Proposed regulatory changes would aid in growth of MFIs: Care

The recent regulatory guidelines announced by the Reserve Bank for micro finance institutions are likely to boost the sector and will also help in meeting the growing demand of borrowers, rating agency Care said today.
In its first bi-monthly policy announced earlier this week, the RBI increased the total indebtedness of a borrower to Rs 1,00,000, revised the eligible rural and semi-urban household annual incomes and enhanced the loan amounts to be disbursed in the first cycle and in subsequent cycles upwards.
"We believe that the proposed regulatory changes would aid in the growth of the loan portfolio of MFIs as it widens the base of borrowers and significantly increases the addressable market size," Care said in a report here today.

Another rating agency Icra said apart from supporting growth, the new guidelines would address the growing needs of the borrowers arising out of inflationary pressures as well as reduce their dependence on local money lenders and other sources for funds.
"If MFIs manage to control the asset quality of their portfolio while adhering to new guidelines, the profitability of the sector is expected to improve with the benefits of operating leverage," Care said.
According to Icra, the current addressable market potential for MFIs is around Rs 2.8-Rs 4.6 trillion.

It said with 15 per cent annual growth in client base and 25 per cent annual growth in ticket sizes the NBFC-MFI portfolio could cross Rs 1 trillion by March 31, 2018.

Icra further said while the revision in limits for indebtedness could help MFIs improve their operating efficiencies, it could pose greater risk from credit standpoint with the expected increase in average ticket size per client.
"MFIs would need to exercise caution while determining the debt repayment capability of a borrower on a larger permitted debt burden and ensure that the assessment process captures this impact," the rating agency said.