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An Overview of “Microfinance Industry In India”
Presented by: Kumar Debvrat B.com (H)-III Year College Roll no: 68 S.G.N.D Khalsa college
T h i s p r o j e c t i s s u b m i t t e d t o D E P A R T M E N T O F C O M M 1 |R C g e E PaE And is made under the guidance of Dr. G.S Sood
This is to certify that the project report titled “Overview of Microfinance Industry in India” has been carried out by Kumar Debvrat, Roll No. 68, and Batch 2012-13 for the partial fulfillment of the Bachelor of Commerce (Honours).
Kumar Debvrat B. Com (H) – III Year College Roll No.68 S.G.N.D Khalsa College
Dr. G.S. Sood Mentor Department of Commerce S.G.N.D Khalsa College
I, Kumar Debvrat, hereby declare that the project report titled “Overview of Microfinance Industry in India” is my original piece of work and is based on my understanding of the subject. It has not been copied from any published source or website.
Kumar Debvrat B. Com (H) – III Year College Roll No.68 S.G.N.D Khalsa College
I felt motivated and exceedingly encouraged under her supervision.N. In addition. I sincerely thank my family and friends who provided me their support. Kumar Debvrat B. Com (H) – III Year College Roll No. He guided me to a wide range of resources that became a catalyst in the project development.Acknowledgement As a student of commerce. I have gone through a vast amount of literature and material available on the topic “Microfinance”.G. I owe many thanks and gratitude to Dr. I feel indebted to several authors and researchers who helped me a lot in understanding various issues relating to my topic.S sood. G.D Khalsa College .68 S. The guidelines laid down by her have been very instrumental in the successful completion of the project. my mentor and guide for the project.
16. 12. 2.Index Topic Page no. 15. 3. 19. 10. 1. 4. 5. 13. 18. 14. 17. 7. 9. Introduction History of Modern Microfinance Overview Governments Role in Supporting Microfinance Microfinance Social Aspects Need in India Micro financing Regulation India Social Performance Measure Critical Analysis Capital requirement Development Fund NABARD’s Support to Microfinance Institution Succees Factors of Microfinance in India Future Of Microfinance Top 50 Microfinance Institution in India Microfinance India Summit Acronym Conclusion References 1 2 3-6 7 8 9 10-11 12 12-18 19-21 22-24 24 25 26-28 28-30 30 31 32 33 . 6. 11. 8.
repaired. or machinery and tools. savings. This has resulted in a rather broad definition of microfinance as any activity that targets poor and low-income individuals for the provision of financial services. and agricultural business development services. and some banks have partnered with public organizations or made small inroads themselves in providing such services. and insurance to low income individuals which fall just above the nationally defined poverty line. various actors have endeavored to provide access to financial services to the poor in creative ways. Whatever the form of activity however. NGOs have undertaken the activity of raising donor funds for onlending. capacity building. 1 . with the goal of creating social value. work for wages or commissions. Since the ICICI Bank in India. The range of activities undertaken in microfinance include group lending. ‘Microfinance refers to small scale financial services for both credits and deposits. and that it should never be seen as the only tool for ending poverty. and to other individuals and local groups in developing countries in both rural and urban areas’. vehicles. The creation of social value includes poverty alleviation and the broader impact of improving livelihood opportunities through the provision of capital for micro enterprise. gain income from renting out small amounts of land. and poor individuals which fall below that poverty line. using a range of microfinance delivery methods. draft animals. Governments also have piloted national programs. individual lending. provide services. or traded.that are provided to people who farm or fish or herd. the provision of savings and insurance. and insurance and savings for risk mitigation and consumption smoothing. operate small or micro enterprise where goods are produced. A large variety of actors provide microfinance in India.1. Robinson. While some studies indicate that microfinance can play a role in the battle against poverty. it is also recognized that is not always the appropriate method. Marguerite S. recycled. Microfinance is defined as any activity that includes the provision of financial services such as credit. Microfinance is also the idea that low-income individuals are capable of lifting themselves out of poverty if given access to financial services. Introduction Microfinance is a general term to describe financial services to low-income individuals or to those who do not have access to typical banking services. the overarching goal that unifies all actors in the provision of microfinance is the creation of social value.
"susus" (Ghana). Today. in 2008. Almost 4 thousand women contributed their share capital to form the bank. This kind of micro credit was given on the basis of solidarity group lending. it is one of the most important microfinance institutions of the world. Not only that. to access certain financial services easily. These institutions were named Credit Unions. People's Bank etc. 0000 poor people of Bangladesh. The History of Modern Microfinance A. During the early and mid 1990s various credit institutions had been formed in Europe by some organized poor people from both the rural and urban areas. Besides. Today. SEWA Bank:In 1973. Many banks and financial institutions have been pioneering the microfinance program after 1970. The poor people had been given some small loans to invest in micro-business. He would go on to found Grameen Bank in 1983 and win the Nobel Peace Prize in 2006. for example. Abstract: In the late 1970s the concept of microfinance had evolved. Although.000. the pioneering of modern microfinance is often credited to Dr. Brazil and some other countries. Bangladesh during his tenure as a professor of economics at Chittagong University in the 1970s.2. the "chit funds" (India). Mohammad Yunus. Its network of lending partner comprises not only Latin America but also US and Africa. This bank is now serving almost 400. ACCION International: This institution had been established by a law student of Latin America to help the poor people residing in the rural and urban areas of the Latin American countries. that is. the World Bank estimates that about 160 million people in developing countries are served by microfinance. but also the success 2 . many formal saving and credit institutions have been working for a long time throughout the world. However. microfinance have a long history from the beginning of the 20th century we will concentrate mainly on the period after 1960. innovation in microfinance has continued and providers of financial services to the poor continue to evolve. "pasanaku" (Bolivia) etc. who began experimenting with lending to poor women in the village of Jobra. Grameen Bank (Bangladesh) was formed by the Nobel Peace Prize (2006) winner Dr Muhammad Younus in 1983. named as Mahila SEWA Cooperative Bank. These are listed below. The main aim of these institutions was to provide easy access to credit to the poor people who were neglected by the big financial institutions and banks. Many credit groups have been operating in many countries for several years. each and every member of that group guaranteed the repayment of the loan of all the members. GRAMEEN Bank: Credit unions and lending cooperatives have been around hundreds of years. C. few experimental programs had started in Bangladesh.Since then. D. Today the number of the SEWA Bank's active client is more than 30. tontines" (West Africa). B. In the early 1970s. the Self Employed Women's Association (SEWA) of Gujarat (in India) formed a bank.
