Growth and credit cost concerns mar microfinance sector prospects

The rapid growth in AUM in the last two years may have led to potential over-leverage by borrowers

There are increasing concerns about stresses in the MFI (microfinance) segment. Agencies such as Icra and Ind Ra have highlighted increasing delinquencies, which will push up NBFC-MFI credit costs to 320-340 bps in FY25 from around 220 bps in FY24. The asset quality risks will also dampen sectorial growth and earnings in FY25. Icra expects NBFC-MFIs’ AUM growth to dip to 17-19 per cent in FY25 from 29 per cent in FY24. AUM growth in Q1FY25 was down 24 per cent Y-o-Y on the back of a 30 per cent Y-o-Y decline in Q4FY24.

The rapid growth