NBFC-MFIs Boost Growth as Banks Exit Microfinance
By Business Desk
Major NBFC-MFIs are projecting stronger growth as private and small finance banks reduce their microfinance portfolios, creating a significant market opportunity in India.
Leading Non-Banking Financial Companies-Microfinance Institutions (NBFC-MFIs) are significantly increasing their growth projections for the current fiscal year. This comes as private and small finance banks scale back their microfinance lending, creating a substantial market opportunity.
Bank Retreat and Market Dynamics
The microfinance portfolios of traditional banks have notably contracted in the first fiscal quarter. This cautious approach has opened the field for larger, well-capitalized NBFC-MFIs.
- Private banks’ microfinance portfolio decreased by approximately 12%, from Rs 89,548 crore to Rs 79,023 crore by June.
- Small finance banks’ microfinance portfolio also contracted, dropping from Rs 50,725 crore to Rs 48,759 crore within the same period.
Concurrently, several smaller NBFC-MFIs have either ceased or scaled down operations due to insufficient institutional funding, further consolidating the market in favor of larger players.
NBFC-MFIs Revise Growth Targets Upwards
In response to these market shifts, several major NBFC-MFIs have significantly adjusted their growth forecasts for the fiscal year.
- Muthoot Microfin revised its advance growth guidance to 20%, up from an earlier 12-15% projection.
- Satin Creditcare Network adjusted its forecast to 20-25%, an increase from its previous 15-20%.
- CreditAccess Grameen, India’s largest NBFC-MFI, is targeting a growth rate of 20-25%.
Sadaf Sayeed, CEO of Muthoot Microfin, noted that the shrinking presence of smaller MFIs due to limited bank funding directly benefits larger, well-capitalized firms, allowing them to expand into the void.
Underlying Sector Stability
The microfinance sector is also exhibiting renewed stability, providing a more comfortable environment for growth among these larger institutions. Asset quality has shown sequential improvements over recent quarters.
This improvement is largely due to the implementation of stricter lending guardrails. While the sector’s gross portfolio had declined from a peak of Rs 4.43 lakh crore in March 2024 until December last year due to lenders adopting a risk-off strategy following widespread defaults, the March quarter saw a rebound.
Despite a subsequent dip in the first quarter, attributed to concerns over irregular rainfall, the overall trend points towards a more stable operational landscape for leading microfinance institutions.