MFIs bounce back after 11 quaters of contraction and write-offs

Kolkata: India’s microfinance sector rebounded in the March quarter from a three-year low in December, managing to finally expand its asset base after 11 successive quarters of intense portfolio contraction and heavy write-offs amid severe income stress in the country’s most vulnerable borrowing segment.

The sectoral gross loan portfolio expanded to ₹3.39 lakh crore at March-end from ₹3.22 lakh crore three months earlier, representing a 5.3% sequential growth, data collated by Equifax India showed. The 30 days-plus mortgage delinquency rate also declined across lender categories.

“The microfinance market has witnessed a clear trend of recovery. This will continue unless the situation changes at the ground level,” said managing director, R Subramaniakumar.

Prior to this, the market saw contraction for 11 straight quarters, sliding from the March 2024 peak of ₹4.43 lakh crore. Industry guardrails slowed lending to the overleveraged bottom of the pyramid borrowers as financiers struggled to prevent erosion of the asset quality. Bad loan write-offs by lenders across the board also contributed to the portfolio compression.

” need to keep their guard on and ensure that they don’t get into any overlending to households,” said Jiji Mammen, executive director at Sa-Dhan, the older of the two self-regulators for the sector.

“Moreover, there are several players operating in the same space, including lending apps and fintechs, which also need to be factored in while lending. The adherence to guardrails will be important for sustaining the future growth in microfinance,” he said.

Fewer Skipped Payments

The industry saw a 2.3% delinquency for the 30 days-plus bucket, making it the lowest level recorded in the past five quarters, a senior executive at Equifax India said. A steady decline in early delinquency rates was seen across all lending categories.

The turnaround was led by non-banking finance companies-microfinance institutions (NBFC-MFIs), private banks and other NBFCs, while the small finance banking segment continued to squeeze their cumulative microfinance business, the credit information company said in its monthly report.

Earlier, on March 30, ET highlighted a potential turnaround with month-on-month business growth recorded in February over January. Now, the quarter-on-quarter growth after a prolonged phase of contraction strengthens the belief that the sector is steadily coming out of the woods.