Rapid, Responsible growth in Microfinance: balance it with care and caution (by Kalpana Pandey, Inclusive Finance Summit 2015 Day: 2 Bulletin)
The Microfinance Industry has more than doubled between Mar-2014 and June-2015 with gross loan portfolio crossing Rs 50000 crore. The current growth is more broad based with 47% of portfolio spread across top 5 states – Tamil Nadu, Karnataka, West Bengal, Maharashtra and Uttar Pradesh, as compared to 2010 when 40% of the portfolio was in Andhra Pradesh (undivided).
In last one year, the average ticket size for these top states has grown to Rs 20000. For districts such as Kalahandi, Banda, Amreli, Jamtara, Dumka, the average ticket sizes have marginally improved by 8-10% to Rs 12,500. Due to its inclusive pursuits, the industry brings 15%+ fresh borrowers under micro-finance coverage in a year. SROs (erstwhile associations) now regularly supervise implementation of code of conduct guidelines and lenders make increased use of credit bureaus. This helps in ensuring the current growth is more responsible.
There are concerns, not completely unfounded, about overheating and concentration. In Maharashtra, Karnataka, and Madhya Pradesh, over 7% borrowers are servicing more than 2 loans. One in every five past due loans is by a borrower working with more than 2 lenders, highlighting importance of CoC guidelines. In a random sample of 25+ lakhs new disbursals, about 40k loans were disbursed to the same borrower within 4 weeks of a disbursal. In UP, 1.6% of new loans disbursed between Jan-Jun 2015 had ticket size of more than Rs 35,000.
Nonetheless, 110 districts still do not have any microfinance activity. Many districts and taluks in the states such as Jharkhand, Bihar, Odisha, Uttar Pradesh etc are still under-penetrated. The lenders to the sector should continue to drive social objective of inclusion (thereby controlling concentration) along with the commercial objective. With 9 leading MFIs becoming Banks/Small Finance Banks, the regulators need to review the CoC guidelines, and make them relevant for and encompassing all type of lending institutions in the sector. All Microfinance lenders should consider more comprehensive view of the borrower’s indebtedness for better risk management.