Microfinance industry shrinks 4% in a quarter as defaults double year on year

Mumbai: The year-on-year delinquency rates on microfinance loans, where instalments are overdue by 30 to 180 days, jumped to 4.3% as of Sep 2024, up from 2% a year earlier. Even as delinquencies rose, lenders shrank their loan exposures and brought down the number of borrowers with multiple loans - a category which saw maximum defaults.

As of Sep 2024, the microfinance portfolio stood at Rs 4.14 lakh crore, registering a quarter-on-quarter (Q-o-Q) decline of 4.3% compared to Jun 2024 and a year on year growth of 7.6%. According to the CRIF Microlend report, which reviews small-ticket loans at the end of the second quarter of FY25, portfolio exposure to borrowers with three or more active lender associations has decreased, and the proportion of such borrowers has fallen across different states.

The microfinance sector has seen a significant rise in delinquencies across all categories of non-performing loans. Bihar, Tamil Nadu, Uttar Pradesh, and Odisha accounted for 62% of the incremental delinquencies. Small finance banks (SFBs) were the worst affected lender category, reporting the highest proportion of loans overdue by 31 to 180 days. NBFCs and banks maintained their dominance in the market, holding a combined 71.3% share of the portfolio.

Delinquencies continued to rise across all delinquency bands (DPD categories) during Q2 FY25, spiking across all ticket sizes and lender types, especially in the top 10 states. The PAR (Portfolio at Risk) for loans overdue by 31 to 180 days was higher for SFBs (5.4%) compared to other major lenders. However, NBFCs reported the lowest PAR 31-180 (2.3%) as of Sep 2024.

Regarding microfinance borrowers’ exposure to retail loans, 14.3% of active microfinance borrowers (MFI borrowers) held an active retail loan as of Sep 2024. Among these borrowers, 37% were in 30+ DPD on either microfinance, retail loans, or both. Borrowers with overlaps in microfinance and retail loans had higher delinquency rates compared to those with only microfinance loans.

Source: THE TIMES OF INDIA, 08th January, Mumbai