Indian microfinance industry is expected to double its lending business to poor and marginal sections of the society in the next years if the growth momentum continues, Nobel Peace Prize winner and founder of Grameen Bank Muhammad Yunus said.
With size, there would also be some challenges which the industry should be geared up to handle, he said.
According to Sa-Dhan’s Bharat Microfinance Report–2019 released by Yunus here, the Indian microfinance industry clocked a growth of over 40 per cent, with a gross loan portfolio of Rs 178,552 crore in gross loan outstanding at the end of March 2019.
Considered the father of microcredit, Yunus said the trend shows that the industry would double itself as the pace of growth and base has increased.
“Given this very impressive record, it has now all preparation for doubling itself in the next five years. Whatever the industry has done in the last 25-30 years, you would see it double in the next five years as it has gained tremendous speed now,” he said.
On challenges, he said the industry has to prepare for the next generation as to how to create employment for them, the transformation of the economy of the region so that the migration to cities is stopped.
There is also a need to create an ecosystem for social businesses like health care, solar energy, and education programme and not just limit to microfinance, he told PTI.
The journey of microfinance in India has been phenomenal, he said, adding that it has spread across the country.
About 50 million people are borrowers with high repayment lifting so many people are out of poverty, he added.
“The biggest achievement of India’s microfinance industry, besides touching the lives of millions, has been sowing the seed of entrepreneurship amongst its clients. The industry had imbibed an entrepreneurship culture in a deep way. And this is the financial oxygen that I keep talking about. If you are able to provide financial oxygen, elimination of poverty is indeed possible,” he said.
This is noteworthy because unless there is financial discipline, economic progress is not possible, he added.
Disappointed by the fact that 80 per cent of the finance done by microfinance industry comes from conventional banks, he said, this has to change.
The deposits of the poor have to utilised for financing their needs, he said, adding banks are getting deposits from the rural areas at very low cost and lend it to microfinance companies at a high-interest rate.
In turn, the microfinance industry further lends to poor at much high interest rate and this system needs to be changed, he added.
Citing example, he said Grameen Bank has outstanding loans of USD 2 billion while deposits are about USD 2.5 billion.
The report released by Yunus also pointed out that the Indian microfinance industry could touch Rs 2.5 lakh crore gross loan outstanding by the end of the current fiscal provided the momentum continues.
The industry has collectively managed a portfolio worth of nearly Rs 35,435 crore as of March 2019 whereas it was Rs 21,080 crore in 2018.
The analysis suggests that Jammu and Kashmir remains the most underserved region, followed by Andhra Pradesh and Telangana.