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A STUDY ON NON PERFORMING ASSETS OF MICROFINANCE INSTITUTIONS IN

GUJARAT
Thesis · November 2016
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A STUDY ON NON PERFORMING
ASSETS OF MICROFINANCE
INSTITUTIONS IN GUJARAT
A Thesis submitted to Gujarat Technological University
For the Award of
Doctor of Philosophy
In
MANAGEMENT
By
BHOOMI MUKULBHAI PAREKH
Enrollment No. 119997392018
GUJARAT TECHNOLOGICAL UNIVERSITY

AHMEDABAD
November – 2016
ii
A STUDY ON NON PERFORMING ASSETS OF
MICROFINANCE INSTITUTIONS IN GUJARAT
A Thesis submitted to Gujarat Technological University

For the Award of
Doctor of Philosophy
In
MANAGEMENT
By
BHOOMI MUKULBHAI PAREKH
Enrollment No. 119997392018
Under the supervision of
DR. VIRAL BHATT

AHMEDABAD
November – 2016
iii
iv
© BHOOMI MUKULBHAI PAREKH
v
DECLARATION
I declare that the thesis entitled ‘A study on Non Performing Assets of Microfinance
Institutions in Gujarat’ submitted by me for the degree of Doctor of Philosophy is the record of
research work carried out by me during the period from October 2011 to October 2016 under
the supervision of Dr. Viral Bhatt and this has not formed the basis for the award of any degree,
diploma, associateship, fellowship, titles in this or any other University or other institution of
higher learning.
I further declare that the material obtained from other sources has been duly acknowledged in the
thesis. I shall be solely responsible for any plagiarism or other irregularities, if noticed in the
thesis.
Signature of the Research Scholar: ……………… Date: ………………….
Name of Research Scholar: Bhoomi Mukulbhai Parekh
Place: Ahmedabad
vi
CERTIFICATE
I certify that the work incorporated in the thesis ‘A study on Non Performing Assets of
Microfinance Institutions in Gujarat’ submitted by Ms. Bhoomi Mukulbhai Parekh was
carried out by the candidate under my supervision/guidance. To the best of my knowledge: (i)
the candidate has not submitted the same research work to any other institution for any
degree/diploma, Associateship, Fellowship or other similar titles (ii) the thesis submitted is a
record of original research work done by the Research Scholar during the period of study under
my supervision, and (iii) the thesis represents independent research work on the part of the
Research Scholar.
Signature of Supervisor: ……………………… Date: ……………
Name of Supervisor: Dr. Viral Bhatt
Place: Ahmedabad
vii
Originality Report Certificate
It is certified that PhD Thesis titled ‘A study on Non Performing Assets of Microfinance
Institutions in Gujarat’ by Bhoomi Mukulbhai Parekh has been examined by us. We
undertake the following:
a. Thesis has significant new work / knowledge as compared already published or are under
consideration to be published elsewhere. No sentence, equation, diagram, table, paragraph or
section has been copied verbatim from previous work unless it is placed under quotation marks
and duly referenced.
b. The work presented is original and own work of the author (i.e. there is no plagiarism). No
ideas, processes, results or words of others have been presented as Author own work.
c. There is no fabrication of data or results which have been compiled / analyzed.
d. There is no falsification by manipulating research materials, equipment or processes, or

changing or omitting data or results such that the research is not accurately represented in the
research record.
e. The thesis has been checked using <Tutnitin > (copy of originality report attached) and found
within limits as per GTU Plagiarism Policy and instructions issued from time to time (i.e.
permitted similarity index <=25%).
Signature of the Research Scholar: ………………… Date: ……………………

Place: Ahmedabad
Signature of Supervisor: ………………………… Date: …………………….

Place: Ahmedabad
viii
Copy of Originality Report
(For chapter one to four of thesis report)
ix
Copy of Originality Report
(For Chapter five and six of thesis report)
x
PhD THESIS Non-Exclusive License to
In consideration of being a PhD Research Scholar at GTU and in the interests of the facilitation
of research at GTU and elsewhere, I, Bhoomi Mukulbhai Parekh, having (Enrollment No. –
119997392018) hereby grant a non-exclusive, royalty free and perpetual license to GTU on the
following terms:
a) GTU is permitted to archive, reproduce and distribute my thesis, in whole or in part,

and/or my abstract, in whole or in part (referred to collectively as the "Work") anywhere
in the world, for non-commercial purposes, in all forms of media;
b) GTU is permitted to authorize, sub-lease, sub-contract or procure any of the acts

mentioned in paragraph (a);
c) GTU is authorized to submit the Work at any National / International Library, under the
authority of their "Thesis Non-Exclusive License";
d) The Universal Copyright Notice (©) shall appear on all copies made under the authority
of this license;
e) I undertake to submit my thesis, through my University, to any Library and Archives.

Any abstract submitted with the thesis will be considered to form part of the thesis.
f) I represent that my thesis is my original work, does not infringe any rights of others,
including privacy rights, and that I have the right to make the grant conferred by this non-
exclusive license.
g) If third party copyrighted material was included in my thesis for which, under the terms
of the Copyright Act, written permission from the copyright owners is required, I have
obtained such permission from the copyright owners to do the acts mentioned in
paragraph (a) above for the full term of copyright protection.
xi
h) I retain copyright ownership and moral rights in my thesis, and may deal with the
copyright in my thesis, in any way consistent with rights granted by me to my University
in this non-exclusive license.
i) I further promise to inform any person to whom I may hereafter assign or license my
copyright in my thesis of the rights granted by me to my University in this non-exclusive
license.
j) I am aware of and agree to accept the conditions and regulations of PhD including all
policy matters related to authorship and plagiarism.
Signature of the Research Scholar: _____________
Date: ____________ Place: Ahmedabad
Signature of Supervisor: ___________________
Date: ____________ Place: Ahmedabad
Seal:
xii
Thesis Approval Form
The viva-voce of the PhD Thesis submitted by Ms. Bhoomi Mukulbhai Parekh (Enrollment
No. 119997392018) entitled ‘A study on Non Performing Assets of Microfinance Institutions
in Gujarat’ was conducted on ________________________________________ (day and date)
at Gujarat Technological University.
(Please tick any one of the following option)
 The performance of the candidate was satisfactory. We recommend that he/she be

awarded the PhD degree.
 We recommend that the viva voce should be re-conducted after incorporating the
following suggestions:
(Briefly specify the modifications suggested by the panel)
 The performance of the candidate was unsatisfactory. We recommend that he/she should
not be awarded the PhD degree.
(The panel must give justifications for rejecting the research work)
----------------------------------------------------- -----------------------------------------------------
Name and Signature of Supervisor with Seal 1) (External Examiner 1) Name and Signature
------------------------------------------------------- -------------------------------------------------------
2) (External Examiner 2) Name and Signature 3) (External Examiner 3) Name and Signature
xiii
ABSTRACT
Microfinance in India has proved to be a useful tool to eradicate the poverty in India. The
poor section of the society which was considered unbankable by the formal lending
institutions, have now been able to link gradually to banking services through microfinance.
In India, microfinance service is majorly provided by two ways. One way is the SHG-Bank
linkage programme. This is very successful and widely followed all over India and this can
be seen from yearly reports published by NABARD. The other way to provide microfinance
service in India is through microfinance institutions. This microfinance institution has
different legal forms and so they have been registered under different Acts.
Moreover, many private microfinance institutions have entered into the sector which has
profit as their primary objective. And hence though microfinance has attracted wide
widespread attention for its developmental impact for the poor, but it too has multitude of
issues and complications. For example while providing credit facility to poor people, the
MFIs do not have any security against that credit and hence it becomes difficult to recover it
from the borrowers. Therefore the most challenging area for microfinance institution is
recovery. At the same time it should be checked that microfinance institutions should not
adopt any coercive methods for recovery as it affects the basic purpose of microfinance that
is social development of the poor.
The research has studied the non-performing assets of MFIs in Gujarat. There are three main
objectives of the research. The first and second objective analyzes the financial performance
and non performing assets of MFIs in Gujarat respectively through secondary data sources.
The third objective studies the causes of default in microfinance loan of MFIs in Gujarat
through a survey of borrowers whose account is overdue or NPA. The survey has been
conducted by self administered structured questionnaire.
In order to evaluate financial performance and non performing assets of MFIs, various
indicators has been analyzed for a period of five years. The analysis of these indicators is
then represented through table and chart. In order to achieve third objective, primary data
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was collected by survey. The data collected through this is analyzed by frequency analysis.
Further, to know the factors affecting microfinance loan default, cross tabulation analysis is
conducted. Next to evaluate the association of causes of default and loan amount with other
factors hypothesis has been tested through chi-square test. One way ANOVA Test is done to
check the difference amongst various groups of factors regarding overall adequacy factors
of microfinance loan. Next, in order to understand the relationship and impact of borrower’s
causes/situation that lead to default and overall reasons of nonperforming assets were
analyzed using correlation analysis and stepwise multiple regression analysis. Later on
findings and recommendation have been included of the above data analysis.
xv
DeDicateD to
to my BeloveD HusBanD
anD
lovely son
xvi
ACKNOWLEDGEMENT
This research has been kept on track and been seen through to this stage with
continuous support, encouragement and motivation of numerous people. At this juncture, I
would like to grab the opportunity and thank all those people who made this thesis possible
and gave me an unforgettable experience to me.
First and foremost, I would like to express my deep sense of gratitude to my guide
and supervisor, Dr. Viral Bhatt, Director, SAL Institute of Management Ahmedabad. This
work would not have been completed without his guidance. I overcame many difficulties and
learned a lot. I do know the busy schedule he is having but whenever I was stuck in between
the research, he extended his support each and every time. He is like a banyan tree to me
whose aerial roots give me the freedom to swing in the space within the subject, without
letting me fall.
My sincere thanks go to my previous supervisor Dr. V. K. Sapovadia, who
helped me to initiate my research. He became my torch and showed the path of research when
I was stuck in the dark. Inspite of his assignment out of India, he was just a mail away and
solved my queries immediately.
Any roof could not stand without its pillars. Similarly my DPC members Dr. S.
O. Junare and Dr. Narayan Baser are like pillars of my research. I heartily thank both of
them for their continuous support. I learnt from them how to be down to earth and humble
though how much higher position you are in. Very special thanks to foreign Co-supervisor
Dr. Sebastjan Strašek for his valuable insights.
I also acknowledge Honorable Dr. R.K.Gajjar (I/C Vice Chancellor, Dean Ph.D.
Section), Dr. N.M.Bhatt (Dean, Ph.D. Section), Mr. J.C.Lilani, (I/C Registrar), Ms. Mona
Chaurasiya, (Research Coordinator), Mr. Dhaval Gohil, Ms. Rajni Bhandari and staff
members of Ph.D. section for their assistance and support. My special gratitude to all my co-
research scholars for their continuous encouragement.
I would like to thank all the three Microfinance Institutions and their heads: Mr.
Divyang Bhatnagar of Saath Co-operative, Mr Bhadresh Raval of Prayas Organization
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and Smt. Kashyapi of Sewa Bank for making all the necessary arrangements and offering
me opportunity to complete my data collection. I extend my thanks to Akashbhai of Saath
Co-operative, Amitbhai of Prayas Organization and Bhumika Mam of Sewa Bank, for
providing all the necessary organization and financial information of their respective
institutions and arranging my field visits. My vote of thanks to all the field officers of Saath
Co-operative, Unit manager, clusters coordinators of Prayas Organization and Banksathi,
handholders of Sewa Bank for their tremendous co-operation during field visits. At last, I
want to thank all my respondents for their readiness and co-operation when I interacted with
them at the time of dat collection.
My special thanks to Dr. Vishakha Pandit, Manager, Saath Co-operative, for her
scholarly guidance, valuable suggestions and constant encouragement in my research work.
Though we have formal relation, she shared her personal experience on how to deal with
difficulties at every stage of research, without her help this work would not take this shape.
No words to express my deep sense of gratitude to my adorable parents Smt.
Hina Parekh and Shri Mukul Parekh. Their endless love, words of encouragement and
blessings enabled me to shape and pursue my dream. I also thank my dearest sister Pooja
Parekh, for her constant love and care throughout this path.
Dhairya, my son, came into my life when I was stuck in my research. He
completed my life and gave me a reason of my presence. His constant presence motivated me
to continue my research. At an age of three, he every time says in his innocent language
‘Mimi numbers karo’ (mummy, please continue your work). Whenever I am burdened with
my work, he provides an endless enjoyment and cheer to work, to freshen up my zeal for
work.
Last but not the least; I am totally obliged to by beloved husband Ruchit Mehta
for his splendid support, love and care. There were many times when I had decided to quit the
research but only due to his motivation, I regained energy to pursue it. He always asked me
about my research progress and inspired me to finish this. Every single day he encouraged me
to pursue research and without his presence it was impossible for me to take even a single step
further in research. He too has travelled entire journey of research along with me and without
him I can’t imagine myself to complete this journey.
xviii
Table of Contents
Declaration vi
Certificate vii
Originality Report Certificate viii
Copy of originality report ix
Non exclusive license certificate xi
Thesis approval form xiii
Abstract xiv
Dedication xvi
Acknowledgement xvii
List of Abbreviations xx
List of figures xxii
List of tables xxv
Chapter 1 – Microfinance in India and Gujarat : A Bird’s Eye View 1

