Credit access for the bottom of the pyramid customers slowed down recently as microfinance lenders focused more on borrowers with established credit history against the backdrop of the past two years of asset quality strain, according to a joint study by Small Industries Development Bank of India (SIDBI) and Equifax.The share of new-to-credit borrowers declined to 20% in March from 33% three years ago, the report said, even as a fraction of Indian adults are estimated to have access to formal credit.This reflects lenders’ increasing engagement with borrowers with a track record and stronger repayment behaviour.“Over the last few quarters, the microfinance sector has gone through a phase of correction and cautious lending,” said Equifax Credit Information Services interim managing director Subhankar Mishra.With lenders tightening norms to curb over-indebtedness and delinquencies, about 23 million small borrowers exited the formal banking system, showed data from Microfinance Industry Network. The number of unique microfinance borrowers stood at 63 million at the end of March against 87 million two years earlier.Merely 15% of Indian adults enjoy access to institutional credit against a global average of 24%, according to a new Deloitte report.The latest SIDBI-Equifax report also highlighted a structural shift in lending behaviour across the industry, with lenders increasingly moving toward higher-value loans to the borrowers they know. The share of loans above Rs 75,000 rose to 41% from 26% a year ago. Average ticket size across the industry increased to Rs 62,945, reflecting lenders’ sharpening focus on borrowers with stronger repayment capacity and established credit histories.Borrower leverage trends also continued to improve with the average share of borrowers associated with four or more lenders declining for the top five states in terms of microfinance gross loan penetration—Bihar, Tamil Nadu, Uttar Pradesh, Karnataka and West Bengal. For Bihar, the ratio improved to 2.03% at the end of March from 4.07% six months earlier while the ratio for West Bengal was 0.69% against 1.51%. The trend indicates moderation in multi-lender exposure and improving credit discipline across the ecosystem, the report said.
Credit flow to bottom tier slows as microfinance lenders turn to safer borrowers: SIDBI-Equifax
Credit access for bottom-of-the-pyramid borrowers in India has slowed as microfinance lenders turn cautious after two years of asset quality stress, increasingly favouring customers with established credit histories. A joint SIDBI-Equifax study shows the share of new-to-credit borrowers fell sharply to 20% from 33% three years ago, reflecting tighter risk filters.
337 words~2 min read
