Microfinance in Flux: Decline in Disbursement and Rising Risks

Microfinance loan disbursement fell by 35.8% to Rs 22,091 crore in Q3 2024 compared to last year. The sector's AUM slightly decreased, while the average loan disbursed per account rose by 15.2%. PAR deteriorated significantly, highlighting increasing risks. Banks contributed Rs 12,921 crore in debt funding.

Microfinance loan disbursement declined sharply by 35.8% to Rs 22,091 crore during the third quarter ending December 2024, according to the Microfinance Institution Network (MFIN). This drop highlights the industry's challenging landscape amid stricter credit underwriting norms.

The sector's assets under management (AUM) slightly fell to Rs 1,42,695 crore compared to December 2023. However, the average loan amount disbursed per account surged by 15.2% to Rs 51,691 crore, indicating higher borrowing per client.

Portfolio at risk (PAR) significantly worsened, escalating to 8.8% from 3.5% a year earlier. Meanwhile, non-banking financial company-microfinance institutions (NBFC-MFIs) secured Rs 12,921 crore in debt funding predominantly from banks, boosting the sector’s total equity by 9.3% to Rs 35,451 crore, CEO Alok Misra explained.