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Demonetisation halves microfinance industry's growth

The slowdown in the microfinance industry is an indication of the impact of the demonetisation of high value currency.

twitter-logo Joe C Mathew        Last Updated: September 25, 2017  | 16:47 IST
Demonetisation halves microfinance industry's growth

Indian microfinance sector, which has been clocking an average growth rate of 36 per cent in recent years, has registered a sharp dip in its growth to 18 per cent during 2016-17. The slowdown in the microfinance industry is an indication of the impact of the demonetisation of high value currency by Prime Minister Narendra Modi on the unorganised sector.

The growth figures, mentioned in the Bharat Microfinance Report 2017, released in New Delhi on 13th September, excludes the performance of the six large microfinance institutions (MFIs) that had become small finance banks during the previous financial year. The gross loan portfolio of microfinance industry in India stood at Rs 46,842 crore for 2016-17. The industry valuation the previous year was Rs 63,853 crore, with Rs 24,034 crore coming from the six large MFIs. "Despite hindrances during the last fiscal, the sector clocked a postive growth. The coming years will be of great importance for the sector as there is scope of large MFIs migrating to small finance banks or banks and new players entering the sector", says P Satish, excutive director, Sa-Dhan, the association of community development finance institutions.

The MFIs that were most affected during the year were from states like Uttar Pradesh, Uttarakhand, Madhya Pradesh, Maharashtra and Karnataka. Recovery of loan in these states, which were almost stopped in the first three months of demonetisation is yet to return to its normal level. "The risk perception towards microfinance institutions have gone up post demonetisation from 13.83 percent to 14.8 percent. Part of it has also to do with the increase in the percentage of non-performing assets - from 0.15 per cent to 0.69 per cent," Satish says.

Sa-Dhan's 177 members reach out to 563 districts and serve 30 million clients who are primarily low-income households particularly women in rural and urban India. Excluding the clients served by the six small finance banks, its clientele grew 10 percent during the year.


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