Portfolio at Risk (PAR) for NBFC-MFIs (microfinance institutions) has gradually improved post-pandemic, with over 30-day PAR falling from a peak of 22.44 per cent in June 2021 to 10.5 per cent in March 2023.

• Also read: MFI loans rise 24% to ₹3.5 lakh crore led by rural market growth: CRIF report

MFIs gross NPA fell to 2.7 per cent in FY23 from 5.6 per cent in FY22 and 5.2 per cent in FY21, according to Microfinance Industry Network (MFIN)’s India Microfinance Review for FY23 titled ‘Micro Matters: Macro View’.

“A look at the profitability ratios shows that Covid-related dent on profitability has been overcome. Apart from the resumption of business at full scale after Covid, change in regulations has also played its role in bringing sustainability and profitability back on track,” the report said.

“It is also worth mentioning that the new portfolio created in FY23 has been performing significantly better.” It estimated potential demand during FY24 at ₹13 lakh crore, pegging the credit gap at around 70 per cent.

The total microfinance loan portfolio grew 22 per cent y-o-y to ₹3.48 lakh crore as of March 2023 with 12.96 crore active loans and and 6.64 crore borrowers. The sector added 80 lakh new clients during FY23 with operations across 729 districts including 112 aspirational districts.

46 per cent microfinance lenders had repayment tenure of 18-24 months, with the proportion of loans in this bucket rising for the past three years. However, 30 per cent of loans sourced at an industry level had a tenure of over 24 months whereas the share of 0-12-month loans declined.

• Also read: RBI unhappy with rate transmission in MFI loans

“There is a shift towards monthly frequency of repayment amongst the microfinance players. This frequency seems to be operationally efficient for the institution. In some geographies institutions have decided to go for weekly collections to ensure that the amount to be collected is lower from each centre,” the report said, adding that digitalisation of repayment collection can potentially aid in such geographies by reducing the cash handled.

Analysis of the ticket size showed a shift towards higher ticket size loans, which are “operationally more viable and profitable for lenders since operational expenses are directly proportional to the number of clients served”. Average microfinance ticket size rose 6.3 per cent y-o-y to ₹41,391 in FY23.

The CAGR of average ticket size over FY19 to FY23 has been 6.3 per cent, with the over ₹1.25 lakh loan bucket growing at the highest CAGR of 6.9 per cent. On the other hand, the share of less than ₹30,000 loan segment fell to 31 per cent from 45 per cent, in terms of volume of loans.

• Also read: Retail lending has grown more in rural areas relative to urban areas: CAFRAL report

The share of East and Northeast states fell to 34.9 per cent from 37.7 per cent a year ago, despite the rise of Bihar as the top state in terms of portfolio outstanding.