In a significant shift within the microfinance sector, the latest report from credit information firm Crif High Mark reveals a steep decline in loans disbursed by lenders. The December quarter saw a staggering 41.7% drop, resulting in 1.19 crore loans extended. This downturn highlights the challenges faced by borrowers from marginalized communities, who received ₹63,440 crore, marking a 34.9% decrease compared to the previous year.
Decline in Microfinance Loans
The report paints a concerning picture for the microfinance landscape. The total portfolio of microfinance loans decreased by 4% year-on-year and 5.4% quarter-on-quarter, settling at ₹3.91 lakh crore. The reasons behind this downturn include:
- Regulatory changes: New guidelines have placed limits on the number of lenders a borrower can engage with.
- Risk reassessment: Lenders are recalibrating their risk exposure.
- Changes in loan management: Adjustments in underwriting and collection strategies are also contributing factors.
Rising Delinquency Rates
One of the most alarming trends noted in the report is the increase in unpaid loans. The share of loans overdue for 31 to 180 days surged to 6.4% of the total portfolio by December 2024, up from just 2% a year earlier. This rise in delinquency rates underlines the financial strain that many borrowers are currently experiencing.
Regional Insights
When examining regional data, Kerala recorded the most significant drop in outstanding loans, plummeting by 15.8%. Other states also faced declines, including:
- Rajasthan: Down by 11.6%
- Odisha: Decreased by 9%
- Tamil Nadu: Fell by 8.3%
In contrast, Uttar Pradesh emerged as a rarity among major states, posting a modest growth of 1.2% year-on-year. Together, Uttar Pradesh, Bihar, and Tamil Nadu account for a substantial 38% of the outstanding loans in the microfinance sector.
Non-Banking Financial Companies on the Rise
Interestingly, the report highlights that non-banking financial companies (NBFCs) are breaking away from the trend, showcasing a remarkable 17.3% growth. This surge is primarily due to their focus on larger loan amounts, specifically those exceeding ₹1 lakh. In contrast, traditional banks and other lending institutions have seen a decline in their portfolios.
As the microfinance landscape evolves, the effects of these regulatory and market changes will continue to shape the borrowing experience for many, particularly those from economically disadvantaged communities. The need for strategic adjustments and new approaches to lending has never been more critical.