Chapter 2 – Literature Review 28
Chapter 3 – Microfinance Institutions and Non performing Assets 58
Chapter 4 – Research Methodology 131
Chapter 5 – Data Analysis & Findings 160
Chapter 6 – Major Findings, Conclusion and Suggestions 378
Bibliography 403
Appendix 1 – Questionnaire 411
Appendix 2 – List of Research Paper Published 418
xix
List of Abbreviations
ACTB Number of Active Borrowers
ADB Asian Development Bank
ARDC Agricultural and Development Corporation
B.C. Before Christ
BPSM Borrowers per Staff Member
BS Banksathi
CA Capital to Asset Ratio
CAR Capital Adequacy Ratio
CGAP Consultative Group to Assist the Poor
d.f. Degree of Freedom
DCCBs District Central Co-operative Banks
DFI Developmental Financial Institutions
DWCRA Development of Women and Children in Rural Areas
FWWB Friends of Women’s World Banking
GSDP Gross State Domestic Product
HDFC Housing Development Finance Company
HH Hand Holder
HUDCO Housing and Urban Development Corporation of India
IBM Individual Banking Model
IRDA Insurance Regulatory and Development Authority
IRDP Integrated Rural Development Programme
JLG Joint Liability Group
LLR Loan Loss Rate
MACS Mutually Aided Co-operative Societies
MCI Micro Credit Institutions
M-CRIL Micro Credit Rating International Ltd.
MFI Microfinance Institutions
MIX Microfinance Information Exchange
MSME Micro, Small and Medium enterprise
MYRADA Mysore Resettlement And Development Agency
NABARD National Bank for Agriculture and Rural Development
NABs Number of Active Borrowers
NBFC Non-Banking Finance Company
NGO Non-Governmental Organization
NPA Non-Performing Asset
xx
OBC Other Backward Caste
OELP Operating Expense to Loan Portfolio
OSS Operational Self Sufficiency
PACS Primary Agricultural Credit Societies
PAR Portfolio at Risk
RBI Reserve Bank of India
RFAS Rural Finance Access Survey
ROA Return of Assets
ROE Return on Equity
RRB Regional Rural Bank
RGVN Rashtriya Gramin Vikas Nidhi
RMK Rashtriya Mahila Kosh
ROSCA Rotating Saving and Credit Association
SC/ST Scheduled Caste/ Scheduled Tribe
SBPL Self-Help group Bank Linkage Program
SDP State Domestic Product
SEWA Self Employed Women’s Association
SGSY Swarnjayanti gram Swa-rozgar Yojan
SHG Self-Help group
SHPI Self Help Promotion Institutions
SIDBI Small Industries Development Bank of India
VA Voluntary Association
VVV Vikas Volunteer Vahini
WOR Write-off Ratio
xxi
List of Figures
Figure Title Page

