Is This The First Sign Of A Slowdown For Microlenders? - CRIF Insights
Growth in disbursements by microfinance lenders declined amid slowing economic growth and a credit squeeze that roiled non-bank lenders and the markets. The gross loan portfolio of such lenders grew by nearly 1.6 percent over the previous quarter in the three months through June, according to data released by the credit bureau CRIF High Mark. That compares with the near-12 percent growth in the March quarter.
That comes as India’s non-bank lenders have been reeling since the latter half of 2018 when Infrastructure Leasing & Financial Services Ltd. group companies defaulted on debt and triggered an industrywide credit squeeze. Mortgage lender Dewan Housing Finance Corp Ltd. has missed debt payments since June, while firms including Reliance Capital Ltd. have had their credit ratings cut on liquidity concerns. That pain seems to have extended to micro-lenders, which depend on markets for funds.
The sector’s loan portfolio, however, rose by over a third year-on-year to nearly Rs 1.92 lakh crore in the three-month period. The rural and urban portfolios of microfinance lenders rose 37 percent and 29 percent, respectively, over last year, the data showed. Rural business comprises over half of the loan portfolio of micro lenders. But data provided by the industry’s self-regulatory organizations MFIN and Sa-Dhan point to a sequential drop in business growth.
All Is Well, Say Micro Lenders
Some of the leading players in the sector BloombergQuint spoke with denied any slowdown. “We work with low-income women who don’t spend money on discretionary items, but they do pay back their loans,” Padmaja Gangireddy, managing director of Spandana Sphoorthy Financial Ltd., said. “This class of borrowers is doing very well as they have diversified sources of sources of income and multiple earning members in a family.”
Udaya Kumar, managing director, and chief executive officer of CreditAccess Grameen Ltd., said they aim to grow at an annualized rate of 30 percent in the next five years by accessing informal borrowers. “The potential in the sector is very high as there are still 75-100 million households who are out of the reach of banking.”Kotak Institutional Equities expressed caution. The assets under management for the industry have slowed and the quality of growth is concerning as it’s led by borrower exposure, it said in a note.
Macquarie, however, said the demand for micro-finance hasn’t been impacted by the economic slowdown, adding new bad loan formation has also been low. But rising ticket sizes in east India, especially West Bengal, the largest state for microfinance, merit caution, it said.
Borrower Leveraging Increases
Data by CRIF High Mark points to increased over-leveraging in regions such as the east. The average ticket size per loan increased 12 percent year-on-year to Rs 31,700 in the quarter ended June, according to CRIF High Mark data showed. The average microfinance exposure per borrower rose 17 percent year-on-year to Rs 35,200. The ticket size and average exposure per borrower have risen steadily in states where microfinance is dominant.
West Bengal is clearly over-leveraged as average loan balances per customer in such states are 20 percent higher than in others like Tamil Nadu, Macquarie said. That’s because 45 percent of West Bengal’s portfolio comprises large-sized loans of ticket size in excess of Rs 60,000, it said. In comparison, Tamil Nadu has less than 2 percent of its portfolio in this ticket-size.
Asset Quality Improves, But Write-offs Jump
Rising leverage, however, hasn’t impacted asset quality so far as the collections improved. The Portfolio At Risk—unpaid principal balance to the gross outstanding portfolio—fell for different time periods declined over the previous quarter. PAR (1-30)—or pending amount within 30 days after due date—fell the most, by nearly 200 basis points over the previous quarter to 1.0 percent. The amount is written off, however, rose 22 percent over the quarter ended March 2019 and 61 percent over the previous year.