Microfinance Landscape Shift: Standalone MFIs Take Lead with 40% Microlending Share: After a four-year hiatus, freestanding Microfinance Institutions (MFIs) have regained their dominance in microlending, surpassing banks. This resurgence is attributed to their recovery from pandemic-induced setbacks and strategic efforts, with standalone MFIs now holding a 40% share of microfinance loans in the country.
Daily Current Affairs Quiz: August 2023
Recovery and Resurgence:
The pandemic had had a significant impact on MFIs, resulting in a significant drop in collections and disbursements. Standalone MFIs have shown remarkable growth, rebounding from a 32% share in FY20 to 40% in FY23. Banks, on the other hand, saw a decline in their microlending share from 44% in FY21 to 34% in FY23.
Macroeconomic Factors and Growth:
The microfinance industry grew by 37% in FY23, thanks to a favourable macroeconomic environment and increasing demand. This growth translated into higher disbursements and expansion of the microfinancing landscape.
Empowering Risk-Based Pricing:
The lifting of lending rate ceilings by the Reserve Bank of India enabled MFIs to implement risk-based pricing strategies. This shift led to improved net interest margins (NIMs) and higher returns on total assets, bolstering MFIs’ financial standing.
Credit Quality and NIM Improvement:
Credit costs have reduced from the peak of FY21 but still remain elevated compared to pre-pandemic levels. Despite obstacles, NIMs are likely to continue rising, reaching 3.8% in FY24, supported by 2.5% regulated credit costs.
Investor Confidence and Capital Inflow:
MFIs raised almost Rs 3,000 crore in equity in FY23, indicating revived investor interest. This capital infusion signals confidence in the sector’s growth prospects and sustainability.
Regional Dynamics:
Bihar, Tamil Nadu, Uttar Pradesh, Karnataka, and West Bengal continue to lead the way in terms of MFI Assets Under Management (AUM). Bihar, with a market share of about 15%, stands out as the top state in the microfinance sector.
Future Outlook:
Care Ratings’ analysis anticipates the growth momentum to persist in the current fiscal year, albeit at a slightly slower pace of 28%. The evolving landscape, fueled by risk-based pricing and improving loan quality, predicts that the microfinance sector will continue to expand and innovate.
