Microfinance industry may require external capital: Report

THE country’s microfinance sector would require an external capital of Rs 8,500-10,000 crore for growing at a rate of 15-20 per cent per annum over the next three years and to absorb high level of credit costs, says a report. Rating agency Icra said the credit costs of microfinance institutions (MFIs) may increase to 6-7 per cent spread over FY2020-FY2022 from 1.5 per cent in FY2020.

“As per our estimates, the industry would require an external capital of Rs 8,500-10,000 crore (30-35 per cent of the closing net worth as on March 31, 2020) for growing at a rate of 15-20 per cent per annum over the next three years and absorbing these level of credit costs during this period and maintaining prudent capitalisation levels,” Icra’s Vice-President (Financial Sector Ratings) Sachin Sachdeva said. Most entities had put on hold their plans to raise equity in the first half of financial year 2021 as investors became wary. In the second half of the current fiscal, equity infusion in the industry is expected to remain limited and is likely to flow to large and well-established entities, he said.

The rating agency said, the overall collection efficiency (total collections/ scheduled demand unadjusted for moratorium) of the micro finance institutions gradually improved and stood at around 88 per cent in September 2020 compared with around 2 per cent in April 2020.