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Compiled by Vasishta Dasika
Microfinance Landscape
Microfinance serves as an umbrella term that describes the provision of banking services by poverty-focussed financial institutions called Microfinance Institutions (MFIs) to a segment of population that are notbeing served by the traditional banking sector. They are deemed to be unbankable by the traditional bankingsector.According to World Bank, around
1.1 bn people live in extreme poverty of less than USD 1 a day andaround 2.7 bn people- equivalent to roughly 40% of World’s population- live on less than USD 2 perday
.
Source: Deutshce Bank Research 
It is widely acknowledged that microfinance is a catalyst to reduce poverty in both developing and developedcountries. Modern Microfinance has its roots in South Asia and Latin America in the mid-1970s, since then,there has been a growing stress on building financial systems that address the large unmet demand at theBottom-of-the-Pyramid on a sustainable basis. Notably the Grameen Bank in Bangladesh was successfulwith its Joint Liability Group micro-lending model that was suitably modified and applied by institutions invarious countries.However, not all MFIs apply the group lending model; some MFIs prefer to lend to individuals without any joint liability aspect. Globally, it is estimated that there are over 10,000 MFIs in various legal forms such ascredit unions, NGOs, cooperatives, private and commercial banks, etc. Initially most of these were foundedas non-profit enterprises, gradually, some MFIs transformed to become more formal financial institutions andin some cases even regulated banks. This reflects the idea that becoming a more formal entity helps toreach financial sustainability as it facilitates access to various borrowing avenues and deposit-taking.
 
Compiled by Vasishta Dasika
Indian scenario
Most MFIs in India since the beginning of 1990 have been adopting the Joint Liability Model. In the Indiancontext, microfinance is more inclined towards providing micro-credit to the financially excluded population.Micro-credit has been largely directed by the non-profit sector, but the emergence of for-profit Non-BankingFinancial Companies (NBFCs) provided the much needed impetus to the industry. NBFCs are regulated bythe Reserve Bank of India; regulations currently do not allow most MFI NBFCs to accept savings deposits.In India microfinance is delivered by two primary channels called the Self-Help-Groups (SHGs) and MFIs. Asof March 2008, the total credit disbursement has been Rs 22,000 crore (~USD 4.4 bn) through two primarychannels – the SHG-Bank Linkage channel (75%) and the MFI channel (25%). This represents less than10% of the total demand of Rs 250,000 crores. The Reserve Bank of India estimates that
about 50% of theIndian population is still unbanked
. The share of MFIs in disbursement is slowly yet surely increasing.
Source: Grameen Capital, 2008 
There is no centralized database on the number of MFIs that operate in India. Estimates have put itanywhere between 800 and 1,200. New institutions are being set up at a rapid pace. These institutions lookto exploit the market opportunities available for providing loans to small clients. However, the success ofthese institutions depends a lot on managerial commitment, critical mass, balanced approach, etc., toachieve the double bottom line of financial sustainability and socially relevant engagement.Top five MFIs by outreach and loan portfolioBy ClientsNo.(million) By loan o/sRs(million)SKS 1.88 SKS 7818Share Microfin 1.29 Spandana 7285Spandana 1.19 Share Microfin 5953Bandhan 0.76 SKDRDP 3370Asmita 0.7 Asmita 3360Market share of different forms of MFIsLegal form No.Share (loanportfolio) %NBFC 25 59.7%Section 25 Cos 22 11.6%Society 104 18.8%Trust 21 6.8%Others 34 3.1%Most of the large MFIs were typically NBFCs, the smaller MFIs were either socities or trusts. The growth ratehas been the highest in the case of medium-sized MFIs with a portfolio of Rs 5 crore to 50 crore.
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The Distributor

Thanks Galaxy. What is the research that you are doing on MFI?

reply08 / 02 / 2009
The Distributor

Come on folks, give me some comments :)

reply07 / 22 / 2009
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