‘MFI stress largely due to customer overleveraging’

The current stress in the microfinance (MFI) sector is largely driven by unchecked credit growth and the issuance of multiple loans to customers on fake voter ID cards among other documents, which resulted in significant overleveraging among borrowers, said Motilal Oswal in a report on Friday, adding that the industry's challenges are largely self-inflicted.

- SUBRATA PANDA

Additionally, the report has indicated that stress in the MFI sector in the current cycle will last for the whole of FY25, and the sector will begin to exhibit signs of normalisation only at the onset of FY26. “Our channel checks suggest that Q2FY25 will be the most challenging quarter of FY25 and credit costs in H2FY25 will likely remain elevated,” it said. The MFI sector has been grappling with persistent challenges and obstacles over the past five-six months, resulting in a notable deterioration in asset quality.