semi-urban or urban areas for enabling them to raise their income levels and improve living standards”. the term "microfinance" helps to differentiate these services from those which formal banks provide It's easy to imagine poor people don't need financial services.small loans. fire. credit and other financial services and products of very small amounts to the poor in rural." As these financial services usually involve small amounts of money . mostly informal. these groups often require rigid amounts of money at set intervals and do not react to changes in their members' ability to save. the poor are more likely to lose their money through fraud or mismanagement in informal savings arrangements than are depositors in formal financial institutions. jewelry. "Microfinance is the supply of loans. building materials. Microfinance has been defined by “The National Microfinance Taskforce. Overview Microfinance Definition: According to International Labor Organization (ILO). and things that can be easily exchanged for cash. etc. although mostly in informal ways. It is not possible. 1999” as “provision of thrift. and other basic financial services to the poor. savings. They address their need for financial services through a variety of financial relationships. small savings. destruction by insects. They bury cash in the garden or stash it under the mattress. or illness (in the case of livestock). In India. week. "Poor people save all the time. for example. "The poor stay poor. to cut a leg off a goat when the family suddenly needs a small amount of cash. Informal rotating savings groups tend to be small and rotate limited amounts of money. The poor also give their money to neighbors to hold or pay local cash collectors to keep it safe. They may set aside corn from their harvest to sell at a later date. “Microfinance is an economic development approach that involves providing financial services through institutions to low income clients”. and is successively awarded the pot on a rotating basis. although they might look a little different. not because they are lazy but because they have no access to capital. Some of these groups allow members to borrow from the pot as well. thieves. but when you think about it they are using these services already. domestic animals. "However widely used. informal savings mechanisms have serious limitations.3. In-kind savings are subject to fluctuations in commodity prices. They invest in assets such as gold. Moreover." 3 . They participate in informal savings groups where everyone contributes a small amount of cash each day. “Poor rarely access services through the formal financial sector. Perhaps most importantly. or month.
2. 3. provided by legally registered institutions. However. Currently. consumer credit provided to salaried workers based on automated credit scoring is usually not included in the definition of micro credit. micro loans may not predominantly be used to start or finance micro enterprises. Commercial and government-owned banks that offer microfinance services are frequently referred to as MFIs. microfinance empowers women. The remainder supports a wide range of household cash management needs. Scattered research suggests that only half or less of loan proceeds are used for business purposes. alleviating poverty and unleashing human creativity and endeavor of the poor people. informal income-generating activities.Role of Microfinance: The micro credit of microfinance prename was first initiated in the year 1976 in Bangladesh with promise of providing credit to the poor without collateral . savings. By supporting women’s economic participation. and other financial products targeted at poor and low-income people. although this may change. even though only a portion of their assets may be committed to financial services to the poor. medical expenses. Some MFIs provide non-financial products. Microfinance helps poor households meet basic needs and protects them against risks. 4 . insurance. Difference between micro credit and microfinance: Micro credit refers to very small loans for unsalaried borrowers with little or no collateral. 4. money transfers. thereby promoting gender-equity and improving household well being. such as business development or health services. The use of financial services by low-income households leads to improvements in household economic welfare and enterprise stability and growth. including stabilizing consumption and spreading out large. Microfinance impact studies have demonstrated that 1. lumpy cash needs like education fees. The level of impact relates to the length of time clients have had access to financial services. Borrowers: Most micro credit borrowers have micro enterprises—unsalaried. Microfinance typically refers to micro credit. or lifecycle events such as weddings and funerals.
Access to insurance enables entrepreneurs to concentrate more on developing their businesses while mitigating other risks affecting property. MFIs need to conduct a costing analysis to determine how much they need to earn in commission to cover their administrative expenses. and how does it overcome the disadvantages? MFI‘s can combine a mandatory product with some voluntary features to make the service more us to mar-oriented while. One way is to make the products mandatory. Compared with other sources of capital that can fluctuate depending on the political or economic climate. MFI‘s sometimes prefer the basket cover. Micro credit can be offered. risk premiums. reduces transaction costs and minimizes adverse selection. manual processing and errors. Often without minimum balance requirements. the logical next set of questions involves efficiency. health or the ability to work. usually across borders to family and friends. Product Design: The starting point is: how do MFIs decide what product s to offer? The actual loan products need to be designed according to the demand of the target market. Simple products work best because they are easier to administer and easier for clients to understand. organizations also have to decide whether they want to bundle many different benefits into one basket policy. businesses and other organizations make a payment to share risk. which increases volumes. to an individual or through group lending. Remittances: These are transfer of funds from people in one place to people in another. maximizing efficiency is a critical strategy to ensuring that the products are affordable to the low-income market. often without collateral. and how did they come to those conclusions? Would their clients be willing to pay more for greater benefits? From price. Techniques of Product Design: To design a loan product to meet borrower needs it is important to understand the cash pattern of the borrowers.Activities in Microfinance: Micro credit: It is a small amount of money loaned to a client by a bank or other institution. and reinsurance. or whether it is more appropriate to keep the product simple. one must also understand how they are priced. Another efficiency strategy is to use technology to reduce paperwork. these savings accounts allow households to save in order to meet unexpected expenses and plan for future expenses Micro insurance: It is a system by which people. For marketing purposes. Lenders must ensure that borrowers have sufficient cash inflow to cover loan payments when they are due efficiency depends less on the delivery model than on the simplicity of the product or product menu. since it can make the policies sound comprehensive. remittances are a relatively steady source of funds. Besides the important question of what risks to cover. Indeed. but is that the right approach for the low-income market? After picking products. What does an organization lose by offering mandatory insurance. given the relative high costs of delivering large volumes of small policies. Micro savings: These are deposit services that allow one to save small amounts of money for future use. 5 . Cash pattern is important so far as they affect the debt capacity of the borrowers. What assumptions do the organizations make with regard to operating costs.
margins. Manda tory Savings. * The three who have not received loans will be eligible only when this first round of loans has been repaid. providing the capital for poor women to use their innate "survival skills" to pull themselves out of poverty. *Focus on jump-starting self-employment. Deposit Services . Credit Services-i Small Credit. Health. grace period. 6 . They have been asked to devise appropriate loan and savings products and the related terms and conditions including size of the loan. Financial Education. 2. Life Insurance. etc.MFI’s Products and its Management: Product & services of Microfinance Financial Services Other Financial Services Non Financial Services 1. Small Business Credit. maturity period. * Make loans of small amounts to two out of five. Micro-insurance. unit cost. Loan for Education. * Banks have been given freedom to formulate their own lending norms keeping in view ground realities. * In case any member defaults the entire circle is denied access to credit. Family Health and Sanitation Health Insurance. Housing. The micro-credits model: *The model is fairly straightforward and simple. Micro-entrepreneur Training. unit size. *Lend to women in small groups (credit circles). say of five or seven.Voluntari Savings Services. * Draw up a weekly or bi-weekly repayment schedule. Education.
wholesale structures. *Support autonomous. capacity building and innovation to lower costs and interest rates in microfinance. *Avoiding interest rate ceilings .4. 1992. and as vital part of the financial system. but are more likely to choke off the supply of credit. Such ceilings often have the announced intention of protecting the poor. *Creating government wholesale funds to support retail MFIs if funds can be insulated from politics. *Create policies. the dependence of rural households on such informal sources had reduced of their total outstanding dues steadily from 83. *Encourage competition. *Promote microfinance as a key vehicle in tackling poverty. which shows that the share of the Non-institutional agencies (informal sector) in the outstanding cash dues of the rural households were 36 percent. for reasons mentioned in Government can contribute most effectively by: *Setting sound macroeconomic policy that provides stability and low inflation. and they can hire and protect strong technical management and avoid disbursement pressure that force fund to support unpromising MFIs. Government’s role supporting microfinance Government’s most important role is not provision of retail credit services. regulations and legal structures that *encourage responsive. *Encourage a range of regulated and unregulated institutions that meet performance standards. *Adjusting bank regulation to facilitate deposit taking by solid MFIs. The magnitude of the dependence of the rural poor on informal sources of credit can be observed from the findings of the All India Debt and Investment Survey. sustainable microfinance. 7 . However.7 percent in 1961 to 36 percent in 1991 .when governments set interest rate limits. political factors usually result in limits that are too low to permit sustainable delivery of credit that involves high administrative costs—such as tiny loans for poor people. once the country has experience with sustainable microfinance delivery. RBI data shows that informal sources provide a significant part of the total credit needs of the rural population.
