Micro finance sector to grow up to 22% in FY20: ICRA

The micro finance industry is on the path of recovery and is likely to see a growth of 20-22 per cent in 2019-20 despite last year’s liquidity squeeze, according to rating agency ICRA.

“The domestic microfinance sector registered a robust 28 per cent growth during the 12 months ended December 2018 against 26 per cent in 2017-18, and has emerged unscathed even as the liquidity squeeze after September 2018 severely curtailed growth of NBFCs in India,” ICRA said on Tuesday in its report on the performance review and outlook for the MFI sector. As of December 31, 2018, the overall micro loan market size (including SHG Bank linkage programme) was 2.37-lakh crore, it further said.

External capital

However, micro finance institutions and small finance banks, would together require external capital of close to 3,500-4,700 crore in the next three years, given their growth targets of 25 per cent to 30 per cent annually, it said.

“Investors continued to support the industry with equity infusion of around 4,350 crore in 2018-19, against 4,100 crore in 2017-18,” the ICRA report said.

It further said that more than 90 per cent of the capital raised in 2018-19 was by MFIs, with assets under management of more than 1,000 crore, adding that this implies that larger entities have been able to attract capital while the smaller less-diversified entities continue to struggle on this front. Accordingly, smaller MFIs could look to originate more loans under the business correspondent/co-lending framework as partners to large lenders to conserve capital, ICRA said, adding that alternatively there could be some further consolidation in the industry, with the smaller MFIs being acquired by larger NBFCs and banks.

The report has also warned that incremental funding requirement of MFIs is likely to remain a challenge, and the cost of funds to the sector will remain at elevated levels till the systemic liquidity improves.