Microfinance in India – 2016 Outlook

What is in store for Indian Microfinance Companies for the year 2016. Read on to find out!

The year 2016 promises to be full of developments that could propel India’s microfinance sector past the heights that it touched in 2010.

In 2010, Indian MFI’s had to face a backlash from loan borrowers and politicians. There was large scale default on loans because of non-repayment by clients which caused the top 5 MFI’s to incur heavy losses. Since then MFI’s have reigned in their growth and have adopted practices that ensure there is no multiple lending. They have also constituted a self regulatory organization called MFIN (Microfinance Institutions Network) which addresses grievances of microfinance clients and ensures the MFI’s are sticking to their code of conduct.

microcredit sector

Given below is the 2016 Outlook for Microfinance companies in India

  • Expect strong loan portfolio growth for the next 2-3 years. MFI’s are expected to grow by 30-40% annually which means the top MFI’s in India could double in size over the next few years.
  • The asset quality indicators for most MFI’s are good though political risk remains, the North Indian state of Uttar Pradesh seem to have over-heated according to some news reports. However unlike 2010, this time MFI’s are using credit bureaus to prevent multiple lending.
  • More than 8 MFI’s have been given bank licenses and some of them would begin operations this year. Bandhan Financial Services was the first to transform into a full fledged bank.
  • Esaf Microfinance, Equitas, Suryoday Microfinance and Ujjivan Financial Services are looking to offer shares to the public through IPO’s (Initial Public Offers), their issues could hit the markets within the next 6 months.
  • Private Equity investors continue to pour in funds into private unlisted microfinance companies. Many MFI’s have also raised substantial amounts through loan securitization which shows that banks have once again reposed their confidence in this sector.
  • During the FY 2015-16 , the credit ratings outlook for more than 12 microfinance institutions was upgraded. This shows the sector has fully recovered from the setbacks it had faced.
  • Many microfinance companies have taken loans from MUDRA. The launch of MUDRA has helped MFI’s to refinance their loans easily.
  • Microfinance has shed it’s non-profit character. In the last decade, microfinance was the domain of NGO’s but the regulations introduced by RBI has totally altered the character of the organizations disbursing loans. Since most NGO’s could not meet the stringent financial adequacy requirements, NBFC’s now account for more than 90% of the micro-lending taking place in the country.

These remain the highlights of this year and going forward one can expect more good news to flow from the sector. The government of India’s focus on financial inclusion through Jan Dhan Yojana has also benefited MFI’s enormously as they can now directly disburse money into bank accounts. Though it is too early to pass judgement on the scheme, most observers believe the real benefits will accrue over the entire decade.

What is your view of the microfinance sector in India ? If you are an employee of a microfinance company do let us know about what you think about the internal practices at your organization in the comments below.

To Top