MFIs may clock 20-22% portfolio growth over medium term: Icra

The microfinance industry is likely to register a 20-22 per cent annual growth in portfolio over the medium term, Icra said today.

The overall growth, however, would be moderated to an extent by the focus of microfinance focused small finance banks on increasing portfolio share of other asset classes such as business loans, affordable housing and retail lending, the rating agency said in a report.

"Given the good potential,we expect the traction in disbursements to sustain and the industry to report a portfolio growth in the range of 20-22 per cent per annum over the medium term," it said, adding within this, the pace of growth of the non-self help group portfolio is expected to be higher at 25-30 per cent per annum.

The microfinance sector, including the self-help groups (SHGs) bank linkage programme, recorded an aggregate 22 per cent on year growth to touch Rs 2.05 lakh crore as on March 31, 2018, according to the report.

Compared to the sector's growth, the portfolio outstanding under non-banking finance companies (NBFC-MFIs), microfinance focused small finance banks (SFBs) and universal banks (excluding SHG bank linkage programme) grew at a faster pace of 25 per cent during the period, it observed.

Icra noted that this growth was supported by a 12 per cent rise in both client base and loan outstanding per borrower.

The industry got an equity infusion of Rs 3,600 crore in FY18 and the agency noted that these players would continue to need external capital of Rs 6,000-9,000 crore over the next three years for growing at 25-35 per cent.

"This, however, does not appear to be a major challenge for well-managed MFIs, given the prevailing investor support to the sector. Initial public offerings (IPOs) of few MFIs are also lined up in the current financial year, while some other MFIs are likely to be acquired by large NBFCs or banks," it said.

The ratings agency expects credit-cost for the sector to remain volatile with mean credit costs at 1.5-2.5 per cent depending on the risk management practises followed by individual MFIs.