India Markets closed

Concentration risk rising: 5 key states account for 55% of MFI loans

Mithun Dasgupta
Concentration risk, MFI loans, MOFSL, NBFC, CAGR, GLP, West Bengal

"Concentration risk" is rising in the country's microfinance industry as Tamil Nadu, West Bengal, Bihar, Karnataka and Maharashtra - the top five key states for the industry - currently account for 55% of the total microfinance loans in India, reflecting 'caution' among microfinance institutions (MFIs).

"Further, the East and the North-East regions account for 40% of the total industry. During FY16-2QFY20, microfinance loans in Bihar and West Bengal expanded sharply at 48% and 35%, respectively, versus industry growth of 31%. Further, the top-30 districts account for 24% of the total outstanding portfolio (as on FY19)," according to a latest report by Motilal Oswal Financial Services (MOFSL) on the microfinance industry.

"All this points towards concentration risk rising in few states/districts led by increasing average ticket size, which in turn reflects caution in the sector," the report said. In order to maintain robust loan growth momentum in the industry, various MFI players have increased the average ticket size in some key geographies, such as West Bengal, Assam and Tamil Nadu.

"During FY16-19, the MFI loans disbursed in the Rs 50,000-60,000 ticket size range registered 55% CAGR, while disbursements in more than Rs 60,000 ticket size showed sharp 108% CAGR," MOFSL's report said. West Bengal has the highest average ticket size per borrower at Rs 54,000, followed by Assam (Rs 52,000) and Tamil Nadu (Rs 43,000). Bihar has the highest number of operational NBFCs-MFIs, while Delhi has the lowest number of operational microfinance institutions at the end of the second quarter of the current fiscal.

According to the MOFSL report, Bihar and Delhi have 35 and 5 operational MFIs, respectively. Odisha has 28 microfinance institutions, while three states - Jharkhand, Maharashtra and Uttar Pradesh - have 26 MFIs. According to the latest Micrometer report, released by industry body Microfinance Institutions Network (MFIN), the entire microfinance industry has witnessed a growth of 47.85% in the second quarter this fiscal over the same period last fiscal, with the total loan portfolio (GLP) standing at Rs 2,01,724 crore as on September 30, 2019.

As per the Micrometer, the total number of microfinance loan accounts stood at 9.79 crore in Q2FY2019-20, as compared to 7.43 crore account in Q2FY2018-19. "As on September 30 2019, the on-balance sheet portfolio of 85 NBFC-MFIs was Rs 62,960 crore, spread across 601 districts of 35 states and union territories and showed a growth of around 17% over the last financial year," the report said.

Average loan amount disbursed per account during the second quarter this fiscal was Rs 27,391 which is an increase of around 10% in comparison to loans disbursed during the first quarter this fiscal.