MFI Portfolio De-grows, Asset Quality Remains Challenging: Report

Mumbai, May 26 (PTI) Microloans portfolio for all lenders de-grew by 14 per cent year-on-year to Rs 3.81 lakh crore at the end of the March quarter, a report said on Monday.

Asset quality continued to remain challenging, even though loans unpaid for up to 30 days showed some improvement quarter-on-quarter, the report by Crif High Mark, a credit information company, said.

It can be noted that the last year has been a difficult one for the microfinance industry, serving people at the bottom of the pyramid with smaller and livelihood-centric loans. Asset quality has worsened, and over-leverage and multiple lending relationships of borrowers have been called out as the key reasons for it.

The industry has taken a slew of actions, including limiting a single borrower's lender relationships to four, to arrest the slide in asset quality since 2024.

The threat of ordinances led lenders to contract faster in Tamil Nadu and Karnataka, which showed a 7 per cent decline in gross lending portfolio quarter-on-quarter, while West Bengal showed a 1.5 per cent increase.

The number of active loans declined 14 crore at the end of March, down from 14.6 crore in December and 16.1 crore in the year-ago period, the Crif report said.

The industry disbursed 1.33 crore loans in the three-month period between January and March, which is down from 2.40 crore in the year-ago period.

When compared to the quarter-ago period, the number of loans was higher at 1.2 crore in the October-December period.

On the asset quality front, the CIC report said early delinquency of loans unpaid for up to 30 days improved to 1.4 per cent in March against 1.8 per cent in December, but added that the same continues to rise in other buckets, signalling "ongoing challenges".

Having adopted certain guard rails, the industry seems to prefer to lend higher amounts, the report said, pointing out that portfolio for loans above Rs 1 lakh grew by 38.5 per cent year-on-year, while those below Rs 30,000 were down by 36 per cent.

The CIC said the MFI sector is on the path to long-term sustainability.

While current indicators suggest cautious lending and persistent stress in parts of the portfolio, improvement in early-stage performance and a gradual move towards higher-quality credit segments are encouraging trends, it said.

"Lenders are making conscious choices that favour resilience, stability and long-term impact...as institutions recalibrate and regulatory frameworks evolve, we are confident that the sector is laying the groundwork for stronger and more inclusive growth," its director and head of sales Ramkumar Gunasekaran said.