Microfinance Social Aspects Micro financing institutions significantly contributed to gender equality and women’s empowerment as well as poor development and civil society strengthening. Poor people want secure. Increasing evidence of the centrality of gender equality to poverty reduction and women’s higher credit repayment rates led to a general consensus on the desirability of targeting women. animals can get sick. increased well being of women and their families and wider social and political empowerment.” Most poor people now use informal mechanisms to save because they lack access to good formal deposit services. These savings methods tend to be risky—cash can be stolen. MFI procedures. buy animals or jewelry that can be sold off later. A growing number of poor people (mostly women) in various parts of India are members of SHGs and actively engage in savings and credit (S/C). The SHG system has proven to be very relevant and effective in offering women the possibility to break gradually away from exploitation and isolation.). and neighbors can run off. Microfinance programs targeting women became a major plank of poverty alleviation and gender strategies in the 1990s. etc. Contribution to women’s ability to earn an income led to their economic empowerment. as well as in other activities (income generation.help groups (SHGs) play today a major role in poverty alleviation in rural India. Women’s indicators of empowerment through microfinance: *Ability to save and access loans *Opportunity to undertake an economic activity *Mobility-Opportunity to visit nearby towns *Awareness. The S/C focus in the SHG is the most prominent element and offers a chance to create some control over capital. MFIs that offer good savings services usually attract far more savers than borrowers.local issues. albeit in very small amounts. Self Help Groups (SHGs): Self.5. Savings services help poor people: Savings has been called the “forgotten half of microfinance. They may tuck cash under the mattress.. or stockpile inventory or building materials. natural resources management. child care and nutrition. Often they are illiquid as well – one cannot sell just the cow’s leg when one needs a small amount of cash. banking transactions 8 . convenient deposit services that allow for small balances and easy access to funds. literacy.
Due to the sheer size of the population living in poverty. It is better to provide grants to families who are destitute. the supply is less than $2. official estimates range from 26 to 50 percent of the more than one billion population.2 billion combined by all involved in the sector.The Need in India India is said to be the home of one third of the world’s poor. or so poor they are unlikely to be able to generate the cash flow required to repay a loan.Banks linkage program for over a decade now. poverty runs deep throughout country. The industry needs to move past a single-minded focus on scale. in a war zone or after a natural disaster.6. This was tried by routing financial. poverty is a chronic condition. For more than 21 percent of them. • The demand for micro credit has been estimated at up to $30 billion. The micro-finance scene in India is dominated by Self Help Groups (SHGs) . This situation can occur for example. 9 . Poverty is deepest among scheduled castes and tribes in the country’s rural areas. As the formal banking system already has a vast branch network in rural areas. expand the depth and breadth of products and services offered. it was perhaps wise to find ways and means to improve the access of rural poor to the existing banking network. About two thirds of India’s more than 1billion people live in rural areas and almost 170 million of them are poor. and focus on the double bottom line and over indebtedness to effectively address the risks facing the industry. India is strategically significant in the global efforts to alleviate poverty and to achieve the Millennium Development Goal of halving the world’s poverty by 2015. Three out of four of India’s poor live in rural areas of the country. Indian microfinance is poised for continued growth and high valuation but faces pressing challenges and opportunities that—left unaddressed—could negatively impact the long-term future of the industry. • About 87 percent of the poorest households do not have access to credit. While India is one of the fastest growing economies in the world. Microfinance can also be distinguished from charity.
1860 or Indian trusts act 1882 *Non profit companies governed by section 25 of the companies act. Penalizes the violations. It is estimated that the share of MFIs in the total micro credit portfolio of formal & informal institutions is about 8 per cent. viii. However. the number of MFIs is estimated to be around 800. misconducts.000 micro finance clients. A. Micro-Financing Regulation in India Advantage of Regulation: Following are the advantages and benefits of regulation and supervision of /MFIs: i. vii. While there is no published data on private MFIs operating in the country. Unified Regulation System: 8. Promoters safe. 1956 *For profit MFIs regulated by Indian companies act. not more than 10 MFIs are reported to have an outreach of 100. 1956 *NBFC governed by RBI act. 10 . The geographical distribution of MFIs is very much lopsided with concentration in the southern India where the rural branch network of formal banks is excellent.18 at present. vi. non-compliance to the norms of behavior. iii. The MFIs in India can be broadly sub-divided into three categories of organizational forms as given in Table 1. Promotes and enhances orderly economic growth and development. mechanism. Legal forms of MFIs in India: MFIs and Legal Forms: With the current phase of expansion of the SHG – Bank linkage programmed and other MF initiatives in the country. Prevents a bank’s/MFI’s failure/potential dangers through timely interventions. all the regulatory aspects of microfinance are not centralized. Promoters systemic stability and thereby sustains public confidence in the banks/MFIs. For example. while the Rural Planning and Credit Department (RPCD) in R BI looks after Rural lending. The Committee feels that RBI may consider bringing all regulatory aspects of microfinance under a single. the informal micro finance sector in India is now beginning to evolve. supervision Of MF -NBFCs could be delegated to NABARD by RBI. A. MF-NBFCs are under the control of the Department of Non-Banking Supervision (DNBS) and External Commercial Borrowings are looked after by the Foreign Exchange Department. An overwhelming majority of MFIs are operating on a smaller scale with clients ranging Between 500 to 1500 per MFI. Provides sufficient information about the true risks faced by the banks/MFIs. Protects the interest of the depositors. v. standards and practices. 1934.7. ii. *Not for profit MFIs governed by societies registration act. iv. Provides invaluable advisory inputs for problem-solving and overall improvement of the banks/MFIs. Put in place prudential norms. strong and sound banking/MF system and effective banking/MF policy and ix. Further.
1934 Total 700 – 800 * The estimated number includes only those MFIs. 1956 2.) Mutually Aided Cooperative Act enacted by State Government Societies (MACS) and similarly set up institutions 3. • Savings of SHGs promoted by Section 25 companies be maintained with permitted organizations. minimum standards need not be considered. For Profit MFIs a. Government to consider complete exemption from IT for income earned.) NGO . • There will be no ceiling in respect of loan amount extended by Section 25 companies to SHGs.MFIs b. Not for Profit MFIs a. • As regards capital. Mutual Benefit MFIs 200 to 250 Mutually Aided Cooperative Societies a. 1882 10 Section 25 of the Companies Act. donors to be exempted from income tax under Section 11C of the IT Act.per member of the SHG. to encourage more flow of donations/ contributions. Recommendation by RBI Micro Credit Institutions: • Company Law Board to allow SHGs to be members of Section 25 of the companies act. Indian microfinance is poised for continued growth and high valuation but faces pressing challenges and opportunities that—left unaddressed—could negatively impact the long-term future of the industry. to provide credit not exceeding Rs. 11 . however SHGs. as the main purpose of the organization is to empower the poor.Legal Forms of MFIs in India: Types of MFIs Estimated Number* Legal Acts under which Registered 1.) Non-Banking Financial Companies (NBFCs) 6 Indian Companies Act. which are actually undertaking lending activity. 1860 or similar Provincial Acts Indian Trust Act. • As regards capital adequacy.) Non-profit Companies 400 to 500 Societies Registration Act. RBI may consider issuing revised instructions. 1956 Reserve Bank of India Act. C. since there is no mandatory capital requirement. • Complete income tax exemption for Section 25 companies purveying micro credit (to the donor and to the receiver). 50000/.
