Non-Banking Financing Lenders Take Charge – The Rise of Microfinance NBFCs in India

Amidst the shifting landscape of India’s financial sector, non-banking finance companies (NBFCs) specializing in microcredit have emerged as significant players. With banks redirecting their focus towards retail credit, NBFCs have seized the opportunity, expanding their market share to 39%. This article explores the factors driving the ascent of NBFCs in microfinance and the implications for the broader financial ecosystem.

The Dominance of NBFCs in Micro Credit

Over the past year, NBFCs have solidified their position as leaders in microfinance, outpacing banks in market share. With 91 NBFC MFIs leading the charge, their loan outstanding has reached a staggering Rs 1.56 lakh crore, constituting 39.1% of the industry portfolio. Meanwhile, banks now hold the second-largest share, with a total loan outstanding of Rs 1.34 lakh crore in the micro-credit segment.

Industry Dynamics and Growth Trends

According to the Microfinance Industry Network (MFIN), the gross microfinance loan portfolio stood at Rs 3.99 lakh crore as of December 2023, serving 7.4 crore unique borrowers with 14.6 crore loan accounts. Despite a slight decrease in the number of loans disbursed, microfinance loan disbursals during Q3FY24 increased to Rs 78,584 crore as compared to Rs 77,877 crore same quarter last year, reflecting the industry’s resilience amidst challenges.

Regional Shifts and Operational Expansion

Traditionally, the microfinance portfolio was skewed toward the eastern and northeastern regions. However, south India has emerged as the largest contributor, driven by growth in Telangana and Andhra Pradesh. Over the past year, active loan accounts have increased by 15.9%, with Bihar leading in portfolio outstanding followed by Tamil Nadu and Uttar Pradesh.

Financial Performance and Operational Metrics

On an aggregated basis, NBFC-MFIs operate through a network of 19,712 branches with 1,75,806 employees. The average loan amount disbursed per account has increased by 8.2% to Rs 45,705 in Q3FY24 compared to the previous fiscal. To fund growth, NBFC-MFIs witnessed a significant rise in debt mobilization, reflecting their commitment to expanding operations and reaching underserved segments

Thus, keep stocks like Muthoot Microfin Ltd and Fusion Micro Finance Ltd on your watchlist

As NBFCs continue to expand their market share and operational footprint in the microcredit sector, these specialized microfinance institutions stand to benefit from the growing demand for financial services in rural and underserved areas. With their expertise in catering to the unique needs of micro-entrepreneurs and low-income households, Muthoot Microfin Ltd and Fusion Micro Finance Ltd are well-positioned to capitalize on the opportunities presented by this evolving market, driving sustainable growth and fostering financial inclusion.

Conclusion

The rise of NBFCs in microfinance underscores their adaptability and resilience amidst changing market dynamics. With a focus on operational efficiency and market penetration, NBFCs are poised to play a pivotal role in driving financial inclusion and catering to the credit needs of rural and underserved communities. As the sector continues to evolve, collaboration between NBFCs, regulators, and stakeholders will be essential to sustain growth and mitigate risks.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. The information is based on various secondary sources on the internet and is subject to change. Please consult with a financial expert before making investment decisions.