LAHORE-Microfinance industry has shrunk by 0.7 percent in terms of gross loan portfolio (GLP) and 4.9 percent in terms of active loans during the first half of 2020 due to COVID-19, which impacted the businesses across the country, reveals a report formulated on the performance of microfinance industry in the wake of COVID-19. The country’s microfinance industry serves 7.3 million borrowers from the low-middle-income individuals, and micro and small businesses. It is twice the number of people – 350,000 – served by the commercial banks, according to the report prepared by Aequitas Information Services, the country’s first licences credit bureau operating under the brand name of Tasdeeq.

The overall GLP of the industry declined to Rs309 billion from Rs311.3 billion with nonbanking microfinance institutions (MFIs), which are based in the rural areas with a large customer base of four million consisting mostly of poor women, taking a much bigger hit than the microfinance banks (MFBs), which serve the small urban-based businesses. The MFIs saw their gross loan portfolio squeeze by 7.5 percent to Rs100.9 billion from Rs109 billion and their market share dip to 32.6 per cent from 35 percent in six months.

The banks on the other hand posted a loan portfolio growth of 2.9 per cent to Rs208.2 billion. Nonetheless, the industry observers say, the fallout of the COVID-19 on the microfinance banks with a client base of 3.2 million borrowers and market share of 65 percent is expected to appear when the payments of their restructured or deferred loans become due in the second quarter of 2021.

The loan restructuring under a SBP scheme to protect business from the adverse effects of COVID-19 increased the average ticket size to Rs44,501 from Rs42,837 as the total disbursement in the sector stood at Rs144.5 billion during the six months. The industry’s write-offs also rose to one percent from 0.8 per cent with MFIs witnessing defaults surging to 1.6 percent from one percent.

The industry’s size has contracted sharply by 32.8 percent in Balochistan, 12.7 percent in Gilgit-Baltistan and 7.6 percent in Khyber Pakhtunkhwa. In Sindh, it neither grew nor shrank while posting marginal growth in Punjab, Azad Kashmir and Islamabad, says the report.

The industry felt the major impact during April and May when the economy was shut down over Covid-19 concerns. In June the industry began recovering from the effects of the health crisis and started disbursing new credit.