and improving social responsibility of an MFI. 9. 12 . and less commonly used than financial indicators that have been developed over centuries. necessary for MFIs to develop strategies for increasing the range and volume of their financial services. Lack of Capital: The second area of concern for MFIs. Social Performance measurement The Social Performance Task Force defines social performance as: "The effective translation of an institution's social mission into practice in line with accepted social values that relate to serving larger numbers of poor and excluded people. creating benefits for clients. Today’s increasing use of social measures reflects an awareness that good financial performance by an MFI does not automatically guarantee client interests are being appropriately advanced. there is no reliable mechanism in the country for meeting the equity requirements of MFIs. Social performance measurement helps MFIs and their stakeholders focus on their social goals and judge how well they are meeting them. Presently. Critical Analysis MFIs Critical Issues: MFIs can play a vital role in bridging the gap between demand & supply of financial services if the critical challenges confronting them are addressed. Sustainability: The first challenge relates to sustainability. therefore. Many of the MFIs are socially oriented institutions and do not have adequate access to financial capital. There is a great deal of truth in the adage that institutions manage what they measure. As a result they have high debt equity ratios. is that they face a paucity of owned funds. It has been reported in literature that the MFI model is comparatively costlier in terms of delivery of financial services. Social indicators are often less straightforward to measure. improving the quality and appropriateness of financial services. or at least co-equal with it. which are on the growth path. It is. This is a critical constraint in their being able to scale up. the loan volumes and loan size is low.”Most MFIs have a social mission that they see as more basic than their financial objective.8. An analysis of 36 leading MFIs2 by Jindal & Sharma shows that 89% MFIs sample were subsidy dependent and only 9 were able to cover more than 80% of their costs. It has also been commented that MFIs pass on the higher cost of credit to their clients who are ‘interest insensitive’ for small loans but may not be so as loan sizes increase. This is partly explained by the fact that while the cost of supervision of credit is high.
A vast majority of them set up as NGOs for getting access to funds as. Private sector banks have since designed innovative products such as the Bank Partnership Model to fund. 13 . when RBI allowed banks to lend to MFIs and treat such lending as part of their priority sector-funding obligations. MFIs are now finding it relatively easier to raise loan funds from banks. the existing practices of mainstream financing institutions such as SIDBI and NABARD and even of the institutions specially funding alternatives. is to fund only NGOs. or NGO promoted SHGs. .Borrowings: In comparison with earlier years.Top 14 Microfinance Institutions in India by Growth of Number of active Borrowers. As a result. Problems for Alternative Micro-Finance Institutions: The main aim with which the alternative MFIs have come up is to bridge the increasing gap between the demand and supply. This change came after the year 2000. the largest incentive to enter such services remains through the nonprofit route. such RMK and FWWB. The alternative finance institutions also have not been fully successful in reaching the needy.
From this above table we can notice that the Risk of companies is measured as the percentage of Portfolio at Risk (PAR) which means and returns is measured as a combination of ROA and ROE. Risk: This looks at the quality of their loan portfolio measured as the percent of the portfolio at risk greater than 30 days. The ratio includes not only the return on the portfolio. there are seven companies of India in top 50 companies in the world. because out of total 500 million poor people from all over the world. A return on assets should be positive. Return on Assets (ROA): A Return on Assets is an indication of how well an MFI is managing its asset base to maximize its profits. From the above list we can notice that. Return on Assets (ROA) indicates how well an MFI is managing its assets to optimize its profitability. 3. Lack of proper governance and accountability. but simply the return of the portfolio and other revenue generated from investments and operations. Isolated and scattered. but also all other revenue generated from investments and other operating activities. Financial problems leading to setting up of inappropriate legal structures. The total loan that the MFI‘s had provided to the poor people in India crosses Rs 24 billion till October 08. And this is only 40% of the total poor.There are many reasons for this: 1. 80 to 90 million are from India only. Lack of commercial orientation. And return. If this turns into 100%. which is measured as a combination of return on equity and return on assets. Return on Assets = Net Operating Income – Taxes Average Assets Trend: An increasing Return on Assets is positive. B. 14 . 2. There is a positive relationship between Return on Assets and the Portfolio to Assets ratio discussed in the next section. The ratio does not evaluate the source of the asset base – whether through debt or equity. then we will see the new face of India. who is getting beneficial from the micro finance institutions. provided the loan portfolio performs well and other costs are also controlled. MFIs that maintain most of their assets in the loan portfolio tend to break even sooner. So there is still a huge market and opportunities in this segment. 4. There is a huge potential for India to grow in this sector. and generate higher returns on their assets.
The shareholders of a for-profit MFI or bank. It provides strategies. Return on Equity = Net Operating Income – Taxes Average Equity Trend: An increasing Return on Equity is positive. as it is a measure of their investment choice. Increasing equity also strengthens the MFI’s capital structure and its ability to leverage debt financing.Return on Equity: A Return on Equity is probably one of the most important profitability indicators for commercial banks and MFIs. or what it has generated through donations or other contributed sources. is very interested in this ratio. Risk Management: Risk management is a discipline for dealing with the possibility that some future event will cause harm. and an approach to recognizing and confronting any threat faced by an organization in fulfilling its mission. and its ability to pay dividends. 15 . and current challenges faced by MFIs. The return is measured only in relation to what the MFI has built from operating surpluses. As markets mature and competition increases. A. how they interact. particularly in comparison with other institutions. Risk management may be as uncomplicated as asking and answering three basic questions: Major Risks to Microfinance Institutions: Financial Risks Credit Risk Transaction risk Portfolio risk Liquidity Risk Market Risk Interest rate risk Foreign exchange risk Investment portfolio risk Operational Risks Transaction Risk Human resources Risk Information & technology Risk Fraud (Integrity) Risk Legal & Compliance Risk Strategic Risk Governance Risk Ineffective oversight Poor governance structure Reputation Risk External Business Risks Event risk This are the most significant risks (with the most potentially damaging consequences for the MFI). Return on Equity may level off and maintain a positive position without increasing dramatically or at all. techniques.
