Microfinance institutions' equity investments see 40% surge

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Microfinance institutions (MFIs) have logged a nearly 40 per cent rise in equity investments during the last financial year. However, debt funding by banks, which registered around 20 per cent growth, remained confined to a top few MFIs.

Data from Microfinance Institution Network (MFIN) shows that total equity funding for MFIs stood at Rs 96.31 billion in 2017-18 against Rs 68.85 billion in 2016-17. This is a substantial rise of 39.88 per cent. 

Also, foreign investors accounted for nearly 45 per cent equity funding in MFIs as on March 31, 2018.

In December 2017, microfinance institution Spandana Sphoorty Financial raised Rs 1.25 billion from existing investors.

Last financial year, IndusInd Bank closed the acquisition of microlender Bharat Financial Inclusion in an all-stock deal. More recently, Fusion Microfinance raised Rs 800 million equity from existing shareholders.

Notably, between 2014-15 and 2015-16, debt funding in MFIs had surged nearly 70 per cent.  However, after demonetisation, debt funding has slowed down significantly.

“Domestic equity funding is scarcely available. Hence, the share of foreign funding has been going up. About  60-70 per cent of bank funding is being gobbled up by the top 10 MFIs. Several private banks have slowed down lending to the sector. The small and medium sized MFIs are now dependent on non-banking finance institutions (NBFCs) for funding,” Rakesh Dubey, president, MFIN, told Business Standard.

For large MFIs, the cost of debt funds ranged from a low of about 8 per cent to maximum 15 per cent. However, for mid-sized MFIs, the average cost of funding has been higher than 15 per cent. 

For some smaller MFIs, bank funding came at a high interest rate of 21 per cent, data from MFIN showed. 

For small MFIs, only about 11 per cent of funding was from banks last year compared to about 25 per cent in 2015-16 and 21 per cent in 2016-17, indicating a progressive decrease in funding. In 2017-18, the quantum of debt funding for banks to NBFCs-MFIs was around Rs 207 billion. Notably, earlier banks constituted a small fraction of the micro-lending space. However, they now account for a major share of it.

As of March 31, 2018, banks had a total micro loan outstanding of Rs 504 billion (inclusive of direct as well as indirect lending through business correspondents), which is about 38 per cent of the country’s microcredit.

NBFCs-MFIs accounted for 28 per cent of the total portfolio while for small finance banks the figure stood at 27 per cent.

As on March 31, 2018, the microfinance industry’s total outstanding loan was Rs 13,366 billion, which is a growth of 27 % over FY16-17.  

Average loan amount per account saw an increase of 19 per cent and stood at Rs 22,273. 

In terms of regional distribution of portfolio, East and North-East accounted for 44% of the total NBFC-MFI portfolio, South 20 per cent, North 14 per cent and West 11 per cent. Central India contributed 11 per cent.