Credit and financing for MSMEs: Non-Banking Financial Companies (NBFCs) in the Microfinance sector (NBFC-MFIs) are expected to experience 30% YoY growth in their loan portfolio in FY 2022-23 thanks to a resurgence in demand for micro-loans, especially from Tier III cities, ratings firm CareEdge said in a report on Wednesday. The gross loan portfolio of NBFC-MFIs in the current financial year is expected to reach the mark of Rs 81,215 crore compared to Rs 61,341 crore in FY22 which witnessed a growth of 17 % year-on-year, the company said based on data from its NBFC-IMF sample.
Year-over-year growth in the NBFC-MFI loan portfolio had peaked at 66% in FY18 (during the period FY17-23) before dropping to 14% in FY21 in the middle of Covid. The recovery began in FY22, supported by strong disbursements in the latter part of the year, ignoring the negative growth and business operations shutdown seen in the first quarter of the year. fiscal 22 due to the second wave of the pandemic, the report notes.
The highest share in the NBFC-MFI loan portfolio was that of Joint Liability Group (JLG) loans. However, the report says that with increasing ticket sizes for loan products and new guidelines from the Reserve Bank of India (RBI), which deregulates the maximum cap on interest rates and lowers the required minimum share of loans of MFIs in the portfolio to 75 percent from 85 percent previously, the share of loans to retail, MSMEs and other non-MFIs could gradually increase in the composition of the portfolio in the medium term.
Subscribe now to the Financial Express SME newsletter: your weekly dose of news, views and updates from the world of micro, small and medium enterprises
JLG is basically an informal group of around 4 to 10 people with the aim of availing bank loans either individually or through the group against mutual guarantee, according to RBI.
With respect to asset quality, which has come under increased stress due to rising end-borrower repayment delays due to the Covid impact, loans overdue by more than 90 days (portfolio at risk or PAR over 90 days) for the NBFC-IMF sector should improve.
Importantly, PAR 90+ had jumped to 4.82% as of March 31, 2022, from 2.07% as of March 31, 2020. However, supported by a pickup in economic activity after the second quarter of FY22, average collection efficiency for micro loans improved significantly from 75% in the first quarter of FY22 to 92% in the third quarter of FY22 and then to 96% in the fourth quarter of fiscal year 22, the report adds.
Also read: Extending non-tax benefits to 3 years after graduation will further encourage micro-units to grow: Experts