No. no.
1.1. Gujarat’s Gross State Domestic Product 8
3.1. Logo of Sewa Bank 64
3.2. Stages of life cycle 68
3.3. Business counseling at different stage 75
3.4. Logo of SAATH 88
3.5. Methodology for providing microfinance services 93
3.6. Logo of PRAYAS 94
3.7. PRAYAS Organogram 96
3.8. Detail Organisation Structure of Microfinance Wing of PRAYAS 97
4.1. Logo of Mix Market 138
4.2. Logo of Sa-Dhan 139
5.1 Capital/Asset Ratio 163
5.2 Debt/equity ratio 164
5.3 Number of active borrowers 165
5.4 Return on asset ratio 166
5.5 Return on equity ratio 167
5.6 Operational self sufficiency ratio 168
5.7 Financial revenue/asset ratio 170
5.8 Profit margin 171
5.9 Total expense/ asset ratio 172
5.10 Financial expense/ asset ratio 173
5.11 Operating expense/ loan portfolio ratio 174
5.12 Cost per borrower 175
5.13 Borrowers per staff member 175
5.14 Portfolio at risk 177
5.15 Risk coverage ratio 178
5.16 Gross NPA ratio 180
5.17 Net NPA ratio 181
5.18 Stress asset ratio 182
5.19 Sub-standard asset ratio 183
5.20 Doubtful ratio 184
5.21 Provision coverage ratio 185
xxii
5.22 Write – off ratio 186
5.23 Loan loss rate 187
5.24 Borrowers’ gender 207
5.25 Borrowers’ age 208
5.26 Borrowers’ caste 209
5.27 Borrowers’ education level 210
5.28 Borrowers’ marital status 211
5.29 Borrowers’ individual economic activity 212
5.30 Borrowers’ family economic activity 214
5.31 Borrowers’ individual income 215
5.32 Borrowers’ family income 216
5.33 Microfinance loan information source 217
5.34 Number of borrowing cycle 218
5.35 Amount of disbursement (in Rs.) 220
5.36 Time period since date of disbursement 221
5.37 Rate of interest 222
5.38 Amount of installment 223
5.39 Total number of installment 224
5.40 Purpose of microfinance loan 226
5.41 Type of borrowing 226
5.42 Number of members in group 227
5.43 Formation of group 228
5.44 Homogeneity factor in group 229
5.45 Loan amount of group members 230
5.46 Status of loan of group members 231
5.47 Loan taken through 232
5.48 Total number of installment paid 233
5.49 Time period since payment of last installment 234
5.50 Amount paid in last installment 235
5.51 Decision to take last microfinance loan 237
5.52 Decision to use last microfinance loan 239
5.53 Responsibility to pay installment of last microfinance loan 241
5.54 Adequacy of loan amount 243
5.55 Adequacy of installment amount 244
5.56 Adequacy of repayment period 245
5.57 Causes of default (number of responses) 250
5.58 Knowledge of training and information 252
xxiii
5.59 Receipt of training and supervision 253
5.60 Number of meeting held 257
5.61 Visit frequency of MFI staff 258
5.62 Age of borrower and installment amount 261
5.63 Time period since last installment & no. of borrowing cycle 262
5.64 Receipt of training and no. of borrowing cycle 263
5.65 No. of meeting held and no. of borrowing cycle 265
5.66 Time period since last installment paid and visit frequency 266
5.67 person who decided to take loan and person responsible to pay 267
5.68 Person who decided to take loan and person who used loan 268
5.69 person who used loan and person responsible to pay installment 269
5.70 No. of family members, earning members & installment amount 271
5.71 Individual income and economic activity, installment amount 273
5.72 Family income and economic activity, installment amount 276
5.73 No. of borrowing cycle, type of borrowing and installment amount 278
5.74 No. of installment paid, total no. of installment and installment amount 280
5.75 Formation of group, loan amount among group and status of group loan 282
5.76 Time period since date of disbursement, time period since last 284
installment paid and no. of installment paid
5.77 Installment amount, no. of borrowing cycle and loan amount 287
xxiv
List of Tables
Table Title Page no.
No.
1.1. Comparison of microfinance and formal banking 5
1.2. Demography of Gujarat 7
3.1. Types of Microfinance Institutions 63
3.2. Activities of the group 81
3.3. Grading format – Sewa Bank Groups 83
3.4. Credit rating of the group 83
3.4(b) Total marks for credit rating 85
3.5. Some definitions 86
3.6. Loan eligibility form 86
3.7. Name of the branches of Saath Co-operative 89
3.8. List of offices of PRAYAS 95
3.9. A full capacity branch structure of PRAYAS 98
3.10. Loan product of PRAYAS 100
3.11. Person involved and documents required during CGT 102
3.12. Detail programme for three days of CGT 102
3.13. Monitoring Schedule for UMs/ AMs and Operation Manager 106
3.14. Classification of assets by Sewa Bank 119
3.15. Classification of assets by SAATH Co-operative 120
3.16. Classification of assets by PRAYAS 120
3.17. Types of risks faced by microfinance institutions 123
4.1 List of sample microfinance institutions 143
5.1 Capital/Asset Ratio 163
5.2 Debt/equity ratio 164
5.3 Number of active borrowers 165
5.4 Return on asset ratio 166
5.5 Return on equity ratio 167
5.6 Operational self sufficiency ratio 168
5.7 Financial revenue/asset ratio 169
5.8 Profit margin 170
5.9 Total expense/ asset ratio 172
5.10 Financial expense/ asset ratio 173
5.11 Operating expense/ loan portfolio ratio 174
5.12 Cost per borrower 175
5.13 Borrowers per staff member 176
xxv
5.14 Portfolio at risk 177
5.15 Risk coverage ratio 178
5.16 Gross NPA ratio 179
5.17 Net NPA ratio 180
5.18 Stress asset ratio 181
5.19 Sub-standard asset ratio 182
5.20 Doubtful ratio 183
5.21 Provision coverage ratio 184
5.22 Write – off ratio 185
5.23 Loan loss rate 186
5.24 Demographic profile of borrowers 189
5.25 Economic information of borrowers 190
5.26 Economic activities of borrowers and their family members 191
5.27 Information related to borrowers’ microfinance loan 192
5.28 Information related to borrowers’ repayment of loan 195
5.29 Decision regarding loan and its utilization 197
5.30 Adequacy of loan and installment amount and repayment period 197
5.31 Causes of arrears of microfinance loan 198
5.32 Training provided by MFI to borrowers 199
5.33 Supervision by MFI 200
5.34 Borrowers’ gender 207
5.35 Borrowers’ age 208
5.36 Borrowers’ caste 209
5.37 Borrowers’ education level 210
5.38 Borrowers’ marital status 211
5.39 Borrowers’ individual economic activity 212
5.40 Borrowers’ family economic activity 213
5.41 Borrowers’ individual income 214
5.42 Borrowers’ family income 215
5.43 Microfinance loan information source 217
5.44 Number of borrowing cycle 218
5.45 Amount of disbursement (in Rs.) 219
5.46 Time period since date of disbursement 221
5.47 Rate of interest 222
5.48 Amount of installment 223
5.49 Total number of installment 224
5.50 Purpose of microfinance loan 225
xxvi
5.51 Type of borrowing 226
5.52 Number of members in group 227
5.53 Formation of group 228
5.54 Homogeneity factor in group 229
5.55 Loan amount of group members 230
5.56 Status of loan of group members 231
5.57 Loan taken through 232
5.58 Total number of installment paid 233
5.59 Time period since payment of last installment 234
5.60 Amount paid in last installment 235
5.61 Decision to take last microfinance loan 236
5.62 Decision to take last microfinance loan (in detail) 237
5.63 Decision to use last microfinance loan 238
5.64 Decision to use last microfinance loan (in detail) 239
5.65 Responsibility to pay installment of last microfinance loan 240
5.66 Responsibility to pay installment of last microfinance loan (in detail) 241
5.67 Adequacy of loan amount 243
5.68 Adequacy of installment amount 244
5.69 Adequacy of repayment period 245
5.70 Descriptive statistics analysis of adequacy factors 246
5.71 Causes of defaults 249
5.72 Causes of defaults (in detail) 251
5.73 Knowledge of training and information 252
5.74 Receipt of training and supervision 253
5.75 Type of training and information provided by MFI 254
5.76 Descriptive statistics of type of training and information provided by 255
MFI
5.77 Reasons of non receipt of training and information 255
5.78 Number of meeting held 256
5.79 Visit frequency of MFI staff 257
5.80 Purpose of visit of MFI staff 258
5.81 Descriptive statistics on purpose of visit of MFI staff 259
5.82 Age of borrowers and installment amount 260
5.83 Time period since last installment & no. of borrowing cycle 262
5.84 Receipt of training and no. of borrowing cycle 263
5.85 No. of meeting held and no. of borrowing cycle 264
5.86 Time period since last installment paid and visit frequency 266
xxvii
5.87 person who decided to take loan and person responsible to pay 267
5.88 Person who decided to take loan and person who used loan 268
5.89 person who used loan and person responsible to pay installment 269
5.90 No. of family members, earning members & installment amount 271
5.91 Individual income and economic activity, installment amount 273
5.92 Family income and economic activity, installment amount 275
5.93 No. of borrowing cycle, type of borrowing and installment amount 277
5.94 No. of installment paid, total no. of installment and installment amount 279
5.95 Formation of group, loan amount among group and status of group loan 281
5.96 Time period since date of disbursement, time period since last 283
5.97 Installment amount, no. of borrowing cycle and loan amount 285
5.98 Summary of Result of Testing of Hypothesis (Chi Square Test) 288
5.99 Age of borrowers and causes of default 290
5.100 Education of borrowers and causes of default 291
5.101 Marital status of borrower and causes of default 292
5.102 No. of earning members and causes of default 294
5.103 Borrowers’ economic activity and causes of default 295
5.104 Family economic activity and causes of default 296
5.105 Borrowers’ individual income and causes of default 297
5.106 Family income and causes of default 298
5.107 Number of borrowing cycle and causes of default 299
5.108 Loan amount and causes of default 300
5.109 Time period since date of disbursement and causes of default 302
5.110 Installment amount and causes of default 304
5.111 Number of installment and causes of default 305
5.112 Purpose of loan and causes of default 306
5.113 Type of borrowing and causes of default 308
5.114 Person who formed group and causes of default 309
5.115 Homogeneity factor and causes of default 310
5.116 Status of group loan and causes of default 312
5.117 Number of installment paid and causes of default 313
5.118 Time period since payment of last installment and causes of default 315
5.119 Amount paid in last installment and causes of default 316
5.120 Person who decided to take loan and causes of default 317
5.121 Person who used microfinance loan and causes of default 319
xxviii
5.122 Person responsible to pay installment and causes of default 320
5.123 Receipt of training and causes of default 321
5.124 Number of meetings held 322
5.125 Visit frequency and causes of default 324
5.126 Summary of result of testing of hypothesis (Chi-square test) 325
5.127 Age of borrower and loan amount 326
5.128 Education of borrower and loan amount 328
5.129 Earning members in borrowers’ family and loan amount 329
5.130 Borrowers’ economic activity and loan amount 330
5.131 Borrowers’ family economic activity and loan amount 332
5.132 Borrowers’ income and loan amount 333
5.133 Borrowers’ family income and loan amount 334
5.134 Total number of installment and loan amount 335
5.135 Purpose of loan and loan amount 336
5.136 Type of borrowing and loan amount 338
5.137 Status of group loan and loan amount 339
5.138 Number of installment paid and loan amount 340
5.139 Receipt of training and supervision and loan amount 341
5.140 Number of meeting held and loan amount 342
5.141 Visit frequency and loan amount 343
5.142 Summary of result of hypotheses test using one way ANOVA 344
5.143 One way ANOVA test – Age of borrowers and overall adequacy factor 346
5.144 One way ANOVA test – education f borrowers and overall adequacy 347
factor
5.145 One way ANOVA test – Income of borrowers and overall adequacy 349
factor
5.146 One way ANOVA test – borrowers’ family income and overall 350
adequacy factor
5.147 One way ANOVA test – number of borrowing cycle and overall 352
adequacy factor
5.148 One way ANOVA test – loan amount and overall adequacy factor 353
5.149 One way ANOVA test – installment amount and overall adequacy 356
factor
5.150 One way ANOVA test – number of installment amount and overall 357
adequacy factor
5.151 One way ANOVA test – purpose of loan and overall adequacy factor 358
xxix
5.152 One way ANOVA test – number of installments paid and overall 359
adequacy factor
5.153 One way ANOVA test – time period since last installment and overall 359
adequacy factor
5.154 One way ANOVA test – number of meetings held and overall adequacy 360
factor
5.155 One way ANOVA test – visit frequency of MFI staff and overall 362
adequacy factor
5.156 Correlation Analysis 364
5.157 Model Summary of stepwise multiple regression model 370
5.158 ANOVA Analysis of stepwise multiple regression model 371
5.159 Coefficient Analysis of stepwise multiple regression model 373
xxx
CHAPTER 1: MICROFINANCE IN INDIA AND GUJARAT – BIRD’S
EYE VIEW
Chapter Contents
Sr.No. Particulars Page no.
1.1 Introduction to microfinance 2
1.1.1 Meaning of microfinance 3
1.1.2 Background of microfinance 4
1.1.3 Difference between microfinance and formal lending method 4
1.1.4 Demand/Client of microfinance services 5
1.1.5 Players/Suppliers of microfinance sector 6
1.2 Overview of Gujarat Region 6
1.2.1. Geography 6
1.2.2. Demography 7
1.2.3. Economy 7
1.2.4. Occupation 8
1.2.5. Culture 9
1.3 History of Microfinance 9
1.3.1. Evolution of microfinance 9
1.3.2. Concept of Self Help group 11
1.4 Microfinance Delivery Models 12
1.4.1. Self help group model 13
1.4.2. Grameen model or joint liability group model 15
1.4.3. Individual banking model 16
1.4.4. Co-operative model 17
1.4.5. Mix or hybrid model 17
1.5 Apex microfinance service providers 17
1.5.1. NABARD 18
1.5.2. SIDBI 18
1.5.3. HDFC 18
1.5.4. HUDCO 18
1.5.5. RMK 18
1.5.6. FWWB 19
1.6 SWOT Analysis of Microfinance Sector 19
1.6.1. Strength of microfinance sector 19
1.6.2. Weakness of microfinance sector 21
1.6.3. Opportunity in microfinance sector 23
1.6.4. Threats/Challenges to microfinance sector 24
1.7 Summing up 25
References 26
Microfinance in India and Gujarat - Bird’s Eye View
Chapter 1:
MICROFINANCE IN INDIA AND GUJARAT – BIRD’S EYE VIEW
1.1 Introduction to Microfinance

“Access to financial markets is important for poor people. Like all economic agents,
low – income households and microenterprises can benefit from credit, savings, and
insurance services. Such services help to manage risk and to smooth consumption….and
allow people to take advantage of profitable business opportunities and increase their
earnings potential.
But financial markets, because of their special features, often serve poor people
badly…Since poor people often have insufficient traditional forms of collateral (such as
physical assets) to offer, they are often excluded from traditional financial markets…
transaction costs are often high relative to the small loans typically demanded by poor
people. And in areas where population density is low, physical access to banking
services can be very difficult…”
WORLD BANK, WORLD DEVELOPMENT REPORT 2000-20011
Two major points are highlighted from the report of the World Bank showed above. The
first point is that similar to the other classes of the society, poor section of the society
also have requirement for the financial services. And the second point is that this
requirement of financial services by the poor section is not serviced by the formal
financial institutions. The reason for this could be the practical difficulties that arise from
the differences between the method of operation followed by the financial institutions
and the income level and financing requirements of poor section of the society. Hence in
order to overcome above differences, Microfinance plays a very important role.
The emergence of microfinance has established new contractual structures and

organisational forms in which they are able to provide facilities of financial services in a
small amount and without any security to the poor section of the society and also able to
manage the risk and cost of it. Though the principle of managing small money existed for
years, the industry for microfinance has only in the last several decades expanded and
A study on Non Performing Assets of Microfinance Institutions in Gujarat Page 2

provided access to financial services to millions people around the world, which might
otherwise not have it.
1.1.1 Meaning of microfinance

The National Bank for Agriculture and Rural Development (NABARD) taskforce on
supportive policy and regulatory framework for micro finance in 1999 defines micro
finance as the “provision of thrift, credit and other financial services and products of
very small amounts to the poor in rural, semi urban or urban areas, for enabling them
to raise their income levels and improve living standards”. It also encompasses skill
up gradation and entrepreneurial development.
In the report by sub-committee of the board of directors of Reserve bank of India to

study of issue and concerns in the MFI sector in 20112 describes microfinance as an
economic development tool whose objective is to assist the poor to work their way out
of poverty. It covers a range of services which include, in addition to the provision of
credit, many other services such as savings, insurance, money transfers, counselling
etc. Further, the report mentions the essential features of credit for Microfinance as
under:-
a) The borrowers are low-income groups.

b) The loans are for small amounts.
c) The loans are without collateral.
d) The loans are generally taken for income-generating activities, although loans
are also provided for consumption, housing and other purposes.
e) The tenure of the loans is short.
f) The frequency of repayments is greater than for traditional commercial loans.
The Micro Finance Institutions (Development and Regulation) Bill, 20123 define
microfinance services any one or more of the following financial services provided by
any micro finance institution, namely:
a) micro credit facilities involving such amount, not exceeding in aggregate five
lakh rupees for each individual and for such special purposes, as may be
specified by the Reserve Bank from time to time, such higher amount, not
exceeding ten lakh rupees, as may be prescribed;

b) Collection of thrift;
c) Pension or insurance services;
d) Remittance of funds to individuals within India subject to prior approval of the
Reserve Bank and such other terms and conditions, as may be specified by
regulations;
e) Any other such services, as may be specified, in such manner, as may be
prescribed.
1.1.2 Background of microfinance

