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The microfinance industry is experiencing stress, with a noticeable impact starting in the June quarter. Viral Shah, VP at IIFL, highlighted that while some lenders attribute this stress to recent elections and heatwaves, these factors may not fully explain the situation.
Shah noted that delinquency rates have increased, and the stress on the sector is not yet at its peak. “We are beginning to see the recognition of this stress starting from the June quarter,” he said.
The primary issue is the slowdown in growth across microfinance institutions (MFIs).
As these institutions pull back, borrowers are unable to access loans from multiple sources. This is leading to increased over-leveraging and compounding stress.
Unsecured lending products are particularly affected. Shah emphasised that while housing and vehicle financing remain relatively stable, unsecured products face significant challenges.
“The secured segments, such as housing and vehicle financing, are better positioned to weather this environment,” he told CNBC-TV18.
Vehicle financing, however, is under pressure. Shah pointed out that original equipment manufacturers (OEMs) have revised their growth forecasts downward.
This reflects broader industry slowdowns.
In contrast, housing finance, being a secured product, faces fewer asset quality problems and is positioned for continued growth. The Pradhan Mantri Awas Yojana-2 (PMAY-2) scheme is a positive factor for housing, but its incremental impact is neutral at best, according to Shah.
Overall, the MFI sector is expected to face ongoing stress, with further increases in delinquency rates anticipated in the coming quarters.