India's Microfinance Sector Sees Recovery After 11 Quarters of Decline
MFIs bounce back after 11 quaters of contraction and write-offs
The Economic TimesImage: The Economic Times
India's microfinance sector has rebounded in the March 2023 quarter, expanding its gross loan portfolio to ₹3.39 lakh crore from ₹3.22 lakh crore, marking a 5.3% growth after 11 quarters of contraction. The decline in delinquency rates signals a positive trend, although caution is advised to prevent over-lending.
- 01The microfinance sector's gross loan portfolio grew to ₹3.39 lakh crore in March 2023.
- 02This marks a 5.3% sequential growth after 11 consecutive quarters of decline.
- 03Delinquency rates fell to 2.3%, the lowest in five quarters.
- 04The recovery is primarily driven by non-banking finance companies and private banks.
- 05Industry experts emphasize the need for caution to avoid over-lending.
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India's microfinance sector has shown signs of recovery, with the gross loan portfolio increasing to ₹3.39 lakh crore at the end of March 2023, up from ₹3.22 lakh crore in December 2022. This 5.3% growth comes after a challenging period of 11 consecutive quarters of contraction, which saw the portfolio shrink from a peak of ₹4.43 lakh crore in March 2024. The decline in delinquency rates to 2.3% indicates improved repayment behavior among borrowers, marking the lowest delinquency level recorded in the past five quarters. RBL Bank managing director R. Subramaniakumar noted that the recovery trend is likely to continue unless there are adverse developments on the ground. However, experts like Jiji Mammen, executive director at Sa-Dhan, caution against potential over-lending, emphasizing the importance of adhering to industry guardrails to sustain growth. The recovery has been primarily driven by non-banking finance companies-microfinance institutions (NBFC-MFIs) and private banks, while small finance banks continue to face challenges in their microfinance operations.
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The recovery in the microfinance sector could lead to increased access to credit for low-income households, potentially improving their financial stability.
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