NBFC-MFIs seek revision in annual household income criteria for giving microfinance loans

NBFC-MFIs (non-banking finance company-microfinance institutions) want the Reserve Bank of India to revise the criteria relating to annual household income limit for giving micro loans in view of their growing needs of individual borrowers. They want this limit upped from the existing ₹3 lakh to about ₹5 lakh.

• Also read: NBFC-MFIs’ portfolio quality improving, NPAs fall in FY23: MFIN report

The last time criteria relating to the annual household income limit for giving micro loans to individual borrowers was revised was in 2022, when it was upped from ₹1.25 lakh in rural areas and ₹2 lakh in urban- and semi-urban areas to a uniform ₹3 lakh.

Manoj Kumar Nambiar, Managing Director, Arohan Financial Services Ltd, and Vice-Chairperson of Microfinance Industry Network (MFIN), underscored that the request to revise the annual household income limit is part of the ongoing discussions with the RBI.

“Typically, they don’t do it on an annual basis, but in about two to three years’ time. But they do re-look at the limit...I’m sure after the end of this financial year, when we look at the numbers and when we also index it with the government schemes/ inflation, we will be able to make a case to the RBI to re-look at the limit,” said Nambiar.

The RBI defines a microfinance loan as a collateral-free loan given to a household having annual household income up to ₹3 lakh. For this purpose, the household means an individual family unit — husband, wife and their unmarried children.

Average microfinance loans size has increased to ₹47,374 in Q3(October-December) FY24 against ₹41,123 in the year-ago period and ₹39,512 in Q3 FY22, per latest MFIN data.

Alok Misra, CEO & Director, MFIN, said: “Microfinance operations added more than 1 crore unique clients over the last financial year to its fold. The industry saw a robust growth of 24.6 per cent over the last financial year taking the total portfolio of the industry to Rs 3,99,442 crore. Portfolio delinquency has reached the pre-Covid levels which indicates improving health of the microfinance portfolio”.

• Also read: NBFC-MFIs’ AUM to grow 24-26%, profitability 2.7-3.0% in FY24

According to MFIN data, 91 NBFC-MFIs are the largest providers of micro-credit with a loan amount outstanding of Rs 1,56,245 crore, accounting for 39.1 per cent of total industry portfolio.

Banks (13) hold the second largest share of portfolio in micro-credit with total loan outstanding of ₹1,33,759 crore, which is 33.5 per cent of total micro-credit universe. Small Finance Banks have a total loan amount outstanding of ₹70,449 crore with total share of 17.6 per cent. NBFCs account for another 8.9 per cent and other MFIs account for 0.8 per cent of the universe.

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