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The microfinance market is less than half its potential size because some big markets remain under-penetrated and the average loan size remains much smaller than the actual demand, according to credit rating agency ICRA.
The market potential, according to ICRA’s calculation, is Rs 1.4-Rs 2.5 lakh crore. However, the current size of the microfinance market, including microfinance institutions (MFIs) and those under self-help group-bank linkage programme, is just Rs 60,000 crore.
Explaining the rationale for the potential estimates, Vibha Batra, Senior Vice-President, Financial Sector Ratings, ICRA, said, “Many places in States such as Uttar Pradesh, Bihar and Madhya Pradesh are under-served. Also, the loan requirements are huge in rural areas but MFIs are extending only small-value loans.”
According to industry associations, a typical loan size is Rs 10,000 and many borrow from two MFIs. This, however, is lower than the Rs 35,000-45,000 loans that many households are demanding, says ICRA. Now that there is a fair amount of regulatory certainty, ICRA sees the MFIs growing at 30-35 per cent a year over the next three years.
It also expects asset quality of non-Andhra Pradesh MFIs to worsen a little more as they expand into newer geographies, lend to marginalised sections.
> satyanarayan.iyer@thehindu.co.in
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