The background of micro financing can be traced back as long to the middle of the
1800s when the theorist Lysander Spooner was writing over the benefits from small
credits to entrepreneurs and farmers as a way getting the people out of poverty (S.
Ravi, 2012)4. But it was at the end of World War II with the Marshall plan that the
concept had a big impact.
In recent age the usage of the expression of micro finance has been started in 1970s.
Microfinance emerged in the 1970s as social innovators began to offer financial
services to the working poor, those who were previously considered “un-bankable”
because of their lack of collateral. Once given the opportunity, not only did clients of
MFIs expand their businesses and increase their incomes, but their high repayment
rates demonstrated that the poor are capable of transforming their own lives given the
chance. This model of lending disproved all conventional thinking. Microfinance was
born. Since then, microfinance has become one of the most sustainable and effective
tools in the fight against global poverty.
1.1.3 Difference between microfinance and formal lending pattern

There is a vast difference in the formal lending process followed by banking
institutions and the microfinance lending process adopted by microfinance
institutions. The foremost difference is the collateral or security which is mandatory
required in formal lending process while as microfinance is given to poor people who
do not have any property with them, there is no collateral or security collected in this
process of lending. The other major difference is the amount of loan which is much
lower in microfinance lending. The following table shows difference between
microfinance and formal banking system based on different characteristics:
Table 1.1 Comparison of microfinance and formal banking

Sr. No. Characteristics Micro-finance Formal Banking
1 Collateral/security No collateral/ security Either or both is
considered before lending
2 Loan size Small credit Medium/ Large credit
3 Loan duration Short duration Medium/large duration
4 Thrift Emphasis on thrift as well Focus on loan only
as loan
5 Enforcement of Group formation and Formal procedures
repayment informal methods
Peer pressure and weekly Collateral and legal
repayment pressure for repayment
6 Nature of Social organization form Commercial organization
organization form
7 Motivation Self-help motivated Profit motivated
8 Outreach Access to poor without Limited access
collateral
(Source: (Chapter 3 Microfinance)5)
1.1.4 Demand/ Client for microfinance services

Microfinance service has been designed and provided to specific characteristics of
client. The main feature of microfinance is that it provides its services to low income
group of people, who do not have access to formal financial services.
In rural areas they are small farmers and others who are engaged in small income
generating activities such as food processing and petty trade. In urban areas,
microfinance activities are more diverse and include shopkeepers, service providers,
artisans, street vendors etc. (Pandit, 2014)6. Thus microfinance clients are poor and
vulnerable who have a relatively low source of income (Krishna, 2010)7. And majority
of them are women.
The poor and low-income households and their microenterprise are very diverse group
in India. The collective demand for these groups for financial services is large and the
types of services they demand vary across the households and enterprises and over the
time. This large demand and the heterogeneity of the services needed across
households, enterprises and over time have created scope for commercial financial
intermediation. (Rupapara & Patoliya, 2012)8

1.1.5 Players/ Suppliers of microfinance sector

The market structure in microfinance varies significantly across countries depending
upon various factors such as stage of financial development, economic development
stage, policy environment and other factors. In this section the suppliers of
microfinance sector includes the scenario in India.
The players in the Microfinance sector can be classified as falling into three main
groups. (Malegam Committee , 2011)2
a. The SHG-Bank linkage Model accounting for about 58% of the outstanding loan
portfolio
b. Non-Banking Finance Companies accounting for about 34% of the outstanding
loan portfolio
c. Others including trusts, societies, etc, accounting for the balance 8% of the
outstanding loan portfolio. Primary Agricultural Co-operative Societies numbering
95,663, covering every village in the country, with a combined membership of over
13 crores and loans outstanding of over `64, 044 crores as on 31.03.09 have a much
longer history and are under a different regulatory framework. Thrift and credit co-
operatives are scattered across the country and there is no centralized information
available about them.
1.2 Overview of Gujarat region

1.2.1. Geography
Gujarat is located on the western coast of India and has the longest coastline of
1,600 km. The state is bounded by the Arabian Sea to the west and South west ad
by Pakistan in the North. It has states of Rajasthan and Madhya Pradesh towards
the north east and east, Maharashtra and the Union territories of Daman, Diu and
Nagar Haveli, towards the south. Gandhinagar, the capital city of Gujarat is
located close to Ahmedabad, the commercial capital. The state currently has 33
districts. The major cities of the state are Ahmedabad, Gandhinagar, Vadodara,
Surat and Rajkot. It has diverse climatic conditions with mild and pleasant
winters and hot and dry summers and heavy monsoon (Gujarat Government,
2014)9

1.2.2. Demography
Gujarat population census data shows that it has total population of 6.03 crore
which is approximately 4.99% of total Indian Population. Literacy rate in Gujarat
has seen upward trend and is 79.31% as per 2011 population census. Of that,
male literacy stands at 87.23% while female literacy is at 70.73%.
Urban population of the state is 42.6%, which used to be at 37.4% in 2001. Rural
population in the state in 2011 fell to 57.4% from 62.6% in 2001. Ahmedabad is
the most populated district in the state, with 7.20 million people, followed by
Surat with 6.07 million people as per Gujarat’s Directorate of census operations.
(Gujarat Government, 2014)9
Table 1.2 Demography of Gujarat

Description 2011
Estimated Population 6.03 Crore
Actual Population 60,383,628
Population Growth 19.17%
Area km2 196,024
Area mi2 75,685
Density/km2 308
Density/mi2 798
Male 31,482,282
Female 28,901,346
Sex Ratio 918
Percentage of total Population 4.99%
Literacy 79.31
Male Literacy 87.23
Female Literacy 70.73
Total Literate 41,948,677
Male Literate 23,995,500
Female Literate 17,953,177
9
(Source: (Gujarat Government, 2014) )
1.2.3. Economy
Average annual gross state domestic product (GSDP) growth rate of Gujarat from
2004-05 to 2014-15 was 12.11 per cent. Gujarat contributes about a quarter to
India’s goods exports. There are 13 major industry groups that together account
for around 82.05 per cent of total factories, 95.85 per cent of total fixed capital

investment, 90.09 per cent of the value of output and 93.21 per cent of value
addition in Gujarat's industrial economy.
Gujarat’s major industrial sectors comprises of chemicals, petrochemicals, dairy,

drugs and pharmaceuticals, cement and ceramics, gems and jewellery, textiles and
engineering. The industrial sector comprises of over 800 large industries and
more than 453,339 of micro, small and medium industries. It accounts for around
72 per cent of the world’s share of processed diamonds and more than 80 per cent
of diamonds processed in India. Gujarat accounts for five per cent of the total
Indian population, while it contributes about a quarter to India’s goods exports.
The state ranks first in terms of total area covered under SEZs in India. It is also a
leading SEZ state with the highest geographical area of 29,423.9 hectares under
SEZ development. (IBEF, 2016)10
Figure 1.1 Gujarat’s Gross State Domestic Product
(Source: (IBEF, 2016)10)

1.2.4. Occupation
The state domestic product has moved in favour of the services sector over the
years. The dependence on agriculture has reduced to less than a quarter of the
SDP while manufacturing has maintained its own percentage share of SDP. The
share of workforce dependent on agriculture however declined over the decades,
it still accounts for about 60 percent. There is a major insecurity arising from
agriculture, not due to low income growth but due to frequent drought conditions.
Therefore, the secondary and tertiary sectors become an important source of

livelihood. The Gujarati community is entrepreneurial in nature and therefore the

proportion and growth of self employment is relatively high (Unni, 2004) 11.
1.2.5. Culture
The Gujarati’s are known for their diverse heritage and rich traditions. It is a
vibrant mix of Hinduism, Islam, Jainism and Buddhism and also a blend of
different cultures of Gujarati’s like art, beliefs, customs, traditions, institutions,
inventions, language, technology and values. Mostly Gujarati food is vegetarian
as the state is dominated by Jains and Vaishnavas. Most of their staple food
includes wheat and millet varieties like jowar and bajri. No meal of Gujarati will
miss roti along with a variety of vegetable curries and dishes. Though modern
and sophisticated houses have come in Gujarat, still there are places which have
their traditional homes and wooden houses. Most of these traditionally build
houses have beautiful and intricately designed interiors but as a customary
practice, each house has a Chabutara built for bird feeding (Indian Mirror,
2016)12.
1.3 History and growth of microfinance

This section describes how microfinance have begun and developed in India. It includes
various steps taken by the government for poverty alleviation and growth of
microfinance sector. It also includes the unique form of providing microfinance services
developed in India that is self help groups. It should be noted here that growth and
development of any sector depends upon the policy decision taken by the central
government of the country. And so this section, as it describes growth and development
of microfinance sector, it is more or less same for Gujarat as it is for the country as a
whole.
1.3.1. Evolution of microfinance
Since Independence in 1947, India has put stress on providing financial services
to underprivileged. The commercial banks were nationalized in 1969 and were
directed to lend 40% of their loan able funds at a concessional rate, to the priority
sector lending. The priority sector included agriculture and other rural activities
and the weaker strata of society in general. These sections did not had access to
any resources or any employment opportunities to become financially

independent and therefore the aim was to provide resources through priority
sector lending to help the poor to attain self sufficiency (Ghosh, 2005)13.
To supplement these efforts, the credit scheme Integrated Rural Development

Programme (IRDP) was launched in 1980. But these supply side programs
ignored the demand side of the economy and were aided by corruption and
leakages and so they achieved little. It was seen that ‘the share of the formal
financial sector in total rural credit was 56.5%, compared to informal finance at
39.6% and unspecified sources at 3.8% (RBI Report, 1992). From this it can be
concluded that there was less flow of formal credit and at the same time it was
uneven. The collateral and paperwork based system shied away from the poor.
The vacuum continued to be filled by the village money lender who charged
interest rates of 2 to 30% per month (Karmakar, 1999)14. 70% of landless/
marginal farmers did not have a bank account and 87% had no access to credit
from a formal source (World Bank and NCAER, 2003)15.
It was in this cheerless background that the microfinance revolution occurred

worldwide. In India, it began in the 1980s with the formation of pockets of
informal self help groups (SHGs) engaging in micro activities financed by
Microfinance.
In India, the first initiative to introduce microfinance was the establishment of

Self-Employed Women’s Association (SEWA) in Gujarat. SEWA was registered
as a trade union of self employed women workers of the unorganized sector in
1972. This trade union established their bank known as SEWA Bank in 1974
(Bansal, 2011)16.
The first official effort materialized under the direction of NABARD (National
bank for agriculture and rural development). The Mysore Resettlement and
Development Agency (MYRADA) sponsored project on ‘Savings and credit
management of SHGs was partially financed by NABARD during 1986-87
(Satish, 2005)17.

