Asset quality problems to lift MFIs credit cost

RISING credit cost stemming from asset quality challenges that have begun to surface since many months now will crimp the profitability of microfinance institutions due to the higher credit cost which will halve their return on managed assets to 2-2.5% this fiscal from a high of 4% last fiscal.

- BEN KOCHUVEEDAN

Industry wide credit cost is expected to increase to 3.5% in fiscal 2025 from 2% earlier according to Crisil. That said, risk-based pricing adopted by MFIs after the removal of interest margin cap and stronger balance sheets will limit the decline in profitability and support their credit profiles, says report based on an analysis of MFIs accounting for 85% of the industry assets under management.