Microfinance Sector Faces Prolonged Challenges through Fiscal Year, Recovery Hopes Pinned on Next Year

Motilal Oswal's report reveals continuing distress within the microfinance sector, predicting recovery only in the next fiscal year. Multiple stress factors, including customer overleveraging and fraudulent lending practices, are straining asset quality. Interventions aim to stabilize, yet growth and profitability concerns persist.

The microfinance sector is bracing for a turbulent financial year, according to a report by Motilal Oswal, which forecasts ongoing challenges with potential recovery only in the next fiscal cycle.

The report outlines various stressors, including customer overleveraging and lending to clients with fraudulent credentials, which have degraded the asset quality of microfinance institutions. Despite regulatory and self-regulatory efforts to stabilize the sector, significant hurdles remain, with impacts anticipated on asset growth and profitability.

In addition to financial mismanagement, environmental factors such as natural disasters have further compounded the sector's difficulties. These multifaceted issues pose severe challenges to the sector's recovery, emphasizing the complexity of the crisis at hand.

(With inputs from agencies.)