After shrinkage in the previous 2 quarters, the microfinance sector saw a quarterly growth of 1.18% to reach ₹226.6K crore as of Dec 2020. The live customer base also witnessed recovery, although 7% lower than Dec 2019. Coming into Q3 FY 2020-21, repayments continue to be stressed since the end of the moratorium period.
Captured below are the key observations from the report:
- The GLP of the microfinance sector showed signs of recovery with a 1.18% increase in GLP as of Q3 FY 2020-21, standing at ₹226.6K crore as of Dec 2020.
- With a nearly 80% increase over the previous quarter, disbursements by value stood at ₹56090 crore, still 11.5% lower than Q3 FY 2019-20.
- By volume, disbursements in Q3 FY 2020-21 almost doubled, compared to the previous quarter standing at 175 lakh and only 4% lower than pre-pandemic disbursements in Q3 FY 2019-20.
- 20.1% of the disbursements in Q3 FY 2020-21 were of small ticket loans (<=10K) due to loan restructuring and new loans given out as part of guaranteed emergency credit.
- Repayments continue to be stressed in the 4 months since the end of the moratorium period. Fresh delinquencies (PAR 1-30%) are at 8.3% and PAR 31-180% has increased to 12.7% as of Dec 2020.
- For the current/good portfolio (0 DPD), collections have improved with the monthly forward flows reducing by nearly 10% between Sep 2020 and Dec 2020.
CRIF’s Views:
The microfinance sector in India has traversed a turbulent journey in this financial year. After witnessing degrowth in the gross loan portfolio in the consecutive first two quarters, the sector experienced green shoots of recovery in the third quarter, with a growth in GLP albeit at only 1.18% over the previous quarter. As markets opened up and operations resumed in Q2 FY 2020-21, disbursements have picked up pace. Digitalisation has gained recognition with more lenders in the customer onboarding stage. Coming into Q3 FY 2020, disbursements further increased, striding towards pre-pandemic levels. 1 out of 5 loans disbursed in Q3 FY 2020-21 is of <=10K, due to loan restructuring and new loans given out as guaranteed emergency credit to manage pandemic induced stress.
This current disruption has had a huge impact on household incomes of individuals including a large number of microfinance borrowers leading to sub-optimal collection efficiencies for the sector. The post moratorium period witnessed high defaults which have continued to flow into Q3 FY 2020-21. The eastern states of West Bengal and Assam hit by the dual impact of the pandemic and natural calamities, including flood and cyclone have witnessed maximum repayment stress as of Q3 FY 2020-21. The Assam Microfinance Institutions (Regulation of Money Lending) Bill 2020 has been introduced to regulate MFI operations and ease stress in the sector. The COVID 19 pandemic although of incomparable magnitude, is not the first of such crisis faced by the microfinance sector in India. Experts believe that the sector, as in the past, has the resilience to overcome challenges posed by this crisis as well. For greater sustainability and growth in the new normal, microfinance lenders will need to rapidly adapt to the changing business environment, levering digital technologies and data analytics in their business processes.