16 . liquidity. the most frequently addressed risk for MFIs. managers may refinance some of the short-term borrowings with longterm fixed rate borrowings. MFIs may purposely ―mismatch assets and liabilities in anticipation of changes in interest rates. Transaction risk: Transaction risk refers to the risk within individual loans. they may decide to make more long-term loans at existing fixed rates. The greatest interest rate risk occurs when the cost of funds goes up faster than the financial institution can or is willing to adjust its lending rates. and shorten the term of the MFI‘s liabilities. Interest rate risk: Interest rate risk is the risk of financial loss from changes in market interest rates. maximum loan size. 3. and investment risks. fraud) will result in unexpected losses. This risk includes the potential that inadequate technology and information systems. Credit risk: Credit risk. including credit. Portfolio risk: Portfolio risk refers to the risk inherent in the composition of the overall loan portfolio. To boost profitability. types of loans. Manage interest rate risk: To reduce the mismatch between short-term variable rate liabilities and long-term fixed rate loans. This might include offering one and two-year term deposits as a product and borrowing five to 10 year funds from other sources. 2. and quality procedure for loan disbursement. monitoring. If the asset liability managers think interest rates will fall in the near future. Policies on diversification. Mentioned under are the risks which are very critical for the MFI‘s. operational problems. a. and collection. Credit risk includes both transaction risk and portfolio risk. or breaches of integrity (i. Liquidity risk: Liquidity risk is the ―risk that an MFI cannot meet its obligations on a timely basis Liquidity risk usually arises from management‘s inability to adequately anticipate and plan for changes in funding sources and cash needs. underwriting criteria. insufficient human resources. 5. 4. even if the MFI pays a slightly higher rate on those funding sources. 1. Such a step reduces interest rate risk and liquidity risk. while locking in the higher interest rates on the asset side. Credit risk encompasses both the loss of income resulting from the MFI‘s inability to collect anticipated interest earnings as well as the loss of principle resulting from loan defaults. the MFI has increased the interest rate risk in the hope of improving the profitability of the bank.Financial Risks: Most MFIs focus on financial risks. MFIs mitigate transaction risk through borrower screening techniques. In this case. is the risk to earnings or capital due to borrowers’ late and non-payment of loan obligations. Interest rate. and loan structures lessen the portfolio risk. the MFI can take advantage of the cheaper funding in the future.e. Operational Risks: Operational risk arises from human or computer error within daily service or product delivery. By lending long and borrowing short.
there is a risk of borrower default. When funds dry up. or ineffective governance and oversight. as well as external risks. Since MFIs make many small. Governance risk: Governance risk is the risk of having an inadequate structure or body to make effective decisions. Fraud risk: Fraud risk is the risk of loss of earnings or capital as a result of intentional deception by an employee or client. When financial institutions issue loans. To minimize business risk. poor leadership. External business environment risk: Business environment risk refers to the inherent risks of the MFI‘s business activity and the external business environment.e. Most MFIS‘s provides the loans without or with smaller portion of deposit or. 17 . MFI manage their repayment and risk management: Risk is an integral part of financial services. This standardized all loan policies and procedures so that the staff cannot make any decision outside the regulations. Other forms of fraudulent activities include the creation of misleading financial statements. described above illustrates the dangers of poor governance that nearly resulted in the failure of that institution. the risks multiply and should be carefully analyzed as MFIs expand those activities 2. This section focuses on two critical strategic risks: Governance Risk. Strategic Risks: Strategic risks include internal risks like those from adverse business decisions or improper implementation of those decisions. so for them repayment of interest or principal is very risky. borrowers and savers tend to lose confidence in the organization and funds begin to dry up. such as changes in the business or competitive environment. including savings and insurance. this same degree of cross-checking is not cost-effective. investors. b. The most common type of fraud in an MFI is the direct theft of funds by loan officers or other branch staff. Transaction risk: Transaction risk is particularly high for MFIs that handle a high volume of small transactions daily. donors. short-term loans.Two types of operational risk: transaction risk and fraud risk: 1. As more MFIs offer additional financial products. Business Environment Risk. bribes etc. lenders. an MFI is not able to meet its social objective of providing services to the poor and quickly goes out of business. Minimize fraud risk: To introduced an education campaign to encourage clients to speak out against corrupt staff and group leaders. 1. To Established an inspection unit that performs random operational checks. The Financial crisis. When banks collect deposits and on-lend them to other clients (i. All MFI‘s face risks that they must manage efficiently and effectively to be successful. to respond to competition. and to maintain a good public reputation. When poorly managed risks begin to result in financial losses. so there are more opportunities for error and fraud. conduct financial intermediation). they put clients’ savings at risk. the microfinance institution must react to changes in the external business environment to take advantage of opportunities. 2.
•The cost of loan defaults. their transaction costs are far higher than that of the formal banking channels. and Rs 55 for a loan of Rs 500. MFI lends is 10 percent. And the third cost i. Four key factors determine these rates: •The cost of funds. Less time fixing problems means more time for production and growth. The interest rates are deregulated not only for private MFIs but also for formal baking sector. interest rates in sustainable microfinance institutions (MFIs) are substantially higher than the rates charged on normal bank loans 18 . The high cost structure of MFIs would affect their sustainability in the long run. As a result. In the context of softening of interest rates in the formal banking sector. both positive and negative. before they become larger problems or drain management time and resources. and it experiences defaults of 1 percent of the amount lent. •Loan losses. then total Rs 11 for a loan of Rs 100. transaction cost. and more effectively performance incentives with the organization‘s strategic goals. A proactive and forward-thinking organizational culture will help managers identify and assess new market opportunities. Encourages cost-effective decision-making and more efficient use of resources. MFI being criticized because of high interest rate:Most MFI‘s financially sustainable by charging interest rates that are high enough to cover all their costs.c. The problem is that the administrative costs are inevitably higher for tiny micro lending than for normal bank lending. It is argued that raising interest rates too high could undermine the social and economic impact on poor clients. foster continuous improvement of existing operations. The high interest rate collected by the MFIs from their poor clients is perceived as exploitative. Since most MFIs have lower business volumes. Interest Rates: Most MFI’s financially sustainable by charging interest rates that are high enough to cover all their costs. Benefit of Risk Management: Early warning system for potential problems: A systematic process for evaluating and measuring risk identifies problems early on. For instance. Better information on potential consequences. •And profits needed to expand their capital base and fund expected future growth. •The MFI's operating expenses. There are three kinds of costs the MFI has to cover when it makes micro loans: •The cost of the money that it lends. the comparatively higher interest rate (12 to 24 per cent per annum) charged by the MFIs has become a contentious issue. d. •Transaction and Operating cost.e.
Borrowings: Initially. The quantum of deposits that could be raised is linked to their net owned funds. The current policy effective from 31 January 2004. over Rs.10. As regards prudential norms. In a way. from mobilizing any type of savings. In order to widen the range of lending institutions to MFIs. The intention is to augment flow of micro credit through the conduit of MFIs. and mutual benefit MFIs are regulated by the specific act in which they are registered and not by the Reserve Bank of India. Small Industries Development Bank Of India.40. a large number of NGOs in the development empowerment are receiving foreign fund by way of grants. A. However. bulk of the funds required by MFIs for on lending to their clients was met by apex institutions like National Bank for Agriculture and Rural Development. At present. prudential norms etc. Mutual benefit MFIs can accept savings from their members. These are therefore not subjected to minimum capital requirements. the Reserve Bank of India has roped in Commercial Banks and Regional Rural Banks to extend credit facilities to MFIs since February 2000. C. 19 . In view of the minimum level of investment. and. not-for-profit MFIs are not permitted to raise ECB. Both public and private banks in the commercial sector have extended sizeable loans to MFIs at interest rate ranging from 8 to 11 per cent per annum. 20 million ($ 0. Foreign Investment: Foreign investment by way of equity is permitted in NBFC MFIs subject to a minimum investment of $500. Capital Requirements NGO-MFIs. foreign donors have facilitated the entry of NGOs into micro finance operations through their grant assistance. In regard to external commercial borrowings (ECB) by MFIs.000. NGO MFIs to become NBFCs are required to have a minimum entry capital requirement of Rs. allows only corporate registered under the Companies Act to access ECB for permitted end use in order to enable them to become globally competitive players. non-profit companies’ MFIs. Banks have been given operational freedom to prescribe their own lending norms keeping in view the ground realities. 000 million ($ 889 million) every year flows in India to NGOs for a whole range of activities including microfinance. Rashtiya Mahila Kosh.5 million). only two NBFCs are reported to have been able to raise the foreign investment. NBFCs are required to achieve capital adequacy of 12% and to maintain liquid assets of 15% on public deposits. B. Deposit Mobilization: Not for profit MFIs are barred. Only rated NBFC MFIs rated by approved credit rating agencies are permitted to accept deposits. by the Reserve Bank of India.
