The microfinance sector in the country is likely post a decline of 20-40 per cent this financial year.

According to the data available with Microfinance Institutions Network (MFIN) for the first five months of 2011-12, the decline in portfolio is almost inevitable.

“For the first time in the history of Indian microfinance, the industry is likely to witness negative growth this year. At an aggregate level, the decline may be in the range of 20-40 per cent by March 31, 2012,” Mr Alok Prasad, Chief Executive Officer, MFIN, told Business Line here on Tuesday.

The network is a registered body of 46 major microfinance institutions.

The outlook spells ‘bad news' for the industry and for financial inclusion programmes, Mr Prasad claimed.

Over the last five years, till the promulgation of the Ordinance by the Andhra Pradesh Government in October 2010, the industry had been growing at a compounded annual growth rate of about 70 per cent, according to MFIN estimates.

The reasons for the shrinking balance sheets of MFIs this year were limited funding support from banks and the uncertainty in Andhra Pradesh created by the AP MFI (Regulation Act), Mr Prasad said.

“Bank credit is still an issue and many MFIs are still facing considerable cash flow problems.”

The employment could also come down correspondingly. There is about 1.5 lakh field staff working for various MFIs.

Major MFIs can already see a decline in business and profits. For instance, SKS Microfinance Ltd's gross loan portfolio declined from Rs 5,434 crore in September 2010 to Rs 3,450 crore at the end of the first quarter of current fiscal year. The net worth slipped from Rs 1,804 crore to Rs 1,563 crore.

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