1.3.2. Concept and growth of Self Help groups

The success of few non- governmental organizations like Mysore Resettlement
and Development Agency (MYRADA) in group lending made the government in
shifting the strategy of women development and empowerment. Under
development of women and children in rural areas (DWCRA) programme, which
was launched in 1998, government adopted group based approach (Rajshekar,
2004)18. Along with the above programme, many other agencies had taken up
programme for developing SHG movement of women.
NABARD had taken leading initiative for accelerating credit linkage to SHGs and
over 3,25,000 SHGs were accessing bank credit in year 2005. Rashtriya Mahila
Kosh (RMK, an autonomous organization promoted by DWDC), Swarnjayanti
gram Swa-rozgar Yojan a (SGSY) and Watershed Development Project of Rural
Development, Mahla Samakhya of Department of Education, Women in
Agriculture, Swayamsiddha of DWDC, Jeevika Project of Government of
Gujarat, Stree Shakti, Mission Shakti, SHG Missions in some other states were
supporting formation and strengthening of SHGs in a big way (Sarojini Ganju
Thakur, 2005)19
Based on the results of above programme, government realized that SHG Model
could be a promising tool in capacity building of rural poor especially of women.
Therefore both Central and State governments have extensively supported the
growth of development of SHG Model of microfinance in India and was extended
to every commercial and Regional Rural Bank. Some second-tier microfinance
institutions like RIvIK, Friends of Women World Banking (FWWB), Basix,
Sanghmitra Rural Financial Services and SIDBI Micro-credit Foundation, etc.
have been established. It was estimated that around 2.5 to 3 million borrowers,
mostly women, are linked with this mechanism in India (Sarojini Ganju Thakur,
2005)19.
A further shift in this model was done through Swa-Shakti Project. This project
increased the role of these institutions by also focusing in dealing with other than
financial problems of poverty that arise because of lack of confidence, literacy
level, frequent health issues in poor people, unable to access to various
community institutions and government programmes, non participation of rural

women in family decision making process, domestic violence etc. Thus through
women managed SHGs, government emphasised on women empowerment. This
approach was further recognised in designing of programme like Hariyali, Shakt
Samanvaya Yojana etc.
Thus in contrast to the Grameen model of Bangladesh, the SHG based

microfinance in India encourages SHG members to manage group’s financial
affairs like savings & loan recovery and funds are deposited in a local commercial
bank in the name of the SHG. Members’ savings are initially used to issue small
loans to needy members. After gaining some experience of credit handling, SHG
is issued bigger amount of loan by a commercial bank and members are free to
decide the end use of this loan, its purpose, repayment instalment, etc. without
any interference of the promoting NGO or the bank since SHG is responsible to
the bank for repayment of the loan.
1.4 Microfinance Delivery Models

Microfinance itself is a credit lending model, and within this lending model exist several
subcategories, i.e. microfinance lending models, which differ in terms of where their
funds are sourced from, and how the money is governed. The forms, features and
working pattern that exist with MFI's can clearly be categorized in the form of different
models of Microfinance (Wagh, 2013)20. Microfinance services are provided with
different methods in India and elsewhere. Delivery models can be divided into two broad
categories:
i. Group models
ii. Individual models
Group models can be divided into three categories.

I) Self-help Groups (SHG)
II) The Grameen model
III) Co-operative model
IV) Mixed or hybrid Model
The individual model corresponds to individual banking (Geetika, 2015)21. Following is
the detail discussion on all the five models mentioned above.

1.4.1. Self Help Group Model (SHG Model)

SHG Model is the most common model in India for providing microfinance
services. SHG-Bank linkage programme, an initiative by government of India,
has proved to be most successful tool for linking poor unbankable section of the
society with formal financial institutions. The section describes the mode of
operating of various SHGs having different features.
With the maximum of 20 members, SHGs are based on principle of revolving
members own savings and thrift internally. The informal groups that have
socially and economically homogeneous of poor people drawn from drawn from
the same hamlet or the nearby hamlets. An SHG can be all men group, all
women group or a mixed group. However, the experienced have showed that
women’s SHG have performed better compared in all the important activities.
Mixed SHGs is not preferred in many places due to the presence of conflicting
interests. The members are self selected, with a liberty to choose their group
depending on their level of affinity with the other potential members. The group
members save on a monthly basis with an amount that they can afford. A
monthly meeting is organized, where apart from loan disbursal and repayment,
formal and informal discussions are held. The minutes of these meetings are
documented and the accounts are written. The president, secretary and treasurer
are three official posts in any SHG which are elected by the group. If the SHG
are connected with some NGOs, they take part in other social activities of those
NGOs. SHGs are more autonomous as they decide their own rules and
regulations (Indian Institute of Banking and Finance, 2009)22.
Under this model, groups are formed by different agencies known as Self Help
Group Promotion Institutions (SHPI). These could be NGOs, Voluntary
Associations (VAs), Government agencies, Panchayati raj Institutions, Vikas
Volunteer Vahini (VVV) Clubs, Banks, and Co-operative Societies etc. The
financial interaction takes place in the following channel:

(a) Without financial intermediation of NGOs or VAs
Source: (Mishra & Thanvi, 2006)23
(b) With the financial intermediation of NGOs or VAs

In this channel a part of bank’s work is externalized to NGOs/VAs.
(c) Microfinance Institutions (MFIs)/NGO – SHG Model
This delivery model involves NGOs, VAs, MFIs, and NBFCs etc.,
accessing funds either from banking systems and/or Development financial
Institutions (DFIs) like NABARD and SIDBI for giving loans to SHGs
either in group or individual mode.

(d) NGO/MFI Federation – SHG Model
Federations have been promoted by MFIs like Dhan Foundations, PRADAN,

Chaitanya, SEWA etc.
1.4.2. Grameen Model or Joint liability group model (JLG Model)

This model was initially promoted by the well known Grameen Bank of
Bangladesh. It is based on the concept of joint liability. Five member groups are
formed and eight such group forms a centre. All members should save regularly.
There is a leader for each group and each centre. Groups and centre are joint
liability groups, which mean that all members are jointly responsible for the
repayment. Each borrower’s creditworthiness is ddecided
ecided by the overall
creditworthiness of the group. Centre is the operational unit for MFI which
means that MFI deals with the centre as a whole. Loans have to be repaid in 50
installments. MFI recovers full money from the centre, if any member has
defaulted;
ted; the group members will have to pool in money to repay to the MFI. If
group members are unable to do it, centre as a whole has to contribute and share
the responsibility. Weekly meetings also take place at the centre level and
individual group do not meet. Group meetings take place only in front of the
field officer of MFI. Grameen model is based on financial transactions and other
social issues are not discussed. In India some MFIs follow this model such as
SHARE Microfinance Ltd., Activities for soci
social alternatives, etc.

Grameen model is a particular form of joint liability group but in India there are
other forms of Joint liability groups (JLGs) as well. MFIs, particularly in urban
areas, form JLGs of five members. These are group of individuals, coming
together to borrow from the financial institution. They share responsibility and
stand as a guarantee for each other. There is a group leader in each such JLGs.
JLGs do not hold periodic meetings. Typically JLG members are shopkeepers
from same locality. These JLGs are somewhere between group and individual
lending model. While lending in such JLGs is to individual members, small
JLGs still provide some sort of comfort to MFI. Also collection can be done
from single point, generally from group leader rather than going to individual
member (Indian Institute of Banking and Finance, 2009)22. SAATH and
PRAYAS MFIs of Gujarat follow above format of JLG model for providing
microfinance services.
1.4.3. Individual Banking Model

Individual lending model is also in a growing stage. This is a straight forward
credit lending model where micro loans are given directly to the borrower. In
this model, MFIs provide loans to an individual, based on his/her own
creditworthiness. Individual is more prevalent in clients who generally needs
bigger size loans and have the capacity to produce guarantee and generate
enough comfort to MFI. MFIs generally base their decision on personal
knowledge of client, his/her reputation among peers and society, client’s income
sources and business position. MFIs also ask for individual guarantor, can be
friends or relatives, who very well knows borrower, who are ready to take
liability of repaying the loan, if the borrower fails to repay. In some cases, if the
loan is significantly larger then MFIs can also take some collateral.
Individual loans are required for lower middle class of the segment of client who
may not necessarily belong to the low income stratum, but still find it very
difficult to borrow from formal financial institutions. MFIs with their convenient
policies provide a good and efficient alternative (Indian Institute of Banking and
Finance, 2009)22.

1.4.4. Co-operative model

In case of co-operatives, all borrowers are members of the organization either
directly or indirectly by being members of primary co-operatives or associations
which are members of apex society. Creditworthiness and loan security are a
function of cooperative membership within which member savings and peer
pressure are assumed to be a key factor. Though the magnitude and timing of
savings and loans are largely unrelated, a special effort is made to mobilize
savings from members. There is now a large number of ‘new generation’
cooperative credit societies in India devoted specifically to provide financial
services to poor. Most of these are in Andhra Pradesh which was first to enact a
law permitting mutually aided – as opposed to traditional government-assisted
co-operative societies. Elsewhere, a number of well known programmes such as
Sewa Bank in Ahmedabad, the Indian Co-operative Network for women,
Tamilnadu and Annapurna Mahila Cooperative credit society in Mumbai have
still survived under the traditional co-operative laws (Singh & Singh, 2011) 24.
1.4.5. Mixed or hybrid model

Some MFIs started with the Grameen model but converted to SHG model at a
later stage. However they did not completely do away with grameen type
lending and smaller groups. They are an equal mix of SHG and Grameen model.
Others have chosen to adapt either the Grameen or the SHG model to cater their
markets while some organizations like BASIX use a number of delivery
channels and methodologies (including lending to SHG) to provide financial
services. Such MFIs are still relatively few but with increasing innovation
becoming the norm in Indian microfinance, their numbers are growing. There
are fast growing Grameen models and equally fast growing individual banking
models (Singh & Singh, 2011)24.
1.5 Apex Microfinance service providers

Microfinance services can be provided by any type of institutions either large or small
and can be registered with different legal forms. A variety of organizations with different
legal forms have started providing microfinance services like non government

organization, co-operative society, non-banking financial companies, commercial banks,

regional rural banks etc. among these institutions, there are few institutions which
support microfinance service providers by lending them finance and also other non-
financial support so that MFIs could sustain in market. These institutions are known as
Apex or Wholesale institutions that supports microfinance in India. Few of them are as
under (Mahajan & Nagasri, 1999)25:
1.5.1. NABARD
National Bank for Agriculture and Rural Development (NABARD) is an apex
refinances an institution which was established in 1982. It has promoted major
microfinance model followed in India that is SHG-Bank Linkage programme
since 1992. Its borrowers are NGOs, SHG Federations and co-operatives.
1.5.2. SIDBI
Small Industries Development Bank of India (SIDBI) was established in 1994. It
started micro credit scheme (a small portfolio) in March 1994. New SIDBI
foundation for microcredit was set up in November 1998. Its borrowers are
NGOs, SHG Federations, Co-operative societies and companies (Not-for-profit).
1.5.3. HDFC
Housing Development Finance Corporation (HDFC) is mainly involved in
housing finance including- to low income group since 1992. It started supporting
microfinance activity by supporting MFIs since 1997. HDFC lends to NGOs, Co-
operatives and Companies (Not-for-profit).
1.5.4. HUDCO
Housing and urban development corporation limited (HUDCO) was established
in April 1970 with the purpose of housing improvement and construction. It
provides loan assistance for house construction or upgradation to economically
weaker section of the society. NGOs, Federations of SHGs and co-operatives are
its borrowers.
1.5.5. RMK
Rashtriya Mahila Kosh (RMK) is department for Women and Child Development
(Govt. of India). It was established in March 1997 with corpus of Rs. 310 million.
The organization is working with women with the purpose of income generation.
Borrowers of RMK are NGOs, Federations of SHG and Women development
Corporation.

