19 percent of India's population financially excluded: Study

| Updated: Jul 25, 2017 19:39 IST

New Delhi [India], July 25 (ANI): Despite a strengthened institutional credit network, a study conducted by ASSOCHAM and EY has highlighted major lag in terms of financial services in the country, with 19 percent of the country's population excluded from banking services. The main objective of financial inclusion is to ensure access to formal credit for people who depend on informal sources for fulfilling their financial needs, at an affordable cost in a fair and transparent manner, and to promote financial education. The Government and the Reserve Bank of India (RBI) have made several concentrated efforts to promote financial inclusion. These efforts include launch of co-operative banks and regional rural banks, introduction of mandated priority sector lending targets, formation of self-help groups, appointment of business correspondents by banks to provide door-step delivery of banking services. These initiatives helped to bring in a large section of the unbanked population under the formal financial credit system. However, a significant portion of India's population still remains devoid of access to basic formal credit facilities mainly due to lack of last mile connectivity. Hence, the Government, with RBI's support, continues to introduce various new initiatives to fulfil its objective of achieving 100 percent financial inclusions, reveals the joint study. The Indian microfinance industry is dominated by Non Banking Financial Company (NBFC) Micro Finance Institutions (MFI) with an 88 percent market share. According to data from the Microfinance Institutions Network (MFIN), there are 12 small MFIs, another 22 medium-sized MFIs and 22 large MFIs. Large MFIs account for 90 percent of the industry's gross loan portfolio (GLP), client base and debt funding. During FY12-16, the GLP of MFIs grew at a CAGR of 48 percent to reach Rs. 532.3 billion and the number of clients benefited crossed 32.5 million, as of March 2016. The sector reported a significant surge of 84 percent in GLP from Rs. 289.4 billion in FY15 to Rs. 532.3 billion in FY16, since MFIs indulged in issuing large loans to clients after the RBI relaxed indebted exposure to single borrower from Rs. 50,000 to Rs. 100,000. 60 percent of the GLP was attributed to the rural sector while the remaining 40 percent was from metros, urban and semi-urban areas, as of March 2016. In terms of regional breakup, Southern India had the highest share at 35 percent of GLP, followed by west and north India at 25 percent share each. 31 percent of the loans were given for agriculture and allied activities while 64 percent were given for non-agriculture and five percent for household finance as of March 2016. Large MFIs, some of which are in the process of converting to small finance banks, reported the highest surge in their loan books. During the past two years, MFIs have reported a 58 percent jump in average loan size per customer from Rs. 10,364 in FY14 to Rs. 16,394 in FY16, since during the same period gross loan portfolio has increased threefold while client base has only increased twofold. Some industry experts have ascertained the high growth pattern to the rise in clients, increase in general income levels and ease of lending rules by the RBI. However, increased lending to same clients may be risky for MFIs, since they serve vulnerable segments, which entails increased underlying risk, highlighted the study. (ANI)