The microfinance sector is likely to see buoyant growth in the medium-term and assets are set to reach Rs 45,000 crore by March 2016, says a report.
"The loan portfolio of the microfinance sector is set to grow at a compounded annual rate of 35 percent, to reach Rs 45,000 core by March 2016," Crisil said in a report today, adding MFI loans are likely to touch Rs 35,000 crore by March 2015.
The report said unlike in the period prior to the industry originated in Andhra Pradesh, MFIs' current growth phase is more resilient, supported by stronger building blocks and a rebound in stakeholder confidence.
"The sector is far more resilient today than it was in the past. Greater clarity from the Reserve Bank guidelines, deeper penetration of credit bureaus and increasing use of technology to improve collections are distinctive features of the current phase of growth," Crisil senior director Pawan Agrawal told reporters.
The report cautioned that to sustain the current pace of growth, MFIs will have to raise equity and for it they will need to address challenges associated with low promoter shareholdings and a near-term decline in profitability.
"Due to interest rate cap by the RBI, MFIs are going to see a dip in their profitability by 30 basis points every year for the next two-three years," Agrawal said.
The report said improved geographical spread of assets has raised stakeholder confidence and improved funding availability for the sector.
Over the past three years, MFIs have raised Rs 2,000 crore as equity and Rs 24,000 crore as additional funds from banks.
However MFIs' dependence on bank loans, specifically from the top five banks, is expected to remain high over the medium term, the rating agency said.
According to Crisil, the MFIs are adequately capitalised for their current scale of operations.
However, three years of rapid growth have skewed the sector's gearing to 5.4 times, from around three times in the past, it said.
"The MFIs need to raise equity of at least Rs 1,800 crore over the next two years to maintain growth momentum and gearing at current levels," the report said.