Microfinance institutions (MFIs) would now actively look at diversifying their risk profiles by entering different asset classes, as their profitability prospects have moderated considerably.
According to rating agency Crisil, the non-banking financial company -MFI model by the regulator would further push micro lenders to scout for ways to strengthen their financials, as the new guidelines put several restrictions on micro lending. "The MFI sector's growth and profitability prospects have moderated since implementation of the Andhra ordinance, because of the subdued funding environment and the operating challenges associated with regulatory restrictions on multiple lending, loan size, and end-use of loans," Crisil said in a note.
Micro-lenders are, therefore, diversifying their business models by starting new ventures aimed at entering other asset classes. These are mostly secured classes such as loans against gold jewellery, housing and vehicle financing loans, the credit rating agency said added.
Crisil also said the sustainability of micro lenders would depend on how effectively they framed their business models. "While most of these new business initiatives are at an early stage, MFIs' ability to develop systems and processes, and scale up operations would shape their business risk profiles," said Nagarajan Narasimhan, director, Crisil Ratings.
Crisil said the profitability of MFIs operating in regions other than Andhra Pradesh would not see any drop.
"The gross non-performing asset ratio for non-Andhra operations of Crisil-rated micro lenders would increase to around two per cent from one per cent as on March 31, if the revised asset classification guidelines are made effective as on that date. It does not reflect any change in the micro lenders’ inherent asset quality, though MFIs would now focus on containing delinquencies of up to 90 days," said Rupali Shanker, head, Crisil Ratings.