1.5.6. FWWB
Friends of Women World Banking (FWWB) is a nonprofit organization set up
in 1982 as an affiliate of Women’s World banking. It started revolving loan funds
in 1989. It was promoted by SEWA. It lends of NGOs, Federations of SHGs,
NBFCs, Co-operatives and SHGs.
1.6 SWOT of microfinance sector

In order to have an overall idea of the status of microfinance sector, SWOT analysis is
conducted as under:
1.6.1. Strength of microfinance sector
 Supports rural development
The biggest strength of microfinance is bringing financial services to poor
people and making them financial sustainable by the economies of scale
effect. In India the National Bank for Agriculture and Rural Development
(NABARD) finances more than 500 banks that onlend funds to self help
groups (SHG). SHGs comprise twenty or fewer members, of whom the
majority is women from the poorest castes and tribes. Nearly 1.4 million
SHGs comprising approximately 20 million women now borrow from banks,
which make the Indian SHG-Bank Linkage model the largest microfinance
program in the world. This also helps in the development of an economy by
giving everyday people the chance to establish a sustainable means of
income. Eventual increases in disposable income will lead to economic
development and growth (weaknesses and strengths, 2016)26.
 Helps in women empowerment

In India and other Asian countries the majority of SHGs consist of women
because, in these countries, Self Employment through Microfinance was
perceived as a powerful tool for emancipation of women. And the results are
encouraging. Loans obtained from MFIs are utilized in agriculture and small
businesses. Independent incomes and modest savings have made women self
confident and helped them to fight poverty and exploitation. Women’s
indicators of empowerment through microfinance (Ghosh, 2005)13 are as
under:

o Ability to save and access loans

o Opportunity to undertake an economic activity
o Mobility-Opportunity to visit nearby towns
o Awareness- local issues, MFI procedures, banking transactions
o Skills for income generation
o Decision making within the household
o Group mobilization in support of individual clients- action on
social issues
o Role in community development activities
 Helps in reducing the poverty:

Although proponents of MFIs emphasize microloans, many MFI clients
praise improved access to micro saving services. Going into debt often
worries low-income households, and so many prefer to turn regular micro
savings into ‘lumps’ of money that can be spent on major purchases or events
(Hulme & Arun, 2011)27. Thus microfinance and regular saving habits of
poor people helps to reduce their poverty level.
 Improves literacy level

One of the features that separate microfinance from formal banking is that
microfinance provides training to their clients on various topics. It includes,
financial training, business training, training on skill development etc. Thus
microfinance helps to improve literacy level of their clients through training.
 Improves standard of living

Microfinance includes various services such as savings, pension, insurance
and microcredit. Through using these services, microfinance clients on one
hand imbibes the saving habits and increase financial resources for
themselves and on the other hand through microcredit they get boost to open
new avenues of income generation. Both these have resulted into improved
standard of living of microfinance clients.

1.6.2. Weakness of microfinance sector

 Very high interest rates
There is universal agreement that the pricing of interest charges and other
terms and conditions should be affordable to clients and at the same time
sustainable for MFIs. The difficulty in maintaining a balance between the two
arises because the costs of credit delivery are relatively flat, that is, the
delivery cost per loan remains more or less the same, irrespective of the size
of the loan, whereas the income generated by the loan varies with its size
(Malegam Committee , 2011)28. Therefore MFIs are charging very high
interest rates but as poor section of the society have no other option to satisfy
their financial needs, they take loan with though interest rates are high.
 Harsh recovery methods

MFI field staff has treated clients badly – encouraging them to take on bigger
and bigger loans and then disgracing indebted clients in public and
threatening them psychologically and physically. In India, the politicians and
newspapers claim this has led to scores of ‘microfinance suicides’. The
performance indicators used by many MFIs put pressure on field staff to
achieve financial targets and ignore their social performance – the ways in
which they relate to clients (Hulme & Arun, 2011)27. Thus in order to sustain
long term in the microfinance sector, microfinance institutions should not
forget their social responsibility and should not opt for harsh recovery
methods, as there is no option for the poor to generate income and repay loan
and so it will be a loss to microfinance institutions only.
 Over borrowing/ Multiple lending and ghost borrowers

The loans are given for income-generation but often there is inadequate time
given to the borrower between the grant of the loan and the commencement of
the repayment schedule. This gives her/him insufficient time to make the
institutional arrangements necessary to be in a position to generate income. In
the absence of such a period of moratorium, it is likely that the first few
installments, particularly when the repayment is weekly, would be paid out of
the loan itself, thus reducing the amount available for investment or paid out
of additional borrowing. Borrowers therefore take loans from other
microfinance institutions in order to repay current loan and similarly for

repayment of second loan they borrow from third microfinance institutions
(Malegam Committee , 2011)28. Thus they take multiple loans and do over
borrowing. Thus rather than improving their social condition, they are entrap
in vicious cycle of loan.
 Ghost Borrowers
Ghost borrowers generally arise in two sets of circumstances: - a) when the
borrower on record is a benami for the real borrower and b) when fictitious
loans are recorded in the books.
The first type of Ghost Borrower is often used as a device for multiple lending
or over- borrowing. This can be cured only by a better discipline in the system
of identification and data base of borrowers and better follow-up by the field
worker. The second type of Ghost Borrower can pose a much greater systemic
problem as it would create fictitious assets and is often used to record
fictitious repayments and thus hide the actual level of delinquencies
(Malegam Committee , 2011)28.
 Lack of one single regulation

Microfinance institutions in India work with different legal forms such as
NGOs, co-operative societies, non-banking financial institutions. Thus based
on their legal forms, microfinance institutions come under different laws and
they follow rules under that law. Because of this, it is very difficult for the
stakeholders to understand and analyze the microfinance sector as there is no
uniqueness in preparing and reporting of financial statements. Thus in order
to have more transparency there is a need for new regulations which covers
the microfinance sector as a whole and not by the legal forms of microfinance
institutions.
 Many MFIs are not registered
Microfinance sector in India operates in two different forms namely regulated
and unregulated market. The major portion of the microfinance is in
unregulated market as microfinance service providers operate at a small scale
and they have not registered anywhere. There are many non-governmental
organizations which provide microfinance facility but have not registered
anywhere. Therefore it is difficult to get exhaustive list of microfinance

service providers and because of this it is not possible to track them and
identify the exact growth and development of microfinance sector.
1.6.3. Opportunity in microfinance sector

 Huge demand and supply gap
Since last two decades, microfinance has shown much growth and have
reached to many poor but still there is a huge demand and supply gap among
the bborrowers and issuers. In India around 350 million of the people are
poor and only few MFIs there to serving them there is huge opportunity for
the MFIs to serve the poor people and increase their living standard. The
annual demand of Micro loans is nearly Rs 60,000 crore and only 5456 crore
are disbursed to the borrower as on April 2009 (Roy S. , 2011)29.
 Employment opportunities
Microfinance not only lends money to poor people but also helps them to
make economic use of the money. Generally poor people are occupied into
daily wages. Through the microfinance loan amount they start their own
trading activity of small items of daily usage. Thus poor people are able to
generate self employment by becoming small entrepreneurs.
 Huge untapped market

India‘s total population is more than 1000 million and out of that 350 million
is living below poverty line. So there is a huge opportunity for the MFIs to
meet the demand of that unnerved customers and Micro Finance should not
leave any stones unturned to grab the untapped market (Roy S. , 2011)29.
 Opportunity for private banks

Many Pvt. Banks are shying away from to serve the people are unable to
access big loans, because of the high intervention of the Govt. but the door
open for the Pvt. Players to get entry and with flexible rules Pvt. Banks are
attracting towards this segment (Roy S. , 2011)29.

1.6.4. Threats/ Challenges to microfinance sector

 Reaching the poorest:
In a recent study on India, loans for productive purposes were found to be
more important for poverty reduction in rural than in urban areas. However,
in urban areas, simple access to MFIs has greater average poverty-reducing
effects than access to loans from MFIs for productive purposes. In brief,
MFIs generally reach a combination of poor and non-poor people. Rarely do
they reach the poorest (Hulme & Arun, 2011)27. Thus the challenge for MFIs
is to increase their outreach by reaching to the poorest.
 High competition
Microfinance market is untapped and there are huge opportunities for
microfinance institutions but at the same time as it is mentioned in above
point that microfinance institutions serve only urban poor or rural poor that
are near to urban areas. Thus in these areas there is very high competition
among the MFIs and therefore there are cases of multiple lending and
overindebtness. Thus in order to avoid this, microfinance institutions should
try to reach the more remote areas and cover the people that are below
poverty line in order to avoid competition and also to serve the purpose of
microfinance of reaching to the poorest.
 Neophyte industry
Basically Micro Finance is not a new concept in India, but that was all by
informal sources. But the formal source of finance through Micro Finance is
novice, and the rules are also not properly placed for it (Roy S. , 2011)29.
 Dealing with new rules of microfinance

In order to overcome one of the weaknesses of microfinance sector of lack of
one single regulation for microfinance, government has introduced
Microfinance Bill in lok sabha in 201230. Now, if the bill is passed, there will
be requirement for microfinance institutions to make changes in their way of
preparing and reporting of financial statements, changes in their way of
operating and providing microfinance services etc. Thus microfinance
institutions will have to deal with new rules of microfinance, though in a way

it will be very helpful to the clients of microfinance as this will improve the
transparency among all the stakeholders of microfinance.
1.7 Summing up
This chapter gave idea of how microfinance industry have initiated and developed in the
region. It also mentioned the current status of microfinance. Some of the sections such as
apex microfinance service providers and regulation of microfinance mentions about India
rather than particular state Gujarat as these sections have centralized effect in the entire
country and hence they apply equally to all states of India and Gujarat is one of the states
of India.

REFERENCES
1. World bank. (2004). Scaling-up Access to Finance for India’s Rural Poor. India: World
Bank Document.
2. Malegam Committee . (2011). To study the issues and concerns in the MFI sector.
Mumbai: Reserve Bank of India.
3. Standing comittee on finance. (2012). THE MICRO FINANCE INSTITUTIONS
(DEVELOPMENT AND REGULATION) BILL, 2012. Delhi: As introduced in Lok
Sabha; Bill no. 62 of 2012.
4. S. Ravi, D. P. (2012). Microfinance in India: Challenges and opportunities. International
Journal of reseach in commerce and management , 46-50
5. Chapter 3 Microfinance. (n.d.). Retrieved June 20, 2016, from Shodhganga:
http://shodhganga.inflibnet.ac.in/bitstream/10603/5387/10/10_chapter3.pdf
6. Pandit, V. (2014). Microfinance in Inida : A case study of Gujarat Region. Baroda:
Thesis submitted to M. S. University.
7. Rama Krishna G, (2010). Ibid , (p. 2)
8. Rupapara, B., & Patoliya, J. (2012). Problems faced by Microfinance Institutions and
Measures to solve it. LAP LAMBERT Academic Publishing.
9. Gujarat Government. (2014). Demography. Retrieved September 21, 2016, from
Government of Gujarat - offical state portal: http://www.gujaratindia.com/state-
profile/demography.htm
10. IBEF. (2016, February). Industrial Development and Economic growth in India.
Retrieved September 21, 2016, from India Brand Equity Founder:
http://www.ibef.org/states/gujarat-presentation
11. Unni, J. (2004). Employment and Poverty Concerns of Security in Gujarat. Ahmedabad:
Paper submitted for the Gujarat State Development Report, Planning Commission, The.
12. Indian Mirror. (2016). Gujarat - Culture. Retrieved September 21, 2016, from Indian
Mirror: http://www.indianmirror.com/culture/states-culture/gujarat.html
13. Ghosh, R. (2005). Microfinance in India: A critique. SSRN Electronic Journal , 1-9.
14. Karmakar, K. G. (1999). Rural Credit and Self Help groups - Microfinance needs and
concepts in India. SAGE Publications Pvt. Ltd. (ISBN -978-0761993452).
15. World Bank and NCAER. (2003). Rural Finance Access Survey. India: World Bank.
16. Bansal, D. (2011). Microfinance Trends, Prospects and problems. Retrieved September
22, 2016, from Shodhganga:
http://shodhganga.inflibnet.ac.in/bitstream/10603/3031/11/11_chapter%203.pdf
17. Satish, P. (2005). Mainstreaming of Indian Microfinance. Economic and Political
weekly; Volume no. 40; Issue no. 17.
18. Rajshekar D. (2004), Micro Finance, Poverty, and Empowerment of Women: A case
study of two NGOs from Andhra Pradesh and Karnataka, ISEC publications, Bangalore,
2004.
19. Sarojini Ganju Thakur, A. M. (2005). WHETHER SHG-BASED MICRO-CREDIT
PROGRAMMES CAN REMOVE POVERTY? A CASE STUDY OF SHG-BASED
PROGRAMMES IN PATAN DISTRICT OF GUARAT. Retrieved September 22, 2016,
from working paper from e-social sciences:

