Lending to Millions Effecting Financial Inclusion, Responsibly Leading financial institutions and the industry, over the years, have played a pivotal role in the success of microfinance and financial inclusion initiatives by adhering to principles of responsible lending. With the collaborative efforts of the industry stakeholders, governmental support, proactive measures by regulatory bodies and the Reserve Bank of India, Arohan continues to ensure that loans are extended to borrowers in a manner that is ethical, sustainable and conducive to their financial well-being - an approach that fosters trust and promotes financial stability. The microfinance industry has exhibited remarkable resilience and growth despite the challenges posed by the COVID-19 pandemic, with a notable rebound in the past two fiscal years, the YoY growth (Mar’24 vis a vis Mar’23) is close to 25%. This resurgence, buoyed by an improving macroeconomic environment, has propelled Non-Banking Financial Companies focused on microfinance (NBFC-MFIs) to the forefront of the sector, surpassing banks in total outstanding microfinance loans, now constituting approximately 40%. The removal of lending rate caps by the Reserve Bank of India has facilitated risk-based pricing, leading to enhanced Net Interest Margins (NIMs) and increased Returns on Total Assets (RoTA). Despite a decline from their peak in FY 2021, credit costs remain elevated, partly due to restructured loans slipping into Non-Performing Assets (NPA). However, controlled credit costs and ongoing improvements in NIMs are expected to drive RoTA in near future. While asset quality shows sign of improvement, challenges persist, particularly regarding capital structure and overleveraging risks stemming from increasing customer indebtedness and shifts in lending models. Moreover, the industry’s susceptibility to event-based risks, such as political and geographical uncertainties, necessitates vigilant monitoring, along with continued support from impact funds and private equity investors. Management Discussion & Analysis Annual Report 2023-24 | 32
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