Latest News | MFIs Seeks Govt Support to Tide over Challenges

New Delhi, Jan 8 (PTI) Microfinance institutions (MFI) on Wednesday sought a dedicated funding mechanism in place and government support to tide over challenges in the sector.

A meeting chaired by Financial Services Secretary M Nagaraju was called to understand issues and challenges faced by the MFI sector, which is an important pillar for providing credit access to poor people.

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After the meeting, Sa-Dhan executive director and CEO Jiji Mammen said as a self-regulatory organisation (SRO) of MFIs, we brought the issues of weeding out of unregulated entities and strict action against coercive recovery done mostly by unregulated entities.

He also said that the MFI sector also demanded that the Aadhar should be made a necessary KYC document for loans for uniformity purposes.

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At present, MFIs are not allowed to collect Aadhar as a KYC document.

Besides, he said, a dedicated funding mechanism should be in place as it is a major challenge being faced by the sector.

During the COVID-19 period, the RBI had opened a Rs 25,000 crore refinance window for the MFI sector, among others.

Credit guarantee mechanism should also be considered, he said.

The meeting assumes significance as it comes amid the sector showing signs of stress and rising delinquencies.

Credit to the microfinance sector by banks (including SFBs), NBFC-MFIs and other NBFCs has decelerated during the current financial year so far after witnessing rapid growth during the last three years, according to the latest report of the Reserve Bank.

"The microfinance sector is showing signs of stress, with rising delinquencies across all types of lenders and ticket sizes. During H1:2024-25, the share of stressed assets increased, with 31-180 days past due (dpd) rising from 2.15 per cent in March 2024 to 4.30 per cent in September 2024," said the RBI's Financial Stability Report, December 2024.

Importantly, among borrowers who had availed loans from multiple lenders and those with higher credit exposure, impairment remained high.

RBI report said that alongside rising delinquencies, borrower indebtedness has risen notably: the share of borrowers availing loans from four or more lenders has increased from 3.6 per cent to 5.8 per cent during the last three years (September 2024 over September 2021).

Also, the quarterly average ticket size of microfinance loan disbursal has risen by 43 per cent over this period (Rs 35,299 in Q2:2021-22 to Rs 50,430 in Q2:2024-25).

(This is an unedited and auto-generated story from Syndicated News feed, LatestLY Staff may not have modified or edited the content body)