New Delhi, Nov 16 (KNN) The estimated loan portfolio of the microfinance sector will clock in the current financial year will cover just 30 per cent of the computed potential demand of the market it is servicing, according to a report tabled by the Microfinance Industry Network (MFIN).

The umbrella body of microfinance institutions (MFIs) of the country highlighted in the report that how underserved this market continues to be.

The body’s projection for the loan portfolio size in the current fiscal is Rs 3.94 lakh crore, while its estimate of potential demand for the year is Rs 13 lakh.

It calculates the potential demand in the market by multiplying the number of households earning less than Rs 3 lakh per annum with the average loan outstanding per borrower. In its estimation, this year there are 20.83 crore households in the target bracket and the average loan outstanding per unique borrower is Rs 54,797. 

MFIN has projected the loan portfolio for FY23 at Rs 3.35 lakh, against a potential demand of Rs 11.42 lakh crore. However the industry closed the year with a loan portfolio tad higher at Rs 3.48 lakh crore, marking a 22 per cent growth over the previous year. 

A large swathe of India’s population falls under the low income group, denying them access to financial services such as safe and institutionalised credit. This includes small businesses and self-help groups.

The microfinance sector provides this strata of society with financial services such as savings, leasing, insurance, cash transfers and relatively small-ticket loans at ethical rates that shield them from the predatory lending practices followed by informal credit givers.

“India needs to grow at around 10 per cent for three decades to become a developed country. The building blocks will have a multiplier effect only if the credit demand is met as credit will be the driver of India’s next phase of growth. MFIs are presently the most important institutions in the country as they have the ability to penetrate into rural areas, lend to last mile clients and contribute to inclusive growth,” India’s G20 Sherpa Amitabh Kant said on the launch of the report.

The sector may have rebounded since the pandemic on several counts. But market penetration remains a challenge, the report observed. “Data shows that almost 54 per cent districts of the country have less than 6,000 potential households per FI, which is a sign that institutions prefer to operate in districts which already have presence of other microfinance institutions,” MFIN highlighted in the report, adding that this increases competition and risk.

(KNN Bureau)