MFIs' portfolio reaches historic high of Rs 35k cr

A recent report by CRISIL pointed out that MFI loan assets were likely to reach Rs 35,000 cr by March 2015

The collective portfolio of microfinance institutions (MFIs) is set to reach a historic high of Rs 35,000-36,000 crore, a 28 per cent growth over the past year.

In December 2014, the gross loan portfolio of MFIs stood at Rs 31,450 crore, against Rs 20,820 crore in the year-ago period - a growth of 51 per cent - according to the latest report by Microfinance Institution Network (MFIN), a representative body of MFIs. According to the report, 10 large MFIs account for nearly 77 per cent of the MFI portfolio.

During the peak period in 2010, before the Andhra Pradesh crisis affected the sector, the MFI portfolio was close to Rs 30,000 crore.

Notably, 20 per cent of the total gross loan portfolio is on account of West Bengal-based Bandhan, the largest MFI in India. On the backdrop of robust growth, 18 non-banking financial company (NBFC) - MFIs have applied for a small bank licence. Regulatory clarity, along with a quantum jump in bank funding, has been some of the factors for the rapid growth of the sector.

In the third quarter of FY15, the MFIs received a total of Rs 9,070 crore as debt funding from banks and financial institutions – a 162 per cent growth over the same period in the previous year.

“We expect MFI portfolio to reach a historic high level of nearly Rs 36,000 crore by March 2015. The market for MFI is very strong, but the penetration is modest. That, coupled with lower risk perception, has led to a rise in funding, both from equity and debt,” said Alok Prasad, chief executive officer, MFIN.

A recent report by CRISIL also pointed out that MFI loan assets were likely to reach Rs 35,000 crore by March 2015. However, the profitability of most large MFIs (those with loan assets exceeding Rs 100 crore) operating as NBFCs might decline by 30-40 basis points every year over the next two years, after improving in 2013-14, says the CRISIL report. The decline is mainly attributed to the regulatory obligation to operate at a lower interest margin cap of 10 per cent.

In the past year, eight new MFIs started operations. Five states — West Bengal, Tamil Nadu, Karnataka, Maharashtra and Uttar Pradesh — account for 59 per cent of the total MFI portfolio in the country.

So far in the current financial year, the sector has raised $276 million through private equity deals. This excludes the $258-million equity commitment in Bandhan ($165 million from Singapore’s sovereign wealth fund GIC and $93 million from the International Finance Corporation), which is set to become a bank soon.