CreditAccess Grameen has reported a fourfold rise in net profit for the second quarter, reaching Rs 502 crore.
The company said the jump came from several sources working in its favour at once. Its income was higher, its expenses came down, and it set aside less money to cover credit costs, which are the charges lenders take when they expect some borrowers may not repay their loans.
Asset quality also improved during the period. That means the loans on the company’s books were performing better than before, with fewer problems in getting borrowers to repay. The improvement was strong enough that the company decided to raise its guidance on profitability. Guidance is the outlook a company gives to investors about how it expects to perform, so an upward revision signals that management is more confident about its earnings than it was previously.
The lender also continued to expand its loan book. Its assets under management, a measure of the total value of loans it handles, grew 19.5%.
Taken together, the figures point to a lender that is growing at a healthy pace while also seeing its loans perform better and its costs ease. A fourfold rise in profit is a large step up, and it was achieved while the business was still expanding rather than shrinking to protect its margins.
The results will be of interest to investors who follow the microfinance sector, where the quality of loans and the cost of bad debts are often the main factors behind swings in profit. For CreditAccess Grameen, lower credit costs and better asset quality were central to the quarter’s outcome.
The decision to revise profitability guidance upward suggests the company expects the improvement to carry through beyond the second quarter, though it will be the coming quarters’ results that show whether that confidence is borne out.