http://www.esocialsciences.org/Download/repecDownload.aspx?fname=Document14313
2005580.3999292.pdf&fcategory=Articles&AId=20&fref=repec
20. Wagh, Y. (2013). A study on variou dimensions of problems and prospectsof MFIs in
Udaipur City. Asia Pacific Journal of Marketing & Management Review;Volume 2; ISSN
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Operations. New Delhi: Macmillan India Ltd.
23. Mishra, J. C., & Thanvi, R. K. (2006). Indian Banking System and Microfinance. In S. B.
Verma, G. P. Sah, & S. C. Pathak, Rural Credit and Co-operative Development (pp. 322-
325). New Delhi: Deep & Deep Publications Pvt. Ltd.
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India. Retrieved September 29, 2016, from Sa-Dhan: http://www.sa-
dhan.net/Adls/Microfinance/PerspectiveMicrofinance/BuildingSustainableMFIs.pdf
26. weaknesses and strengths. (2016). Retrieved October 6, 2016, from blog on microfinance
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27. Hulme, D., & Arun, T. (2011). Whats wrong and right with microfinance: missing an
angle on reponsible finance? Brooks World Poverty Institute Working Paper 155; ISBN :
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SWOT Analysis of Microfinance. Retrieved September 18, 2013, from SSRN:
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1747874

CHAPTER 2: LITERATURE REVIEW
Chapter Contents
2.1 Microfinance concept and delivery models 29
2.2 Microfinance and microfinance institutions in India 32
2.3 Performance analysis of microfinance and microfinance institutions 40
2.3.1. In India 40
2.3.2. Outside India 45
2.4 MIX model for performance evaluation 49
2.5 Summing up 53
References 55
Literature Review
Chapter 2:
LITERATURE REVIEW
In this chapter detailed literature is reviewed to get detailed information about the research
conducted related to the topic.
The literature has been collected through research paper published in journal, books, reports
published by government and private organisations, speech given by renowned person during
conferences and also the research study conducted by various organisations. All these
literature are divided into section namely, Microfinance concept and delivery models,
Microfinance in India, Performance of microfinance and microfinance institutions both in
India and outside India and lastly MIX Model of financial performance.
2.1 Microfinance concept and delivery models

Malcolm Harper (2002)1 in his paper titled ‘Grameen bank groups and self
help groups; what are the differences?’ showed the advantages and disadvantages of both
the system. The paper described and explained each system and compared their
sustainability, their outreach and impact on the poor and their institutional feasibility.
The paper concluded by summarizing the pros and cons of both the system in a table.
The summary table includes the pluses and minuses for both clients and banks and also
the suitable conditions for both the system to operate smoothly.
Bindu Ananth (2005)2 in her paper titled ‘Financing microfinance – ICICI

Bank partnership model’ analyzed the partnership model of financing microfinance
institutions. The paper compared three financing models for microfinance. The three
models were Self help group bank linkage model, financial intermediation by
microfinance institutions and the partnership model – MFI as a servicer. The paper
described in detail the need for partnership model and the description of how the model
worked. The researcher said that the model was unique in that it combines both debt as
well as mezzanine finance to the MFI in a manner that rapidly lead to the increase in
outreach, while it unlocked large amounts of wholesale funds available in the
commercial banking sector in India. The paper also discussed how to build links to
capital markets for financing microfinance through securitization. It concluded by

Literature Review
highlighting key enablers for an environment of rapid microfinance growth including

regulator support for hybrid models of outreach and investments in training and funding
of initial expenses of new or emerging MFIs.
Jamie Bedson (2009)3 edited the report titled ‘Microfinance in Asia: trends,
challenges and opportunities’. The report compiled the wide ranging and voluminous
content presented at the Asia Microfinance Forum 2008 convened in Hanoi, Vietnam in
2008. The main purpose to publish the report was to equip microfinance practitioners
with ideas on how to successfully grow and strengthen their businesses and better serve
the unbanked and the poor. The report was mainly divided into various sections namely
introduction to microfinance in Asia, executive summary, Asia microfinance industry
assessment summary, financing and investment, savings and asset building, microfinance
networks, microfinance and technology and lastly microfinance and sustainable
development.
Bhole B. and Ogden S (2010)4 in their paper titled ‘Group lending and
individual lending with strategic default’ had compared the presence of strategic default
between group lending and individual lending. Secondary data was considered for the
purpose of the study. The study found out results by developing its own strategic model.
The paper concluded that unless group members could impose sufficiently strong social
sanctions on their strategically default partners, or unless the bank used cross reporting
mechanism, group lending can perform worse than individual lending. It was showed
that when certain restrictions on group lending contract were relaxed then group lending
yielded higher welfare than individual lending even in the absence of any social
sanctions or cross reporting.
Brijesh Rupapara and Jitendra Patoliya (2012)5 have written book titled
‘Problems faced by Microfinance Institutions and measures to solve it’. The book have
been divided into seven chapters namely basics of microfinance, self help group,
microfinance institutions performance, urban and rural microfinance, micro insurance,
technology and microfinance and lastly business models for microfinance. The book
described in dept the history and meaning of microfinance and various terms related to
microfinance. Further the objective of the research conducted was to study the current
activities, limitations and scope of microfinance institutions in India and lastly to develop
a business model for MFIs. Based on the findings of the research, the authors suggested

Literature Review
that rural economy must focus on rural infrastructure and economy so that it ensured
there existed the activities that were required for financial assistance.
Sa-Dhan (2012)6 published a report titled ‘Financial Inclusion – A study of
the efficacy of banking correspondent model’ with an objective to study different models
of BCs, identify its challenges and evaluate different products and services offered by
BCs. The study included various legal forms of BCs like SHG Federations, Societies,
Trusts, Not-for-profit companies and special purpose vehicles promoted by technology
provided companies and all other important stakeholders including the regulators – the
banks, technology providers, clients, non clients, training institutions and the other
promotional agencies. A financial modeling was done to understand the break even
points under different situation. Few of the study findings were that the major challenge
faced was its commercial viability. Financial literacy programme which was a key
success factor was almost missing. Most of the clients had little knowledge of the range
of services the BCs offer and there was no proper dedicated customer grievance
mechanism or channel for customers of BC in many banks. The study broadly
recommended three strategies that were strategies for improving viability, strategy for
enhancing commercial interest of banks and client centric strategies.
Zuzana Harmincova and Karel Janda (2014)7 in their paper titled
‘Microfinance around the world – regional SWOT Analysis’ compared the functioning
of microfinance in various developing regions of the world and analyzed the overall
functioning, effectiveness, strengths and weaknesses, potential threats and opportunities
in the microfinance markets. Regions were chosen according to mixmarket.org data. The
comparison was done as following: developing regions of Africa, East Asia and the
Pacific, South East Europe and Central Asia, Latin America and the Caribbean, Middle
East and North Africa, South Asia have been compared between themselves and then
analysed by groups of developing countries with a regard to their characteristics. The
paper concluded that political situation in a country was one of the important aspects that
played a role in microfinance development. The paper analyze that the different levels of
costs per borrower, return or efficiency indicators point out not only to the cultural and
environmental differences, but also to the different stages of the microfinance industry
development in each of the regions.

Literature Review
2.2 Microfinance and Microfinance Institutions in India
Piyush Tiwari and S. M. Fahad (1997)8 discussed conceptual framework of a

microfinance institution in India. The paper evaluated the successes and failures of
various microfinance institutions around the world and lessons learnt have been
incorporated in a model microfinance institutional mechanism for India. The paper
explained that how microfinance is helpful in poverty alleviation, the formal sector
institutions, the existing informal financial sources and its strengths, Mechanisms
Adopted in Other South Asian Nations In Targeting Programmes for the Low Income
Groups, Credit Mechanisms Adopted by HDFC (India) for Funding the Low Income
Group Beneficiaries, weaknesses of existing microfinance models and thereby developed
a new paradigm and three possible alternatives for successful implementation of
microfinance.
Ajay Tankha (2002)9 prepared a study report titled ‘Self help groups as
financial intermediaries in India: Cost of promotion, sustainability and impact’ for ICCO
and Cordaid, Netherlands. The study analyzed the role and development of SHGs in
financial intermediation in rural India and contributed to a consistent and relevant
funding policy for ICCO and Cordaid. The study addressed three main issues that were
efficiency, effectiveness and sustainability. The study was based on a review of literature
on SHGs, the experiences of seven leading NGOs involved in the formation of SHGs and
interviews with chief executives and staff of a dozen other major NGOs/projects
promoting SHGs. The study recommended various areas of intervention for ICCO-
Cordaid support for the SHG and MF sector such as development of standards for SHGs,
support for MF and promotions of SHGs in poverty belt states, research on SHG
sustainability and continued grant support for SHG promotion.
Hema Bansal (2003)10 in her paper titled ‘SHG-bank linkage programme in
India’ reviewed the performance of the program in different states of India and across
three major institutions – commercial banks, co-operatives and the regional rural banks.
The study presented vital information about the leading NGOs with major credit linkages
in Indian State. The analytical section of the paper was divided in five parts. The first
section reviewed the spread of self help group linkages to banks across three different
models that have been adopted by the national bank to route credit to SHGs. The second
section assessed the coverage of SHG linkages for three years from 1997-98 to 1999-
2000. The third section studied the distribution of SHGs across states and union