Because the sector is unregulated. MFIs are not required to follow standard rule and it has allowed many MFIs to be innovative in its approach particularly in designing new products and processes. Regulation & Supervision: India has a large number of MFIs varying significantly in size. the comparatively higher interest rate (12 to 24 per cent per annum) charged by the MFIs has become a contentious issue. Interest Rates: The interest rates are deregulated not only for private MFIs but also for formal baking sector. 1999. procedures and standards. as there is no compulsion to adopt widely accepted systems. The credit policy guidelines of the RBI allow even the formal banks not to insist on any type of collateral and margin requirement for loans up to Rs. not much is known about their internal health. there is no regulatory mechanism in place for MFIs except for those that are registered as NBFCs. In the context of softening of interest rates in the formal banking sector. Presently. 2003 20 . Following Committees have examined the road map for regulation and supervision of MFIs: Task Force (appointed by NABARD) Report on Regulatory and Supervision Framework for MFIs. Collateral requirements: All the legal forms of MFIs have the freedom to waive physical collateral requirements from their clients. The high cost structure of MFIs would affect their sustainability in the long run. It is argued that raising interest rates too high could undermine the social and economic impact on poor clients. But the flip side is that the management and governance of MFIs generally remains weak. Since most MFIs have lower business volumes. 50. E. As a result. outreach and credit delivery methodologies.000 ($1100). The high interest rate collected by the MFIs from their poor clients is perceived as exploitative. 2002 Informal Groups (appointed by RBI) on Micro Finance which studied issues relating to (i) (ii) (iii) (iv) Structure &Sustainability.D. (Kindly see publications Section for a complete report Working Group (constituted by Government of India) on Legal & Regulation of MFIs. Funding Regulations and Capacity Building. their transaction costs are far higher than that of the formal banking channels.
(iv) absence of commonly agreed performance. (v) heavy expectations of low cost funds. 2004. As regards the high interest rates being charged by the MFIs. 21 . including equity and the start up costs.Advisory Committee (appointed by RBI) on flow of credit to agriculture and related activities from the Banking System. Such experimentation needs to be encouraged in areas where banks are still not meeting adequate credit demand of the rural poor. The Committee observed that while a few of the MFIs have reached significant scales of outreach. As regards allowing NGO-MFIs to access deposits from public / clients. As no depositors' interest is involved where they do not accept public deposits. the Committee felt that. the Committee felt that the lenders to MFIs may ensure that these institutions adopt a ‘cost-plus. The current debate on development of a regulatory system for the MFIs focuses on three stages. the Reserve Bank of India need not regulate MFIs. the Committee considers that in view of the need to protect the interests of depositors.making it mandatory for the MFIs to get registered with identified or designated institutions and stage three . while the NGO-MFIs can continue to extend micro credit services to their clients. accounting and governance standards. (ii) unproven financial and organizational sustainability of the model.to encourage development of network of MFIs which could function as quasi SelfRegulatory Organizations (SROs) at a later date or identifying a suitable organization to handle the regulatory arrangements. more experimentation have to be done to satisfy about the sustainability of the MFI model. stage two .reasonable-margin’ approach in determining the rates of interest on loans to clients. they could play an important role in facilitating access of their clients to savings services from the regulated banks. etc. In regard to offering thrift products. The Committee recommended that while the MFIs may continue to work as wholesalers of microcredit by entering into tie-ups with banks and apex development institutions. the MFI sector as a whole is still in evolving phase as is reflected in wide debates ranging around (i) desirability of NGOs taking up financial intermediation. Stage one .to make the MFIs appreciate the need for certain common performance standards. (iii) high transaction costs leading to higher rates of interest being charged to the poor clients. they may not be permitted to accept public deposits unless they comply with the extant regulatory framework of the Reserve Bank of India.
Activities to be supported from out of the MFDEF: The Fund will be utilized to support interventions to eligible institutions and stakeholders. The components of assistance will include.11. 22 . Micro Finance Development and Equity Fund (MFDEF) – Structure and Guidelines: During 2005-06. Capacity building of staff of institutions involved in microfinance promotion such as Banks. C. 3. Capacity building of MFIs. inter alia. Meeting on a selective basis the operational deficit of financial intermediary NGOs/MFIs at the start up stage. Providing financial support for start-up and on-lending for microfinance activities. Government of India has decided to redesign ate the existing MFDF as microfinance Development and Equity Fund (MFDEF). Funding Support: 1. service providers. 5. Rating of MFIs and self regulation. NABARD. It has also been decided to enhance the fund size from the existing Rs100 crore to Rs 200 crore. government departments. 2. Contributing equity/other forms of capital support to MFIs. The additional amount of Rs 100 crore will be contributed by Reserve Bank of India. b. Supporting Self Help Promotion initiatives of banks and other SHPIs. etc. B. Capacity Building: i) ii) iii) Training of SHGs and other groups for livelihood. NGOs. skill up gradation and micro enterprise development. etc. NABARD and the commercial banks in the same proportion as earlier (40:40:20). Objectives: The objective of the redesignated Fund is to facilitate and support the orderly growth of the microfinance sector through diverse modalities for enlarging the flow of financial services to the poor particularly for women and vulnerable sections of society consistent with sustainability. 4. Development Fund A. the following purposes: a.
Building an appropriate data base and supporting development thereof. 4. Funding support: NGOs/VAs. Any other activities recommended by the Advisory Board to Fund. Eligible Institutions: Following types of structures. Mode of Assistance: Mode of assistance from the Fund will include the following: * Promotional support for training and other promotional measures. NABARD. Banks. MIS: SHGs. e. CBOs. 3. service providers. * Revolving Fund Assistance (RFA) to NGOs/ MFIs. 4. NGOs/VAs. 2. audits and impact assessment. Training Establishments. internal controls. community based organizations and institutions. Publication and dissemination of MF literature. Studies and Publications: Banks. NGOs /VAs / MFI Networks. 6. 2. 3. CBOs. 23 . 3. MFIs. Documentation. Supporting systems management in regard to MIS. c. Academic institutions and Universities. MFIs. would be eligible for support from the Fund: 1.MIS: 1. MFIs. NGOs/VAs. * Loans and advances including soft loans. and Banks. Training and Research Organizations. Recommending regulatory and supervisory framework based on an on-going review. 5. MFIs. SROs. networks. Banks. accounting. MFIs. Training: SHGs. Promoting seminars. Studies & Publications: 1. Granting support for research. * Equity and quasi equity support to MFIs. conferences and other mechanisms for discussion and dissemination. Regulatory and Supervisory Framework: Banks. Any other organization as may be decided by the Advisory Board from time to time. 2. d. NABARD. * Administrative subsidies and grants. NABARD. Regulatory & Supervisory Framework. NABARD.
