MFIs need Rs 2,200 cr fresh capital to grow at 40% for 3 years

The microfinance sector requires fresh equity capital to the tune of Rs 900-2,200 crore over the next three years to grow at 30-40 per cent, a report said on Thursday. During the first half of 2015-16, the micro-lending sector registered an expansion of 28 per cent compared to a growth of 31 per cent in the same period previous fiscal.

"The volume of external capital required to support MFIs (micro-finance institutions) for a compounded annual growth rate (CAGR) of 30-40 per cent over the next three years would be Rs 900-2,200 crore," said the report by rating agency Icra.

The report does not include Bandhan, an erstwhile micro-lender which converted itself into a universal bank last year, and the eight MFIs which have in-principle approvals from the Reserve Bank to become small finance banks. The sector has seen an increase of 231 per cent in overall equity infusion, from around Rs 530 crore in FY14 to Rs 1,740 crore in FY15.

The report further said the in-principle small finance banks licensees would require Rs 2,800-3,000 crore of domestic capital in the event of stake sale from foreign shareholders to Indian entities. "This could increase significantly to Rs 5,800-6,000 crore in case fresh equity is raised to reduce foreign shareholding," Icra Senior Vice- President Vibha Batra said.