According to the Brickwork Ratings, the MFI segment will witness a growth, as it is expected that the assets under management (AUM) will grow in the range of 40-45 per cent in the current fiscal.
Major drivers for the growth in this fiscal year include availability of credit, expectations of reduced interest rates and a disciplined collection and recovery model. Also, the RBI has recently proposed to increase the household income limit for eligible borrowers and has raised the permissible indebtedness of borrowers, which augurs well for the growth momentum.
The AUM of the microfinance industry has seen a growth of 47 per cent y-o-y in FY19 aided by an increase in the client base (up 34 per cent to 3.17 crore), coupled with disbursement of higher ticket size loans (up 13 per cent). In contrast, other NBFCs have struggled with liquidity since September 2018.
The presence of MFIs has been increased by expansion of their client base in under-penetrated states such as Rajasthan, Assam, Jharkhand and Gujarat along with expansion in new districts in states where they were already present.
Eastern India has witnessed growth at a much faster rate as compared to the overall growth rate (47 per cent) as the AUM in Bihar (77 per cent), Odisha (40 per cent), West Bengal (83 per cent), Jharkhand (53 per cent) and Assam (167 per cent) grew rapidly. These five states contributed almost 40 per cent to the total AUM, the report said.
The demand for credit in rural areas has seen an increase and accounts for around 75 per cent of the total AUM. The average loan amount disbursed per account has increased to Rs 25,543 (US$ 365) in FY19, as compared to Rs 15,419 (US$ 220) in FY16. This increase in ticket size of loans is also a driving factor for growth of AUMs.
Mature markets that have historically seen growth in client additions such as Bihar, Odisha and West Bengal, are expected to witness a higher ticket size loans. Thus, the growth in near future is likely to be driven by client additions in new under-penetrated geographies, and higher ticket size loans in states with a big presence.
In FY19, MFIs raised an important proportion of their liabilities through securitisation in order to keep their liquidity position in-check.
Although, there was a slowdown in growth from 35 per cent in FY16 to 20 per cent in FY17 mainly due to demonetisation, the growth in FY18 rebounded. Since then, the growth momentum has continued in FY19 and is expected to sustain in FY20 as well.
The small ticket size loans that are mainly given to the poor in rural, semi-urban and urban areas are known as microfinance loans. The borrowers eligible for the loans disbursed by an MFI are those whose rural household annual income does not exceed Rs 1,00,000 (US$ 1430) (proposed to be increased to Rs 1,25,000(US$ 1788)), or those whose urban and semi-urban household income does not exceed Rs 1,60,000 (US$ 2290) (proposed to be increased to Rs 2,00,000 (US$ 2862)). These are unsecured loans i.e. given without any collateral.
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