Microlenders look for ways to tackle skew in credit reach
India's microfinance sector is highly concentrated, with the top 10 states representing 85% of the market, leaving many districts and villages with limited access to credit. Sa-Dhan, a microfinance industry body, is investigating reasons for this disparity and aims to encourage lenders to reach under-penetrated areas. Despite recent growth in financial inclusion, many districts have a penetration ratio of less than 30%, indicating a need for expansion in these regions.
India's operations have remained highly concentrated, with top 10 states accounting for 85%of the total market, leaving a majority of districts and villages under-penetrated in terms of access to despite recent giant strides toward boosting ."It is a matter of concern as to why microfinance activity is not in certain . The exercise aims at finding the reasons behind the under-penetration so that the issues can be addressed," Sa-Dhan executive director Jiji Mammen said.
More granular data showed that about 475 districts out of 730 where microfinance has reached to the grassroot population in some form or the other have a ratio less than 30%. In other words, less than 30 households out of 100 borrows micro loans from formal sources in the 65% of the districts with microfinance presence.
"States like Tamil Nadu or Karnataka with high microfinance penetration, have higher loan rejection rates, as borrowers there are highly leveraged. Therefore, it is for our own interest, we need to explore under-penetrated geographies to expand business and keep the growth momentum intact," chairman HP Singh said.
The combined microcredit of all was at 4.02 lakh crore at the end of December last year, registering a 31% growth, according to CRIF Highmark Credit Information Services.
NBFC-MFIs dominate the market with a portfolio share of 38.3%, followed by banks at 33.4%, small finance banks at 17.4% and other non-banks at 9.4%.
According to Sa-Dhan, the top five states in terms of portfolio are Bihar, Tamil Nadu, Uttar Pradesh, Karnataka and West Bengal, together accounting for about 57% of the total sectoral portfolio.
The industry association has engaged M2i Consulting for doing the study to find reasons for under-penetration is several other states.
Elaborating on the objective of it, Sa-Dhan deputy director Somesh Dayal said the idea is to encourage microfinance lenders to expand their operations to the underserved areas in line with the Reserve Bank of India's objective of widening and deepening financial inclusion.
Source: Stocks-Markets-Economic Times
