NEW DELHI: Microfinance, introduced with much fanfare as a savior for the underprivileged, has of late become a pain point for lenders and policymakers due to rising bad loans and delinquencies across the sector.
Amid these concerns, the Finance Ministry will hold a meeting with microfinance institutions (MFIs) tomorrow (Wednesday). Sources indicate that the Department of Financial Services (DFS) Secretary is expected to chair the meeting with senior officials of MFIs in attendance.
The sector is grappling with stress, as highlighted in the Reserve Bank of India’s latest Financial Stability Report (December 2024). Delinquencies across all types of lenders and ticket sizes have surged, with stressed assets in the 31-180 days past due (dpd) category rising from 2.15 per cent in March 2024 to 4.30 per cent in September 2024.
Multifaceted issue
Borrower indebtedness has also grown significantly, with the share of borrowers availing loans from four or more lenders rising from 3.6 per cent in September 2021 to 5.8 per cent in September 2024.
This is coupled with a 43 per cent increase in the quarterly average ticket size of microfinance loan disbursements, from Rs35,299 in Q2 of 2021-22 to Rs50,430 in Q2 of 2024-25.
The RBI report further noted that borrowers with higher credit exposure and those who had taken loans from multiple lenders exhibited elevated impairment levels. Additionally, indebtedness levels varied across states, with some regions exceeding the national average.
Credit growth to the microfinance sector, which had witnessed rapid expansion over the last three years, has decelerated in the current financial year, adding to concerns.
The upcoming meeting gains significance as policymakers seek to address the growing stress in a sector once seen as a lifeline for financial inclusion but now facing challenges that could undermine its long-term sustainability.
