 "December numbers signal improving microfinance situation: MFIN CEO")
The Indian microfinance sector, which is reeling from the pressure of mounting bad loans forcing lenders to slow down growth, could come out of the woods soon if the positive trends of December are sustained.
In an interaction with Business Standard, Alok Misra, chief executive officer of Microfinance Institutions Network (MFIN), a self-regulatory body (SRO), said, “December field report gives us positive signals of a turnaround.”
“However, I would like to wait for three months to see if the trend is sustainable,” Misra said.
The Reserve Bank of India (RBI), in the Financial Stability Report released last month, said the microfinance sector is showing signs of stress with increased delinquencies. In addition, there is a notable increase in the number of borrowers who availed of loans from multiple lenders.
The report said the share of stressed assets in the microfinance sector increased in the April-September period of 2024-25, with 31-180 days past due rising to 4.3 per cent in September 2024 from 2.15 per cent in March 2024.
The regulator has come down hard on some microfinance institutions (MFIs) that were found charging usurious rates to customers, who are predominantly in the bottom-of-the-pyramid segment.
Also Read
In October last year, RBI imposed business restrictions on four non-banking financial companies (NBFCs), of which two — Arohan Financial Services and Asirvad Micro Finance — are NBFC-MFIs. RBI revoked the bar on Arohan and Asirvad this month after they initiated remedial action and submitted their various compliances to the regulator. The restrictions were also lifted from the other two NBFCs.
“It is positive news as both Arohan and Asirvad together serve nearly 6.5 million low-income clients,” Misra said. Both these MFIs are members of MFIN.
“As an SRO, we would like our members to be compliant with all RBI regulations and SRO guidelines and grow the business sustainably and transparently,” Misra said.
He said that the sector is committed to ensuring that interest rates are set in a manner that makes microfinance operations viable and that efficiency gains are passed on to clients.
“Microfinance is not a mere business; it is critical for ensuring that economic growth touches every segment of society,” Misra said.
He noted that funding constraints are currently being faced by the sector and that it is always a challenge, especially for smaller players. “That is why we have requested the government for a dedicated refinance facility for the MFIs,” Misra said, adding that the SRO is trying to allay apprehensions among banks and NBFCs — the lenders to MFIs — with positive December field reports.
“We had a review meeting with the Department of Financial Services in the Ministry of Finance on Wednesday last week. The Government of India values the contribution of the microfinance sector to jobs, outreach to 81 million low-income clients, and contribution to inclusive growth,” Misra said.
In November, MFIN prescribed a set of strict norms, including reducing the number of micro-lenders per client from the existing four to three. These guardrail norms were scheduled to kick in in January.
“The guardrails 2.0 released by MFIN in November have seven covenants, of which six have come into effect from January 1. Only the lender cap issue, due to operational issues, has been postponed to April 1,” Misra said.