| 32 Annual Report | 2024-2025 Management Discussion & Analysis FY 2025 unfolded against a backdrop of a difficult macroeconomic landscape, shaped by regional disruptions, escalating operational expenses, and the shifting financial needs of borrowers. These headwinds tested the very foundations of microfinance institutions, as key profitability indicators come under pressure. Net Interest Margins (NIMs), a core measure of lending profitability, shrank primarily due to a deterioration in asset quality and falling yields. This represents a significant shift from the previous two financial years, during which the sector experienced improved profitability driven by factors such as the Reserve Bank of India’s relaxation of the interest rate cap, stronger asset quality, and lower levels of leverage. Despite the challenges, the collaborative spirit of the industry - anchored in trust, shared purpose, and systemic support—has not only enabled the sector to withstand short-term pressures but also strengthened its foundation for long-term growth. While the microfinance sector continues to play a vital role in advancing financial inclusion, FY 2025 brought in a set of emerging challenges. Rising concerns around repayment delays and delinquencies began to impact the financial performance of Non-Banking Financial Companies focused on microfinance. With asset quality under pressure, as per industry estimates credit costs projected to rise to approximately 6%, presenting a key area of concern. These factors may weigh on profitability indicators such as Return on Total Assets (RoTA), while operating costs could inch upward due to slower balance sheet growth and the need for more robust collection efforts. Despite these headwinds, the sector remains resilient and forward-looking. The focus now shifts to strengthening credit appraisal frameworks and enhancing collection strategies—critical steps to mitigating risks and reinforcing financial stability. With continued collaboration among industry players, investors, and regulators, microfinance institutions are well-positioned to navigate this evolving landscape and sustain their mission of inclusive, responsible lending. INDUSTRY OVERVIEW: As on March 31, 2025, the overall size of the universe in terms of total loan portfolio of INR 6,63,426 Cr. The microfinance universe (MFI universe) has total loan portfolio of INR 3,75,030 Cr. and the total number of active loan accounts were 13.3 Cr with 7.8 Cr unique borrowers. A total of 93 NBFC-MFIs are the largest provider of micro-credit with a loan amount outstanding of INR 1,47,566 Cr., accounting for 39% to total MFI universe portfolio. 17 Banks hold the second largest share of portfolio in micro-credit with total loan outstanding of INR 1,22,826 Cr., which is 33% of total MFI universe. 10 SFBs have a total loan amount outstanding of INR 59,252 Cr. with total share of 16%. NBFCs account for another 11% and Other MFIs account for 1% of the MFI universe. KEY INDUSTRY HIGHLIGHTS OF FY 2025 Assam Microfinance Incentive and Relief Scheme (AMFIRS) 2021: Launched in June 2021, the Assam Microfinance Incentive and Relief Scheme (AMFIRS) represents a landmark initiative by the Government of Assam aimed at strengthening the long-term sustainability of microfinance in the state. The scheme is designed to promote financial discipline, reduce borrower stress, and enhance the economic resilience of low-income and vulnerable households. A major milestone was achieved in FY 2025 with the successful implementation of Category 3, Row 2 of the scheme. This rollout marked a significant step forward in the programme’s mission to balance financial inclusion with borrower protection and sectoral stability. Self-Regulatory Organisation Updates: On July 8, 2024, the Microfinance Institutions Network (MFIN), a key self-regulatory organisation (SRO) for the microfinance sector, announced a set of proactive measures aimed at strengthening customer protection and mitigating the risks of over-indebtedness. These reforms, though expected Growth Pattern 3.26 POS (INR ‘000 Cr) Growth % (YoY) NBFC-MFIs Banks SFBs NBFCs Others -19% -14% -15% -20% 4% 42.13 59.25 122.83 147.57
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