on a case-to-case basis. the agencies are also sanctioned. During the year 2003-04. Some of the concerns that necessitated NABARD to commence this support in 1993 were: 1) the need to provide timely credit to the poor in under banked regions and ii) to further improve the outreach of rural credit delivery system through alternate credit delivery mechanisms. NABARD's support is being provided to various forms of microfinance institutions covering MFIs. NGO-MFIs. 0.8 million) has been sanctioned as grant to various NGOs. 74 million) for on-lending to small NGOs & 2) Kalanjiam Development Financial Services-a section 25 company promoted by DHAN Foundation (Rs 10 million) for on lending to SHGs. NABARD has been extending technical and fund support to this sector. second tier MF lending institutions. loan support of Rs. The advisory board will meet at such intervals as deemed necessary but in any case once in a quarter to review the status and progress of outflow and to render policy advice in respect of orderly growth and development of the sector. 84 million was sanctioned to two agencies viz. Grameen bank replicators. grant assistance for partly meeting the salary of field level staff. The RFA is generally provided for a period of 5 to 6 years and is necessarily to be used for on lending to mF clients (SHGs or individuals). Cumulatively. Rs 26. SHG Federations etc. India (Rs.4 million sanctioned under SHG Post Office linkage programme in Tamil nadu.Advisory Body to MFDEF: The Advisory Board shall guide and render advice on the various aspects relating to the micro finance sector.80 million) has been sanctioned as RFA to 31 NGO-MFIs and Rs. 24 . task forces etc. 1) Friends of World Women Banking. 12. NABARD provides loan funds in the form of Revolving Fund Assistance (RFA) to NGO-MFIs on a very selective basis. NABARD's Support to microfinance Institutions (MFIs) Realizing the importance of MFIs in the delivery of financial services to the poor and their potential for expansion of services in remote and lesser-banked areas. as at the end of June 2004. for examination of various issues. The amount excludes Rs 3. infrastructure development and operational deficits during the initial years.g. The Board may determine its own procedures for day-to-day working including constitution of committees.98 crore (Rs 269. In addition.58 crore (Rs 5.
*Lack of commercial orientation. Success Factors of Micro-Finance in India: Over the last ten years. Community banks. such RMK and FWWB. repay their loans and use the proceeds to increase their income and assets. or NGO promoted SHGs. *Isolated and scattered. *Lack of proper governance and accountability. NGOs and grass root savings and credit groups around the world have shown that these microenterprise loans can be profitable for borrowers and for the lenders. the largest incentive to enter such services remains through the nonprofit route. The alternative finance institutions also have not been fully successful in reaching the needy.13. This is not surprising since the only realistic alternative for them is to borrow from informal market at an interest much higher than market rates. Problems for Alternative Micro-Finance Institutions The main aim with which the alternative MFIs have come up is to bridge the increasing gap between the demand and supply. A vast majority of them set up as NGOs for getting access to funds as. the existing practices of mainstream financing institutions such as SIDBI and NABARD and even of the institutions specially funding alternatives. a. is to fund only NGOs. 25 . when given access to responsive and timely financial services at market rates. making microfinance one of the most effective poverty reducing strategies. successful experiences in providing finance to small entrepreneur and producers demonstrate that poor people. There are many reasons for this: *Financial problems leading to setting up of inappropriate legal structures. As a result.
(World Bank report). and focus on the double bottom line and over indebtedness to effectively address the risks facing the industry. 26 . SIG has been involved in a project in the southern state of Tamil Nadu to find out how wireless technology can be applied in the development of low cost models of banking. 65% of the poor people will have excess to MFIs. Microfinance expansion over the next decade can be expected to be an extension of what has been achieved so far while overcoming the hurdles that have been posing difficulty in effective microfinance operation and its expansion. Banks and Foreign Banks would enter this business segment. NGOs. There may be several participants in this process and their participation may be seen in the following forms. Indian microfinance is poised for continued growth and high valuation but faces pressing challenges and opportunities that—left unaddressed—could negatively impact the long-term future of the industry. Many Pvt. the heart of the industry. Thus. and but what must occur is a restricting of the employee base. seed companies. It will only be until microfinance policy is solidified and agreed upon by the local and national legislatures that MFI’s regain the trust and reputation they once held as an institution of progress. there will not be a future for microfinance. Taking the FSC initiative further. The problem lies in the way that MFI’s are going about their business. expand the depth and breadth of products and services offered. MFI’s must strictly enforce their lender policies. In order for a peaceful. dairy companies. restrictions are not necessary. thus expanding the reach of ICICI Bank at a low cost. progressive future. the root of the problem is not microfinance and not the interest rates. Future of Micro Finance: Microfinance in India is in crisis because of the backlash against lenders in the southern state of Andhra Pradesh. because of very low NPAs. These agents contact several borrowers. but a restructuring of the microfinance industry is in strong demand. ICICI Bank branded trucks have started carrying ATMs through a number of villages. where politicians have ordered borrowers not to repay their debts. If such abuse continues to persist. not abuse. The system itself is sound. Estimated that 5 % of the number of people below the poverty line will get reduced in the next 5 years.14. While these deaths are tragic. ICICI Bank plans to provide farmers credit from sugar companies. The industry also faces an uncertain regulatory future with the state introducing new restrictions on lenders and Finance Minister saying last week he would formulate new rules to govern the industry once he receives a report from a committee of the Reserve Bank of India. and the way that lenders are going about collecting payments is wrong. The industry needs to move past a single-minded focus on scale. Estimated that in next five years. making sure to eliminate agent threats as mentioned in the WSJ. micro-credit institutions and food processing industries. Another plan to increase the reach in rural areas is to launch mobile ATM services.
the government channels at the grassroots level may be used to serve the poor with microfinance. More NGOs can incorporate microfinance as one of their programs. capital and technology to address these challenges however now exist in India. It is estimated that 90 million farm holdings. International NGOs and agencies may develop or may help develop microfinance programs in areas or countries where micro financing is not a very familiar concept in reducing poverty. This is about 5% of India's GDP and does not seem an unreasonable estimate. The knowledge. Postal savings banks may participate more not only in mobilizing deposits but also in providing loans to the poor and on lending funds to the MFIs. although they are not yet fully aligned. In places where there are less micro finance institutions. the numbers of customers to be reached. It is expected that in the following years there will be considerable deepening of microfinance in this direction along with simultaneous drives to reach and serve the poorest of the poor. However. Microfinance is not yet at the centre stage of the Indian financial sector. Considering that the majority of the 360 million poor households (urban and rural) lack access to formal financial services. More commercial banks may participate both in microfinance wholesale and retailing. and the variety and quantum of services to be provided are really large. the next few years promise to be exciting for the delivery of financial services to poor people in India Development of Small-Scale Enterprises through microfinance will not only increase the outreach but will also help the generation of more employment and income for the poor. consolidation and convergence are all being discussed to improve efficiency and outreach but significant opposition remains. 80% of the financial sector is still controlled by public sector institutions. 27 .Existing microfinance institutions can expand their operations to areas where there are no microfinance programs. Many private and foreign banks have unveiled their plans to enter the Indian microfinance sector because of its very low NPAs and high repayment rate of more than 95% in spite of offering loans without any collateral security. Competition. 30 million nonagricultural enterprises and 50 million landless households in India collectively need approx US$30 billion credit annually. They many have separate staff and windows to serve the poor without collateral. With a more enabling environment and surge in economic growth.
