The microfinance institution (MFI) sector in India saw its overall outstanding loan portfolio shrink by 9% year-on-year, falling to ₹3.34 lakh crore. This decline was heavily driven by a cautious and risk-averse approach adopted by private sector banks.
A report by credit information company Equifax highlights several shifting dynamics across the microfinance landscape:
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Sharp Drop in Active Loans: The total number of active micro-loans fell steeply by 21% to 10.28 crore. This substantial drop indicates that lenders are pivoting their strategies toward disbursing larger ticket-size loans to a more select group of borrowers rather than expanding their client base.
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Private Banks Pull Back: Private banks significantly reduced their footprint in the sector, choosing to scale back operations in light of industry-wide asset quality concerns. Consequently, their market share plummeted from 32% to 25% over the course of the year.
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NBFC-MFIs Gain Ground: While private banks grew cautious, non-banking financial companies (NBFCs and NBFC-MFIs) demonstrated stronger performance and better asset-quality management. The market share of NBFC-MFIs expanded from 39% to 43%, while traditional NBFCs increased their share from 12% to 14%. Small finance banks (SFBs) held steady, maintaining a 15% market share.
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Significant Recovery in Asset Quality: Despite the contraction in portfolio size, the industry received a major relief on the asset quality front. Loans left unpaid for more than 30 days (30+ days past due) saw a sharp drop—falling to 2.5%, compared to a concerning 6.4% recorded during the same period in the previous year.
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Geographic Trends: Geographically, microfinance lending remains highly concentrated, with the top five states accounting for 57% of the nation’s total outstanding MFI portfolio. However, states like Bihar, Uttar Pradesh, Rajasthan, and Jharkhand bucked the overall slowing trend, recording positive year-on-year growth in loan disbursements.
