The microfinance sector witnessed slower credit growth in the second quarter (Q2) of this financial year at 4.3 per cent over Q1, CRIF Microlend said in its Quarterly Publication On Microfinance Lending for the quarter ended in September. As of September 2024, the microfinance portfolio stood at Rs 414 thousand crore, compared to Rs 432.7 thousand crore in June.
However, the report also highlighted that the portfolio grew by 7.6 per cent year-on-year (Y-o-Y) in comparison to Rs 384 thousand crore in the same period last year.
"NBFC MFIs and Banks continue to dominate the market with a total share of 71.3 per cent. Among all lender types, NBFCs emerged as the fastest-growing segment, showcasing 26.3 per cent Y-o-Y growth and a Q-o-Q growth of 0.7 per cent. All other lender types witnessed Q-o-Q decline," the report noted.
The loans disbursed in Q2 declined by 13.3 per cent as they fell to Rs 137.4 lakh from Rs 163.9 lakh in Q1.
Furthermore, originations dampened further in Q2 FY25, with a 13.3 per cent drop in value and 16.1 per cent drop in volume in Q2 compared to Q1. The Q2 of FY25 also witnessed a further increase in delinquencies across all Days Past Due (DPD) bands as it spiked across all ticket sizes and lender types, particularly in the top 10 states.
Stress in Microfinance Industry
The microfinance sector is grappling with rising delinquencies and the impact of new regulations, putting the industry under significant stress. Small finance banks reported the highest proportion of loans overdue by 31 to 180 days.
The increase in non-performing assets (NPAs) in the sector is driving up provisions, which is also affecting the financial health of MFIs.
Given the stress in the industry, representatives of microfinance institutions (MFIs) met with M Nagaraju, Secretary of the Department of Financial Services, on this week to propose several relief measures. These include a dedicated credit guarantee scheme for MFIs and borrowers, the creation of a special fund to support operations in the Northeast, and a relaxation of qualifying asset norms to help diversify risks and ensure business continuity.
