Gaining momentum. NBFC-MFIs outpace banks to grab a dominant share in microfinance market

Kolkata, December 13 NBFC-MFIs has outpaced banks for the first time in years and picked up a dominating share in the microfinance sector accounting for nearly 38 per cent of the industry while banks have slipped to the second position with close to 36 per cent market share.

According to the latest quarterly report compiled by Sa-Dhan, the association of inclusive finance institutions and SRO(Self regulatory organisations) for microfinance sector, the microfinance industry clocked nearly 20 per cent growth in the second quarter of the current fiscal compared to the same period last year.

Double-digit growth

Barring banks, portfolio of all lenders recorded double-digit growth. NBFCs and NFPs (not-for-profit MFIs) have shown significant growth of around 59 per cent and 48 per cent respectively, while NBFC-MFIs and SFBs (Small finance banks) posted a growth of around 29 per cent and 21 per cent respectively, the report said. Banks continue with much slower growth at around 5 per cent. Banks and NBFCs have shown a decline of GLP (gross loan portfolio) sequentially over the first quarter of the current fiscal.

“For the first time in years, the NBFC-MFI market share is dominating the sector with 38 per cent, while banks have slipped to No. 2 position with 36 per cent market share. Meanwhile, SFBs, NBFCs, and NFPs account for around 17 per cent, 9 per cent and one per cent respectively,” it said.

Growth path

According to Jiji Mammen, ED and CEO, Sa-Dhan, if the data for Q2 is any indication, the microfinance sector is on a definite growth path in this financial year. After the lag due to pandemic and then change to the new regulatory framework, the sector has regained its momentum and is likely to register greater growth in the coming quarters.

Total disbursement of all lenders during Q2 (July-Sept quarter) of the current fiscal is close to ₹75,655 crore, a growth of 11 per cent as compared to ₹68,245 crore same period last year. Among the lenders, NBFC-MFIs disbursed a maximum of ₹29,266 crore registering a y-o-y growth of 24 per cent, closely followed by banks at ₹28,278 crore (nearly the same disbursements as last year, no growth). SFBs witnessed a 17 per cent decline in disbursements over the previous year, however, sequentially it has grown by around 28 per cent compared to the previous quarter of this financial year.

Improving collection efficiency

There has been an improvement in recovery in almost all zones compared to the previous quarter, with collections reaching above 96 per cent in States such as Uttar Pradesh, Karnataka, Bihar, Tamil Nadu and Gujarat. Although the overall collection efficiency has improved, the recovery is not uniform across the States/UTs as there are still certain geographies, especially in the North-eastern zone where the collection is below the normal recovery rate. For example, the collection efficiency in Assam is around 60-70 per cent.

The overall sectoral NPA as of September 2022 continues to be the same as the corresponding quarter of the previous financial year at around 13 per cent, however, the sectoral PAR (Portfolio at Risk) 30+ dpd has significantly improved to 4.94 per cent in Q2 of the current financial year from 10.18 per cent in Q2 of last financial year.

West Bengal, Madhya Pradesh, Chhattisgarh and the North-eastern states have PAR 30+ levels higher than the national average of 4.94 per cent. The NPAs of banks, SFBs, NFPs, and NBFC-MFIs is approximately 17.89 per cent, 12.61 per cent, 10.81 per cent, and 10.29 per cent respectively, while it is lowest for NBFCs at 3.96 per cent.

Portfolio of each Segment

Market share of lenders in terms of Portfolio