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MFIs Explore Mutual Funds for Borrower Growth
9 Nov
Summary
- MFIs piloting mutual fund distribution to diversify portfolios.
- Portfolio at risk (PAR) for MFIs has fallen below 1%.
- New pilot project will initially cover 10 states.
Microfinance institutions (MFIs) are initiating a pilot project to distribute mutual fund products, a move intended to diversify their offerings and stimulate growth. This development comes after a challenging period for the sector, which has seen a significant reduction in portfolio stress, with the portfolio at risk (PAR) now below 1%.
The pilot project, a collaboration with the Association of Mutual Funds in India (AMFI), aims to equip MFIs with the ability to introduce borrowers to mutual fund investments. Customized products, featuring daily or weekly contribution options, are being developed to suit low-income households. This initiative will initially be implemented across 10 states.
While the sector's portfolio has seen a decline, a reversal is anticipated with projected growth of 10-15% this year. The introduction of tighter lending norms has increased the average loan ticket size, and there's a strategic focus on new-to-credit borrowers and expanding into underserved districts. The RBI's revised qualifying asset criteria, allowing up to 40% of an MFI's portfolio to include secured loans, also offers greater flexibility.
