Chapter 13 · Day 13 — Microfinance
Reading a microfinance institution
Unsecured, tiny loans to many borrowers. Credit quality can deteriorate faster here than anywhere else on the exchange.
14 of 30 · 12 min
Microfinance (लघुवित्त) lends small, usually unsecured amounts to many borrowers, often through group guarantees. The economics are unusual in two ways: operating cost per rupee lent is high, and credit quality can move very quickly.
| Metric | Why it matters here |
|---|---|
| Gross and net NPL | Unsecured lending — recovery after default is low |
| Provision coverage | The buffer before NPLs hit earnings |
| Cost of funds | MFIs borrow wholesale; funding cost drives the spread |
| Operating expense ÷ loan portfolio | Servicing many tiny loans is expensive |
| Borrower growth | Real expansion |
| Average loan size | Rising fast can mean over-lending to existing borrowers |
| Recovery and write-off ratio | What actually came back |
| Restructured loans | Can mask NPLs that were simply rescheduled |
Illustrative: portfolio grows 30%. Borrowers grow 6%, average loan size grows 23%. The institution is lending substantially more to broadly the same people — a materially different, and riskier, story than the headline 30% suggests.
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