Microfinance Sector Faces Decline and Rising Stress Levels

The microfinance sector has seen a 3.53% year-on-year decline in its outstanding loans, reaching Rs 3.85 lakh crore, with asset quality stress worsening. Loans unpaid for 91-180 days have increased significantly, yet there is optimism for improvement in the March quarter. Non-bank finance companies bucked the trend with a growth of 22%.

A recent report indicates a downturn in the microfinance sector, with a 3.53% decrease in outstanding loans, now totaling Rs 3.85 lakh crore. The industry's asset quality has deteriorated, with loans unpaid for 91-180 days rising sharply.

According to Alok Misra, CEO of the Microfinance Institutions Network, the sector is experiencing reduced funding and stricter credit criteria, resulting in lower disbursements and a decline in the gross loan portfolio.

Despite the increase in average loan size, only non-bank finance companies recorded growth, with a 22% increase. Prospects for improved liquidity and credit quality are anticipated for the March quarter.