress in the MFI sector is not a big concern at the system level and added that the RBI has lenders to strengthen underwriting and collection efforts. Growth in the gross loan portfolio, which includes all the MFI loans outstanding for banks, small finance banks and non-banking finance companies-MFIs, has slowed down to 8.5 per cent when compared with the year-ago period.

With a de-growth of 5.6 per cent, the SFBs are a major contributor to the slowdown in the overall GLP growth, the data showed. The cautious stance taken by the industry has had an impact on the overall number of borrowers served by the sector with a 19.6 per cent drop in the number of loans disbursed at 1.35 crore as against 1.69 crore in the year-ago period, and 1.57 crore in the quarter-ago period. The average loan size, however, has moved up to Rs 50,487 from Rs 45,124 in the year-ago period, and Rs 48,862 in the quarter-ago period.

Interestingly, the number of unique borrowers served by the sector has risen to 8.1 crore against 8 crore in the quarter-ago period, indicating that the industry is trying to limit a single borrower's indebtedness.

PTI AA MR 12091931