Microfinance sector grows over 16-fold to Rs 2.85 trn in last decade: Study

The microfinance industry grew over 16-times in the last decade with a loan portfolio of Rs 2.85 lakh crore, a study has said.

Going forward customer engagement and protection will lay ground for the long-term sustainable growth.

According to the 'Micro Matters: Macro View - India Microfinance Review FY 2021-22' report by Microfinance Institutions Network (MFIN), NBFC-MFIs (microfinance institutions) were the only regulated entity offering micro loans till 2012.

The portfolio of the industry grew by 16.5-times from Rs 17,264 crore in March 2012 to Rs 2,85,441 crore as of March 2022. Banks and NBFCs started disbursing micro loans from 2016 while small finance banks (SFBs) joined in 2017.

The functioning of MFIN as an SRO (self-regulatory organisation) since 2010 has enabled the sector to build its growth on strong pillars such as customer protection, industry code of conduct and policy advocacy, all of which contribute towards the building a responsible finance ecosystem, Devesh Sachdev, Chairperson - MFIN said in the report.

Sachdev said financial inclusion or access to finance is an important pathway to create opportunities thus allowing low-income households to take part in these growth processes.

"This is where microfinance is playing a very important role in meeting the needs of the low-income aspirational households by providing doorstep financial services like credit, and insurance along with imparting financial literacy," he added.

As per the report, there are close to 6 crore unique microfinance clients. As of March 2022, about 202 entities were catering to them.

Banks held the largest share of the portfolio with a total loan outstanding of Rs 1,14,051 crore, which is 40 per cent of the total micro-credit universe.

NBFC-MFIs are the second-largest provider of micro-credit with an outstanding of Rs 1,00,407 crore (35.2 per cent). While SFBs had a total loan amount outstanding of Rs 48,314 crore (16.9 per cent).

NBFCs accounted for another 6.9 per cent and other MFIs 1 per cent, the MFIN report says.

The MF market provides the potential for rapid growth to the lenders, and increased focus on customer education, engagement and protection will lay the ground for a long period of sustainable growth, the report said.