Microfinance institutions are expected to continue to gain credit market share this fiscal year, see strong uptick in AUM growth, and enjoy lowest credit cost in the last five years, driving profitability, said a brokerage research report. The credit market share of the NBFCs and MFIs has been witnessing steady growth, as their share increased from 31% on March 21 to 38% on December 22, said ICICI Securities in a research note. NBFCs-MFIs, among the MFI lenders, are expected to continue to gain market share in credit as they have done over the last eight quarters, said the note.
Microfinance credit costs to fall to lowest in five years
Some of the largest MFIs, including CA Grameen, Spandana, Fusion, Bandhan, Ujjivan, and Suryoday, are expected to witness a moderation in their credit cost trajectory. Between FY20-22, the improved government support such as moratorium, OTR, ECLG Scheme etc, and also the focused approach of the lenders, resulted in the moderation of the credit cost trajectory. As the credit cost increased rapidly from 3% in FY20 to 7% in FY22, it fell to 3.5% in FY23.
Microfinance AUM growth rebounds strongly during FY23
The AUM growth of microfinance lenders has seen improvement since FY23, and is expected to remain strong, after facing turbulence in the last few years. “MFI AUM growth trajectory has been going through a turbulent phase – initially covid-led disruption and process realignment as per revised MFI regulation in Q1FY23 derailed growth momentum. However, Q2FY23 onwards, AUM growth has been showing a strong uptick – AUM growth … accelerated to 11% QoQ in Q4FY23,” said the note.
Moreover, the changes brought about by regulatory authority and lifting of the dual regulatory framework are going to be advantageous developments for the sector as it will now Andhra Pradesh and Telangana, two new growth states for the MFI players, which were previously not propitious for MFI lending in the last decade.
New customer acquisition which was muted during FY 21-22 mainly due to the Covid-led challenges, gathered pace in FY23. Moreover, the unique customer base grew strongly by 15% between Mar-Sep ’22. “With steady improvement in collections and subsiding asset quality challenges, MFI players have accelerated new customer acquisition during FY23,” ICICI Securities said.