MFIs suffered up to 10% credit loss in FY21, FY22 due to pandemic

Microlenders suffered credit losses of up to 10 per cent during the two years of the pandemic, but things are improving now with stressed asset levels halving, an industry body said on Monday.

The lenders, which typically disburse unsecured finance for micro entrepreneurs, suffered credit losses of 5-10 per cent in FY21 and FY22 due to the impact of the pandemic on operations and borrowers' financial health, Microfinance Institutions Network's chief executive Alok Misra told reporters.

The exact extent of the credit losses may vary from institution to institution, he added.

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However, after the ebbing of the multiple waves of the pandemic, things have been improving from a stressed loans perspective, the head of the self-regulatory organisation said.

Loans unpaid for over 30 days have come down to 10-11 per cent in July 2022, as against a high of 22 per cent at the peak of the devastating second wave of the pandemic, he said.

It can be noted that lockdowns and/or the spread of the virus, especially in the second wave in mid-2021, had led to a lot of stress in the sector, as collection agents were unable to reach the borrowers spread across the hinterland, and also the income generation suffered for such segments.

Misra said the new AAP government in Punjab was toying with some populist ideas to help the borrowers, but the industry has successfully helped to avoid such an outcome by impressing the need to further strengthen credit culture and not weaken it.

A similar attempt was done in Assam as well during the pandemic, but the industry was able to ensure that a complete loan waiver is avoided and instead a dispensation where an asset is restructured is offered, he said.

Misra said overall, the policymakers have understood the importance of credit culture and Microfinance Institutions Network (MFIN) does not see the threat of populism impacting the sector anymore.

In FY22, the overall portfolio of 100 lenders including dedicated NBFC-MFIs, banks who do microlending and small finance banks, grew to Rs 2.85 lakh crore, Misra said, adding that this is a huge jump when compared to the Rs 16,000 crore portfolio outstanding a decade ago.

Misra said a study commissioned by the body suggested that the potential market size will reach Rs 17 lakh crore by end of FY25.

The average ticket sizes and tenors are increasing, with nearly three-fourths of loans now being of over 18 months tenure, Misra said, adding that this represents a maturing of customer profile.

He said the industry contributes over 2 per cent of the gross value added for the country, supporting 1.6 crore jobs.

However, over 80 per cent of the lending is concentrated in the top 300 districts, and there is a need to deepen the flow further, he said.

RBI's March 2022 liberalisation moves, where such lenders are regulated at par with others, and caps on interest rates have gone, will help in the deepening of finance, he said.