18.L.M. Grameen FinancialServices Pvt Ltd (GFSPL).E Microfinance Limited. Cashpor Micro Credit (CMC). Asmitha Micro fin Ltd (AML). Equitas Micro Finance India P Ltd (Equitas). Ujjivan FinancialServices Pvt Ltd (UFSPL). Spandana Sphoorty Financial Ltd (SSFL). 11. Bhartiya Samruddhi Finance Limited (BSFL). 14. 15. 22. Bandhan Society. 6. Top 50 Microfinance Institutions in India: The above report includes detailed profiles and ratings of India’s top Microfinance Institutions: CRISIL List: Top 50 Microfinance Institutions in India by Loan Amount Outstanding for 2010. Grama Vidiyal Micro Finance Pvt Ltd (GVMFL). 5. Gram Utthan Kendrapara. 8. 19. Ltd (EMFIL). 9. ESAF Microfinance & Investments Pvt. 24. Future Financial Services Chittoor Ltd (FFSL). BSS Microfinance Bangalore Pvt Ltd (BMPL). 2. 3.I. 28 . 7. Saadhana Micro fin. Sanghamithra Rural Financial Services (SRFS). 23. Shri Kshetra Dharmasthala Rural Development Project (SKDRDP).15. S. 16. Madura Micro Finance Ltd (MMFL). 17. 21. 20. Share Micro fin Limited (SML) 4. Sarvodaya Nano Finance Ltd (SNFL). SWAWS Credit Corporation India Pvt Ltd (SCCI). SKS Microfinance Ltd (SKSMPL). 12. Bandhan Financial Services Pvt Ltd (BFSPL). 10. 13. 1. BWDA Finance Limited (BFL).
Arohan Financial Services Ltd (AFSL). 27. Foundation (IDF) 46 Gandhi Smaraka Grama Seva Kendram (GSGSK) 47 Swayamshree Micro Credit Services (SMCS) 48 ASOMI 49 Janodaya Trust 50 Community Development Centre (CDC) 29 . Hand in Hand (HiH). 28. 29. Sahara Utsarga Welfare Society (SUWS). Sonata Finance Pvt Ltd (Sonata). Annapurna Financial Services Pvt Ltd.25. 33 Payakaraopeta Women’s Mutually Aided Co-operative Thrift and Credit Society (PWMACTS) 34 Aadarsha Welfare Society (AWS) 35 Adhikar 36 Village Financial Services Pvt Ltd (VFSPL) 37 Sahara Uttarayan 38 RORES Micro Entrepreneur Development Trust(RMEDT) 39 Centre for Rural Social Action (CReSA) 40 Indur Intideepam Federation Ltd (IIMF). 32. 26. Janalakshmi Financial Services Pvt Ltd (JFSPL). Rashtriya Gramin Vikas Nidhi. 41 Welfare Organization for MultipurposeMass Awareness Network (WOMAN) 42 Pragathi Mutually Aided Cooperative Credit and Marketing Federation Ltd(PMACS) 43 Indian Association for Savings and Credit (IASC) 44 Sewa Mutually Aided Cooperative Thrift Societies Federation Ltd (Sewa) 45 Initiatives for Development Bangalore. 31. Rashtriya Seva Samithi (RASS). 30.
"Formal Financial Institutions . "Urban Microfinance" (2006).The need for balance" (2009). At the same time. The over-arching theme for this year's Summit is "Mission of Microfinance . "The Poor First" (2008) and "Doing good and doing well.16. It has become the single most important platform for sharing the Indian experience. Policy makers. organized by ACCESS Development Services. transparency. The Summit sessions will focus on current trends and issues relating to sustainability. 30 . In the past. Microfinance India Summit: Over the last six years. commercialization of the sector. promoters. researchers and thought leaders share their experiences on various panels. with a global audience. and about 1000 delegates from both within and outside the country participate in the Summit. academics. practitioners. among others. 2010 at Hotel Ashok. New Delhi. it also provides an avenue to learn about international trends and best practices for adaptation by the Indian community of practitioners. social performance.Need to Reflect and Reaffirm". the Summit themes have helped in focusing on key issues including "Inclusion. The microfinance India Summit 2010 was held on November 15-16. Innovation and Impact" (2005). has established itself as an international conference dedicated to Indian microfinance. the Microfinance India Summit. unique as it is. client protection.the challenges of depth and breadth" (2007). It bridges the unnecessary hiatus between models and methodologies and helps to build consensus on the critical challenges and issues.
ACROMYM: KDS MSPL OM CED H/O HRD MF MFI MIS NBFC NGO - KDS Micro credit services Private Limited. Operation Manager Chief Executive Director Head Office Human Resource Development Micro finance Micro finance Institute Management Information System Non Banking Financial Company Non Government Organization 31 .
it is encouraging that the situation is changing. Experimentation of MFI model needs to be encouraged especially in areas where formal banks are still not meeting adequate credit demand of the rural poor. Regulatory framework should be considered only after the sustainability of MFI model as a banking enterprise for the poor is clearly established. They are not living in one country or region but spread all over the world. It is expected that in the coming years more ideas.000 on them without any good reason. and poverty fighting capacity. However.e. Micro Finance Industry has the huge potential to grow in future. Given the experiences of large and fast growing the last decade has witnessed an impressive growth of microfinance. it is encouraging that the situation is changing. The task of building a poverty-free world is yet to be finished. lack of funding is still considered a major obstacle in the way of its growth. both in term of high living standard and happiness. 3000 aside and donate that amount to the MFIs. Private MFIs in India.000. However. barring a few exceptions. however. Just imagine where would be India in next 10 years.Conclusion Microfinance has a long way despite doubts expressed and criticism launched about its viability. . there are lessons for others who want to increase their outreach and operate on a sustainable basis. Fortunately.000 . and the need to support its growth. i. in a whole year a medium and a rich class people spends more than Rs 10. by keeping just mere Rs. there is an increasing awareness about the power of microfinance. One solution by which we all can help the poor people. then at the end of the year the total amount in the hands of poor would be ( average 500 million people *Rs 3000)=Rs 1. At the end I would conclude that. Their outreach is uneven in terms of geographical spread. innovations. be no room for complacency. 32 . There should. More banks. New instruments are being used to solve the problem of funding.500. NGO-MFI partnerships are on the increase.2 billion people living in extreme poverty on this planet. both national and international are coming forward with different support packages. and players will continue to reinforce the microfinance movement and increase its expansion. cost saving devices. lack of funding is still considered a major obstacle in the way of its growth. Instead of that. Many players have committed themselves to its promotion. impact. The last decade has witnessed an impressive growth of microfinance. Given the experiences of large and fast growing Microfinance.000. if this industry grows then one day we‘ll all see the new face of India. There are still over 1. are still fledgling efforts and are therefore unregulated. Governments are taking an increasing interest in it.
thaindian. www.kdsmfi.com.www.org 33 .References Websites: www.com.org.investopedia.com www.www.com www. www.authorstream.forbes.gdrc.com.com.org. www.seepnetwork.com www.com.net.accion.org www.knowledge.microfinanceinsight. www.com.google.indiamicrofinance.familiesinbusiness.www.www.books. www. www.elyserowe.nationmaster.com.a llianz.
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