Microfinance market to triple in next three years, says ICRA

The Microfinance market has the potential to triple in the next three years to reach Rs 2.8-3.4 lakh crore, according to rating agency ICRA.

The potential size of the microfinance market is estimated at Rs 2.8-3.4 trillion against the current market size of around Rs 1.1 trillion (as of September 30, 2015, covered by self help group bank linkage programme, microfinance institutions and Bandhan Bank). Thus, given the large growth potential, MFIs can grow at an annualised rate 30-35 per cent over the next three years, ICRA said.

ICRA goes on to state that continued access to capital would hold the key to growth for the MFI industry over the medium term.

“As per ICRA estimates, the volume of external capital required to support MFIs (excluding Bandhan and eight entities converting to SFBs), for a compounded annual growth rate (CAGR) of 30-40 per cent over the next three years would be Rs 900-2,200 crore (26-67 per cent of the existing net worth),” sates ICRA.

Further, the in-principle small finance bank licensees would require Rs 2,800-3,000 crore of domestic capital in the event of stake sale from foreign shareholders to domestic entities.

“This could increase significantly to Rs 5,800–6,000 crore in case fresh equity is raised to reduce foreign shareholding. Therefore, continued access to capital would hold the key to growth for the MFI industry over the medium term,” said the rating agency.