MFIs, small banks will need external capital of Rs 4,700 cr in three years

Small finance banks and finance companies working as micro finance institutions will need external capital of upto to Rs 4,700 crore over the next three years to support over 25-30 per cent growth in loan books, according to ICRA.

Investors continued to support the industry with equity infusion of around Rs 4,350 crore in FY2019. The players had raised Rs 4,100 crore in FY2018. 

Rating agency ICRA in its outlook for the microfinance sector said that more than 90 per cent of the capital raised in FY2019 was by the MFIs with AUMs of greater than Rs 1,000 crore. This implies that larger entities have been able to attract capital while the smaller less-diversified entities continue to struggle on this front.

Referring to the growth trend, it said that the domestic microfinance sector had registered a robust 28 per cent growth during the 12 months ended December 2018 as against 26% in FY2018.  

Financial Year	Amount in crore
2015-16	Rs 871 cr
2016-17	Rs 6,633 cr
2017-18	Rs 4,098 cr
2018-19	Rs 4,350 cr

The sector has emerged unscathed even as the liquidity squeeze post September 2018 severely curtailed growth for the non-banking finance companies in India. Consequently, the overall micro loan market size (including Self Help Group Bank linkage programme) was Rs 2.37 trillion as on December 31, 2018.

The overall pace of growth was good, in nine months of FY2019. However, a reversal was observed in the trend with rise in ticket size outpacing the growth in client base, said Supreeta Nijjar, Vice President and Sector Head, Financial Sector Ratings, ICRA.

Micro finance institutions continue to expand their reach and add new clients, in the post-demonetisation period. But, there is greater focus on client retention (by offering higher ticket sizes) and eliminating delinquent clients. This has slowed down the pace of client growth for the sector. Further, since an individual may be the client of more than one MFI, the actual addition of new-to-credit clients could be even lower, ICRA added.