MFIs set blistering pace of growth in microfinance market in Q1 FY24

Non-banking finance companies and microfinance institutions (NBFC-MFIs) stole a march over banks in securing their position in the market with a 43% y-o-y growth at the end of the April-June quarter of the current financial year, The Economic Times has reported.

Data from Sa-Dhan that conducts research on impact financing institutions show that the galloping pace of growth helped the MFIs increase their share of the portfolio to 41.3% of India’s entire microfinance market. It was a mere 35% just about a year ago.

The gross microloan pie, too, recorded a healthy y-o-y clip of 21% year-on-year at the end of the first quarter. The total market in terms of value stood at Rs 3.59 lakh crore on June 30.

Small finance banks and other NBFCs, too, did good business on the microfinance front. Both these categories of entities witnessed a growth of 24% each in the same time window. In comparison, business from the banks remained flat with a sub 1% — 0.86% in fact – growth. Bandhan Bank that grew into a full commercial bank after starting out as an MFI actually witnessed a contraction in the microfinance loan portfolio. It microfinance portfolio stood at Rs 51,000 crore, a noticeable drop from Rs 57,000 crore a year earlier.

“The share of the portfolio indicates that the NBFC-MFIs have become proactive in their approach, taking the benefit of the new regulatory framework of RBI and the positive mood in the country towards MFIs,” said Sa-Dhan executive director Jiji Mammen.

While MFIs grabbed the top market share, banks occupied the second spot with 32%. Small finance banks and non-banking finance companies contributed 17.4% and 9.0% of the pie respectively. Not-for-profit institutions had a marginal presence at 0.3%.

“After the introduction of the fixed obligation to income ratio for borrowers last year, NBFC-MFIs have been focusing more on new customer acquisition instead of merely leveraging more on ticket size and this has resulted in improvement in market share,” said Sadaf Sayeed, CEO of Muthoot Microfin.

Since Q3 of FY23, NBFC-MFIs have come to grab the largest market share.

A snapshot of the microfinance market (as on June 30, 2023) now reveals the following figures:
NBFC-MFIS have a market share of 41.20% and the absolute value is Rs 1,48,087 crore.
Banks have 31.99% of the market share with a portfolio of Rs 1,14,729 crore, while small finance banks have a portfolio of Rs 62,399 crore with 17.4% share of the market. The NBFC exposure stands at Rs 32,501 crore which translates into a 9.06% market share. The not-for-profit entities have a loan exposure of Rs 983 crore with 0.27% share of the market.

The presence of not-for-profit lender Cashpor Micro Credit in the NBFC-MFI fold also helped boost their cumulative numbers. On June 30, 2023, it had a loan portfolio of Rd 24,670 crore.

However, even without Cashpor’s support, the growth of NBFC-MFIs’ would have recorded a very healthy 40.5% y-o-y growth in Q1 of the current financial year.

The contraction in Bandhan Bank’s microfinance business might be attributed to the fact that its main market WEST Bengal itself suffered a shrinkage in microfinance business.

In contrast, the microfinance market grew in states such as Uttar Pradesh with 41% growth, Bihar with 37%, Tamil Nadu with 28%, Karnataka with 28% and Rajasthan with 22%.
In terms of the size of loan portfolio the top five states were Bihar, Tamil Nadu, Uttar Pradesh, Karnataka and West Bengal. These five states had a share of 56% of the nation’s microfinance portfolio.

The states where the markets contracted the most were Assam (35%), Nagaland (33%), Sikkim (24%). Tripura (19%), Manipur (16%) and Meghalaya (10%).

(ENDS)