IndRa revises up outlook to neutral on micro fin sector

Mumbai: India Ratings (IndRa) has revised upwards its outlook on the microfinance sector to 'neutral' from 'negative' next fiscal, on the back of a revival in growth that could clip at 30 per cent.

The agency expects the sector to grow 20-30 per cent in both FY22 and FY23 in comparison to the below 10 per cent AUM (assets under management) growth in the previous two years. Given the yield limitations, mid- and small-MFIs have not seen comparable growth.

While large MFIs will continue with their normal disbursement trends and new customer acquisitions as normalisation happens in FY22 and FY23, small- and mid-ones will ramp up their activities once the harmonisation guidelines are implemented. The agency see that the impact of the pandemic on credit cost has been largely absorbed by now, and there is a likelihood of normalised growth for these small lenders. Also, their collections, especially those disbursed after the pandemic, have recovered and refinance has become relatively easy now.

Another booster is the increased viability expectations for small-mid MFIs after the implementation of harmonisation guidelines, as they can now revise their lending rates, which will improve pre-provision operating profit margins and provide higher tolerance to withstand credit cost, the report said. The agency expects the credit cost to decline to a median of 1.5-5 per cent in FY23 from 4-7 per cent in FY22 as collections are better since December and it will be lower than FY22.