Why microfinance institutions now face a double whammy

microfinance

Indian Market
by 5paisa Research Team Last Updated: 2022-08-26T19:59:14+05:30

The microfinance industry has been witnessing a slow recovery in the current fiscal year in terms of portfolio growth and improvement in the asset quality indicators, after facing pressure in the last two years because of the Covid-19 pandemic.

But it now faces another challenge that is likely to restrict it from bouncing back as projected earlier.

With the onset of monsoons, several states have seen flooding. This affects movement and livelihoods, thereby impacting the collection efficiency of the industry. Some states have witnessed excessive flooding, whereas in certain states the impact is less severe. Moreover, within states as well, the intensity and impact of floods vary significantly across districts.

To be sure, floods are not uncommon and are indeed an annual feature and the microlenders have been adjusting their business and operations to cope with it. Still, the impact could be higher this year given the early stage of recovery from the impact of the Covid-19 pandemic.

A sample of 19 non-banking financial companies-microfinance institutions (NBFC-MFIs) studied by rating and research agency ICRA shows that half of them have more than a quarter of their portfolio in the worst-affected states while a third have 10-25% of the business in such states. The rest have up to a tenth of their portfolio in those impacted states.

NBFC-MFIs with a high share in the worst-affected states may witness an increase in delinquencies in the April-September 2022 period and may struggle to maintain the recovery curve seen, post the impact of the pandemic.

Microfinance loan disbursals during 2021-22 improved significantly to Rs 2,39,433 crore as compared to the previous financial year (Rs 1,88,471 crore). The number of loans disbursed also saw an increase last year to 6.3 crore from 5.2 crore in 2020-21, indicating continued growth of the microfinance portfolio.

Start Investing in 5 mins*

Get Benefits worth 2100* | Rs. 20 Flat Per Order | 0% Brokerage

About the Author

Our research team is composed of some highly qualified research professionals, their expertise range across sectors.

Open Free Demat Account

& get benefits worth 2100*

Resend OTP
Please Enter OTP
  • Have Promo code?
  • Use code ACT2100
Enter Promo code
Account belongs to

By proceeding, you agree to the T&C.

Start Investing Now!

Open Free Demat Account in 5 mins

Enter Valid Mobile Number