Key facts
- India's microfinance sector faces potential risks from a weak monsoon and the West Asia conflict.
- The sector's loan disbursement reached Rs 77,524 crore in the fourth quarter, a recent high.
- Asset quality has improved, with a 2% portfolio unpaid for 31-180 days as of March.
- The Reserve Bank of India expressed concerns about inflation linked to rainfall and geopolitical issues.
- A Rs 20,000-crore credit guarantee scheme aims to boost bank funding for NBFC-MFIs.
The Indian microfinance sector, with a total portfolio of Rs 3.31 lakh crore, is facing potential headwinds from a predicted subpar monsoon and ongoing geopolitical conflicts in West Asia. The Microfinance Industry Network (MFIN) has alerted players to these risks, which could adversely affect rural livelihoods and potentially lead to new defaults.
The concerns arise as the sector has shown signs of recovery, with fourth-quarter loan disbursements reaching Rs 77,524 crore, the highest in eight quarters. Asset quality has also improved, with the share of the portfolio remaining unpaid for 31 to 180 days decreasing to 2% as of March, down from 6.3% a year prior.
The India Meteorological Department forecasts below-normal rainfall between June and September, largely due to El Nino conditions. This aligns with the Reserve Bank of India's concerns about potential inflation increases stemming from reduced rainfall and supply chain disruptions caused by geopolitical events.
MFIN's chief executive officer, Alok Misra, expressed optimism that the Rs 20,000-crore credit guarantee scheme, recently extended to August 31, 2026, will bolster the sector's recovery by improving bank fund flow to NBFC-MFIs. He urged banks to actively support financial inclusion efforts, noting that NBFC-MFIs, banks, and small finance banks collectively manage the sector's credit provision.