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Microfinance Institutions Witnessed 10% Growth In Average Loan Size: Report

The microfinance sector saw structural change in the last six years when leading Microfinance Institutions (MFI) became banks and SFBs, thus reducing the footprint of MIs

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Microfinance Institutions (MFI) witnessed a 10 per cent growth in average loan size and the proportion of women customers increased marginally to 99 per cent, According to a report by ACCESS Development Services.

The report stated that the microfinance sector grew at a fast pace in 2010-11, however, the industry was severely affected by demonetisation disruptions in 2016-17 and also the account of some MFIs becoming banks and their data getting excluded from the MFI segment. 

The Inclusive Finance India report highlighted that while the share of outstanding loans of all banks decreased from 58.4 per cent in 2021 to 56 per cent in 2022, that of MFIs increased from 30.6 per cent to 36 per cent.

In terms of state-wise distribution of microfinance, the top five states accounted for 59 per cent of outstanding loans in FY 22, which is lower than the level of 62 per cent in 2021. This decline indicates wider dispersion of MFI loans and thereby reduced concentration risk. Assam, recovering from the recent years of crisis has a decline of 32.6 per cent. 

Extreme state action results in a scarcity of credit for microfinance customers; this was the experience of AP and Telangana after the 2010 crisis. Against the national growth rate of 19 per cent in portfolio outstanding, two major states recorded very low growth– West Bengal (2.72 per cent) and Punjab (3.36 per cent).

N. Srinivasan, Development Finance and Livelihood Expert and author of the Microfinance chapter said, “The sector has put the COVID disruptions firmly behind and is going ahead with positive intent. The future outlook seems much better, as indicated by industry leaders. With several pathways available such as business correspondents, mergers, transforming into banks and foray into non-microfinance loans, MFIs have a lot of work to do as they ride into the future."

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