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We hosted virtual investor conference with various experts from the microfinance industry and rural finance space seeking interesting insights from them across multiple aspects related to microfinance sector. Key takeaways of our interactions follow.

MFI has survived 3 black swan events and emerged stronger; Clients are the strongest pillars of microfinance who hold the industry up followed by the employees, investors and the external environment. All of these in combination enables the growth of the MFIs which have recovered well from 3 black-swan events namely AP crisis, Demonetization and Covid. Asset quality concerns behind the industry for now with collections back at 99% levels. Directional trend is unlikely to change with rural appetite for higher loans to continue. Two basic premise driving the industry are hassle free loans and value- added services. It works on social contact represented by the JLG model.

Shifting of trends. Before pandemic the loans were purely for income-generation whereas, post pandemic it has been more towards consumption as spends are higher and income levels have improved. Earlier, the younger generation did not come forward for the loans. As most of the economy of rural India revolves around agri landholding and activities, the younger generation did not come  for loans earlier and in this trend has been changing in the last few years.

Scenario of Uttar Pradesh. The state of UP attracted investment almost equal to its GDP in the recent G20 summit. Factors like improving law & order and super infrastructure give confidence to investors. There have been several new
entrants in the state with huge growth plans keeping the geography of UP as ~50% of their portfolio. All the speakers indicated high MFI growth in UP.

Use of technology, cashless disbursement and repayments via UPI: Entire manual intervention cannot be removed as social bonding is what the model works on. Technology is going to act as an enabler and make things efficient and not anticipated to be disruptive as such. Pre-pandemic there was so direct transfer to client account and now there is 100% cashless disbursement. With penetration of UPI the process of collection has become efficient and soon entire collection infra will be tech-enabled.

Upcoming elections. Elections are not as concerning as it earlier used to be and the MFIs have associations like MFIN and UPMA to thank. Field visits are planned keeping in mind the dates of the elections. With 100% cashless
disbursement the restriction of carrying cash is dealt with. Some political issues maybe faced in Maharashtra and some parts of MP but no massive disruption expected.

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