Improving collections, growth revival provide solace to MFIs: ICRA
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Improving collection efficiency and growth pick-up in H2FY21 is expected to help the MFI industry's long term prospects, ratings agency ICRA said on Thursday.
However, incremental covid-19 related disruptions remains a concern.
"The overall long-term growth outlook for domestic microfinance industry, including microfinance institutions and micro finance focused small finance banks (SFB)s, remains robust, even though the near-term outlook is clouded given the Covid-19 induced disruptions," ICRA said.
"The onset of lockdown restriction and the moratorium on loan repayments extended to borrowers had led to the industry recording negligible collections in April 2020, but the situation improved gradually over the subsequent months with easing of restrictions and pick-up in economic activity."
As a result, the agency pointed that collection efficiency improved to 102 per cent in December 2020.
"The disbursements also started picking up from Q2 FY2021 onwards, which is expected to help the industry achieve growth of 9-11 per cent in its assets under management (AUM) in FY2021."
Consequently, the trend provided some respite to the industry, which has been reeling under the stress induced by Covid-19.
In an ICRA's study sample of 20 MFIs indicated that the liquidity flow to the sector has improved over the last few months and overall Rs 22,900 crore were raised in 9MFY21.
It further said that industry witnessed reduction in its overall cost of funds during this period, however, despite this; the industry is expected to witness reduction in net interest margins (NIMs), owing to reduced interest income with portfolio growth happening only towards H2FY21 and negative carry because of excess on-book liquidity.
In addition, increased recovery efforts are expected to negate the impact of the expense optimisation efforts to some extent and put pressure on the operating profitability.
"ICRA estimates asset quality pressures for the MFI industry to continue in the near term and the same may get accentuated with the recent increase in Covid-19 infections and localised restrictions or lockdowns," said Sachin Sachdeva, Vice President and Sector Head, Financial Sector Ratings, ICRA.
"Nevertheless, improving collection efficiency, good on-balance sheet liquidity and capitalisation should help most entities to withstand the stress."
