Microfinance business may expand by over 200 per cent to 4,30,000 crore in 3-4 years

The microfinance sector reported an overall growth of 40 per cent in FY16 (38 per cent in FY15) with the market size nearing Rs 1,40,000 crore (including Bandhan Bank) as on March 31, 2016.

By: ENS Economic Bureau | Mumbai | Updated: September 10, 2016 1:59 am

The size of microfinance market could expand by over 200 per cent to up to Rs 4,30,000 crore over the next three to four years if the loan sizes were to double from the current levels and microfinance institutions (MFIs) were to increase their presence in under-penetrated areas, rating firm ICRA has said.

The microfinance sector reported an overall growth of 40 per cent in FY16 (38 per cent in FY15) with the market size nearing Rs 1,40,000 crore (including Bandhan Bank) as on March 31, 2016.

This growth was driven by an impressive 72 per cent growth in portfolio of MFIs, SFB licencees and banks, while the SHG bank linkage programme grew at only 11 per cent in FY16.

The growth was supported by new entrants, increase in client outreach and higher ticket sizes as well as continued fund flow to the sector, ICRA said.

The microfinance sector is currently evolving. While on one hand, Bandhan became a scheduled commercial bank in FY16, on the other, seven NBFC-MFIs and one Core Investment Company (which has an NBFC-MFI subsidiary) are slated to transform into small finance banks (SFBs) by March 2017.

“There has also been an increase in new entrants with various banks — especially private sector banks — starting to lend directly in the microfinance segment as well as through business correspondents, thus fuelling further competition,” ICRA said.

While the two operational credit bureaus have been key enablers for maintaining asset quality in the sector, certain issues such as limited coverage of SHG bank linkage programme data, issues related to multiple identity cards being used by borrowers for availing loans from more than two MFIs, interlinking of retail credit and MFI credit databases as well as inclusion of smaller players (NGOs/ societies/ trusts) need to be addressed so that MFIs are able to comprehensively assess the leveraging status of their borrowers, it said.