During the two years of the pandemic, microlenders experienced credit losses of up to 10%, but things are improving lately, with stressed asset levels dropping, a report by an industry association on Monday. According to Microfinance Institutions Network CEO Alok Misra, the lenders, which primarily disburse unsecured funding for micro businesses, sustained credit losses of 5-10% in FY21 and FY22 due to the impact of the pandemic on operations and borrowers’ financial health.
He said that the precise size of the credit losses may differ from one institution to another.
However, following the ebbing of the pandemic’s multiple waves, things have been improving in terms of stressed loans, according to the head of the self-regulatory organisation.
Loan default rates had decreased from a high of 22% at the peak of the disastrous second wave of the pandemic to 10–11% in July 2022, he said.
It should be noted that lockdowns and/or the virus’s spread, particularly in the second wave in mid-2021, had caused a lot of stress in the industry because collection agents were unable to reach borrowers dispersed throughout the hinterland, and such segments’ capacity to generate income also suffered.
Misra claimed that the new AAP government in Punjab was experimenting with certain populist ideas to benefit borrowers, but that the industry had effectively helped to prevent such a result by emphasising the need to further develop instead of weaken credit culture.
During the pandemic, a similar attempt was made in Assam as well, but the sector was able to guarantee that a complete loan waiver is avoided and that a dispensation where an asset is restructured is instead offered, he added.
Overall, according to Misra, the importance of a credit culture has been recognised by policymakers, and the Microfinance Institutions Network (MFIN) no longer see populism as posing a danger to the sector.
Misra stated that the whole portfolio of 100 lenders, comprising specialised NBFC-MFIs, banks that conduct microlending, and small finance institutions, expanded to Rs 2.85 lakh crore in FY22, a significant increase from the Rs 16,000 crore portfolio outstanding a decade before.
According to a study that was commissioned by the organisation, the potential market size will reach Rs 17 lakh crore by the end of FY25, according to Misra. According to Misra, average ticket sizes and tenors are rising, with nearly three-fourths of loans now holding a term of more than 18 months. He said that this indicates that the consumer profile is maturing.
He said that the sector supports 1.6 crore jobs and more than 2% of the nation’s total value added. However, he noted that over 80% of the loan is concentrated in the top 300 districts, indicating the need to further deepen the flow.
According to him, the RBI’s March 2022 liberalisation measures, which remove interest rate restrictions and put such institutions under the same regulation as other lenders, will benefit in the development of the financial sector.