A phoenix moment for MFI stocks as they rise from the ashes of doubt

Darkest hour is over, MFI stocks soar 15-21% as crisis turns into catalyst

With overall market buoyancy, microfinance institution (MFI) stocks have risen 15-21 per cent over the past month, recovering from a sharp decline in value over the past year due to concerns about asset quality (AQ), business model stability, and regulatory changes like Guardrails 2.0. Recent price trends suggest that the worst may be over for these small-ticket loan providers.

 

“The current cycle of Indian microfinance seems to be nearing its end, with AQ indicators showing improvement across various MFIs. Unlike previous cycles, this one stands apart, as it was driven by internal factors rather than external events. We expect the recovery to be gradual, leading to consolidation within the sector. Many players continue to face challenges, including poor AQ, and will require capital to stay afloat,” said a note from Investec. 

 

Just last week, Warburg Pincus-backed Fusion Finance completed its 800 crore rights issue. Positive MFI outlooks and stronger loan growth in the January-March 2024-25 period have lifted investor confidence. CreditAccess Grameen and Fusion Finance both saw increased foreign portfolio investor shareholding during this time. While Guardrails 2.0’s stricter norms remain a key consideration, Investec predicts minimal disruption, as major players have already adapted to the new regulations.