Literature Review
territories of India. In order to understand the relationship between poverty, human

development and spread of NGOs in India states, the research used correlations. The
fourth section studied the state-by- state participation of commercial banks, regional
rural banks and co-operatives and provided brief backdrop of these institutions. The fifth
section identified the non-government organization/ self help promoting institutions with
maximum SHG credit linkages and presented some preliminary information about these
organizations. The study was based on secondary data published by the NABARD in
India. The researcher concluded the paper by analyzing the performance under each five
sections and also mentioned the future scope of all the institutions and the program.
M.S. Sriram and R. Upadhyayula (2004)11 in their paper titled
‘Transformation of the Microfinance Sector in India’ discussed the growth and
transformation of microfinance organizations (MFO) in India. The paper described the
meaning of microfinance and microfinance in India. It then described the issued that
trigger transformation and that were size, diversity, sustainability, focus and taxation.
The paper than explained the international transformation experiences of countries like
Bolivia, Bangladesh and Indonesia followed by transformation in India. The paper
concluded that there was no ideal path for spin-off. Regulatory changes were needed to
allow MFOs to graduate to other legal forms as they grow organically. NGOs must be
permitted to invest in the equity of MFOs, as was the case in Bolivia and Africa. Norms
for setting up MFOs under current legal forms should not be eased. Regulations should
ensure that they help genuine MFOs and not others masquerading as MFOs.
World Bank document (2004)12 published the report titled ‘Scaling-up access
to finance India’s Rural prepared by finance and private sector development unit of
South Asian region. The report was divided into five sections. The first section was of
introduction, second section was access to rural finance in India – the evidence, the third
section was what constrains access to finance for India’s rural poor, fourth section was
on recent efforts in India to improve rural access to finance: the role of formal – informal
linkages and new products and fifth section was on meeting the challenge of scaling-up
access to finance India’s rural poor – the policy agenda. The report mentioned the
agenda to make the formal financial sector better at banking the rural poor and also
mentioned the role of government policy.
Y.S.P. Thorat (2005)13 in his theme paper at the high level policy conference
on microfinance in India, he started with describing in detail the beginning and growth
of microfinance in India and various initiatives taken by government both state and
Literature Review
central to eradicate poverty. He concluded the history of microfinance in India with two
facts that were since independence policy makers had been finding ways and means to
finance poor but there was a gap between the concern of policy makers and quality of the
effort. He further mentioned the working of SHG bank linkage programme, its
achievement, impact, key learning and challenges. Further he described the emergence
of MFIs, their critical issues and different model of MFIs. He concluded with a road map
to further develop microfinance in India.
Priya Basu and Pradeep Srivastava (2005)14 in their paper titled ‘Scaling-up
microfinance for India’s rural poor’ reviewed the current level and pattern of access to
finance for India’s rural poor and examined some of the key microfinance approaches in
India, and a detailed examination of the most dominant among these, the Self Help
Group (SHG) Bank Linkage initiative. It empirically analyzed the success with which
SHG Bank Linkage had been able to reach the poor, examined the reasons behind this,
and the lessons learned. The analysis in the paper draws heavily on a recent rural access
to finance survey of 6,000 households in India, undertaken by the authors. The main
findings of the paper were that India’s rural poor had very little access to finance from
formal sources. Microfinance approaches have tried to fill the gap. Among these, the
growth of SHG Bank Linkage has been particularly remarkable, but outreach remained
modest in terms of the proportion of poor households served. The paper recommended
that, if SHG Bank Linkage was to be scaled-up to offer mass access to finance for the
rural poor, then much more attention would be needed to be paid towards: the promotion
of high quality SHGs that were sustainable, clear targeting of clients, and ensuring that
banks linked to SHGs price loans at cost-covering levels.
Rajarshi Ghosh (2005)15 in her paper titled ‘Microfinance in India – a
critique’ has five sections. The first section mentioned the introduction and history of
microfinance. Second section explained different terms such as MFIs, self help group,
income generation and women empowerment. Section three is related to financing of
SHGs. Section four mentioned the outreach and sustainability of microfinance in India.
Section five included the road ahead for microfinance in India. The paper concluded that
though microfinance may be a drop in the ocean, but it had made people self sufficient.
The requirement then was to bring down the cost of capital and the operating costs and
strengthen the bonding between Microfinance and the Formal Financial System.
Usha Thorat (2007)16 in her speech on ‘Financial Inclusion: Indian
Experience’ explained how the approach to financial inclusion in developing country
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was different from developed country. She then explained the measures of financial
inclusion and one of them was the percentage of adult population having bank account.
Next she mentioned that the financially excluded sections comprised of marginal
farmers, landless laborers, oral lessees, self employed and unorganized sector
enterprises, urban slum dwellers, migrants, ethnic minorities and socially excluded
groups, senior citizens and women and also the reasons for financial exclusions. She
then briefly informed about the incentives taken by RBI and strategies and approaches
adopted for financial inclusion. She concluded her speech by mentioning the role the
government could play in financial inclusion and also the work in progress.
Jayasheela et al (2008)17 in their paper titled ‘financial inclusion and
Microfinance in India: An overview’ examined the role of microfinance in the
empowerment of the people and realization of financial inclusion in India. The
researchers initially explained the different steps taken by government to eradicate
poverty and also mentioned the approaches to financial inclusion in India. The paper
then described the background and growth of microfinance self help group followed by
meaning and challenges of microfinance. The researchers were of the opinion that with
the increased demand for rural finance and the inadequacies of formal sources, MFIs had
immense opportunities in the new avatar of micro credit in India. But based on the recent
experiences which demanded the need for qualitative growth, researchers suggested that
MFIs should be managed with better scrutiny in terms of financial and technology as
well as social responsibility. Additionally they suggested that there was a need to evolve
an incentive package which would motivate the diversification into other backward areas
to NGOs who had played a commendable role in promoting self help groups linking
them with banks.
Savita Shakar and Mukul Asher (2009)18 in their paper titled ‘Regulating
India’s Microfinance Sector – A suggested framework’ initially mentioned that with the
growth of the sector both in terms of size, scope and number of participants, there was
need for developing a more formal regulatory structure. The need for developing a
regulatory structure was explained through four different points. In Section 2, the current
status and developments concerning microfinance sector in India were briefly discussed.
Section 3 analyzed challenges faced while regulating the microfinance sector. This was
followed by a brief overview of the current regulatory arrangements for the microfinance
sector in India. The final section provided an outline of the suggested framework for
regulating microfinance sector in India. The paper concluded that the creation of
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regulatory capacity for prudential and non prudential regulation of the Indian
microfinance sector would be a major challenge but it was likely to be a worthwhile
investment for the country as in the long run it could result in large scale financial
inclusion and financial deepening.
Manish Kumar et al (2010)19 in their research paper titled ‘Microfinance as
an anti poverty vaccine for rural India’ had four objectives. The first was to analyze the
growth of microfinance sector developed in India and future potential of microfinance
institutions, NGOs and SHGs in the market. The second objective was to analyze the
structure and pattern of microfinance programme in rural India by MFIs and NBFCs.
The third and fourth objectives were to understand the marketing of microfinance
product in rural market and study the importance and role of microfinance in poverty
alleviation and profitable agricultural activities. The collection of data was done using
secondary data sources. The study concluded that there was very high potential of
growth for microfinance institutions in India. The authors of the paper expected annual
growth rate of about 20% for next five years. Further, the authors expected loan
outstanding to grow from present level that was about 1600 crores to about 42000 crores
with an annual rate of about 20% for next five years.
Usha Thorat (2010)20 in her speech on ‘Financial regulation and financial
inclusion – working together or at cross-purposes’ explained that was there had to be a
tradeoff between financial inclusion and the regulation. She explained the need for
regulation of microfinance institutions under various situations like if financial
intermediaries have to deliver affordable services they need to take advantage of
technology and economies of scale and for that they required them to grow to some
optimal size. Such growth was not possible without capital and investors and lenders
were comfortable with providing more funds only if such entities were regulated. Next
she highlighted various regulatory measures taken by RBI to facilitate financial
inclusion. She concluded her speech by mentioning that fair and transparent code of
conduct enforced through an effective grievance redressal system and facilitated by
financial literacy and education were the cornerstones for ensuring consumer protection
which was an overarching objective of financial regulation in the context of financial
inclusion.
Anurag Priyadrashee and Asad Khalib (2011)21 in their paper titled ‘The
Andhra Pradesh microfinance crisis in India: manifestation, causal analysis, and
regulatory response’ discussed the policy implications of the various regulatory
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measures that the Government subsequently took to harness and regulate micro-lending
practices in the state. The paper analyzed the causal factors that led to perhaps the
biggest existential crisis the microfinance industry in India had faced since its inception.
The paper examined how a series of factors led to rapid and substantial growth of the
Self Help Group movement in Andhra Pradesh and how various other ‘private’ MFIs
took advantage of such a mature presence, caused an inundation of the market, and
ultimately led to the crises. Responses of the AP Government as well as the Reserve
Bank of India are examined at length. The paper concluded by arguing that regulatory
measures subsequently initiated to deal with the issue were focused more on the
symptoms as opposed to the root cause that led to the crisis in the first place.
Sanjay Sinha (2011)22 in his paper titled ‘Initial public offerings: A field’s
salvation or downfall?’ based on the SKS microfinance IPO of 2010 in India which had
raised the debate for its implications for profit making at the expense of the poor. Section
one included the points related to IPO’s as industry salvation and section two discussed
the points related to IPO’s as industry downfall. Section three discussed that whether the
IPO was industry’s downfall or it was great Indian microfinance crisis. Section four
included summarized analysis – how the success of the SKS IPO lulled the sense. The
paper concluded that the revival of the Indian microfinance sector needed multiple
actions at many levels: the central bank for regulation, the government for calibrated
responses to the issue of client coercion and, above all, the MFIs to ensure more
measured growth and better control systems. It also required more informed investor
behavior to ensure that capital flows to socially responsible institutions in support of the
long term economic benefits of financial inclusion rather than in pursuit of short term
financial gains.
Krishnamurthy Subramanium (2011)23 in this article titled ‘Microfinance
Lenders: To profit or not to profit’ compared the nonprofit and for- profit MFIs and
examined whether profit maximization by an MFI compromises on its social objectives.
The article mentioned the example of IPO of SKS microfinance institution and the
ordinance passed by Andra Pradesh government on microfinance institutions. The article
compared for-profit and nonprofit MFIs on various points such as client base, number of
loan per borrower, outstanding loan balance per borrower, interest rate charge, operating
costs and expenses, profitability and riskiness in loan portfolio. The findings of article
indicated that apprehensions that profit seeking objectives of MFIs led them to: charge

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usurious interest rates and/or push loan indiscriminately to their borrowers irrespective
of whether the debt paying capacity of borrowers was exaggerated.
R.Chakrabarti and K. Subramanium (2011)24 in their article titled
‘Financial Inclusion: The road ahead’ interviewed Usha Thorat regarding financial
inclusion and the role of microfinance companies and urban co-operative banks in
improving financial access. Ms. Thorat gave her opinion on various questions asked on
financial inclusion, priority sector lending, roles MFIs and UCBs, Regulations on MFIs,
and the problems that were faced in reaching poor people. She said that the truth was
that the sheer easy availability of the credit which could be used for any purpose, made
the low-income household people to borrow much more than their repaying capacity.
Further she said that all lenders whether it be a NBFCs, MFIs or even banks that were
getting into retail low-income lending would be well advised to keep track of household
cash flow while taking credit decisions.
Satyajit Roy (2011)25 in his paper titled ‘Microfinance in India: An overview
of microfinance and SWOT Analysis of microfinance’ gave an overview of
microfinance in India. The paper compared the microfinance services offered to poor
with money lenders, commercial banks and government sponsored programs on certain
parameters. The parameters were ease of access, lead time to loans, repayment terms,
interest rates, incentives, repeat and borrowing and loan access procedure. Further, the
researcher described the SWOT Analysis of microfinance and future of microfinance.
The researcher concluded that the concept of microfinance in India was new but it has
the high potential to grow in future.
Legatum (2012)26 published the paper titled ‘Indian Microfinance: Looking
beyond the AP Act and its devastating impact on the poor’. In December 2010 the
government of Andhra Pradesh (“AP”) passed a law (the “AP Act”, originally conceived
in October 2010) which effectively shut down private sector microfinance in the State.
The paper was based on the impact of above law. The paper concluded through
suggestions given to Indian government. Some of the suggestions included to ensure the
swift passage of the microfinance Bill through Parliament and ensure that the AP Act
was repealed and to facilitate the collection of all outstanding dues in AP. It also
suggested establishing a mechanism for stakeholder consultation before the passage of
any new legislation.
S. Ravi and P. Vikkraman (2012)27 in their paper titled ‘Microfinance in
India – Challenges and opportunities’ described the overall scenario of Microfinance in
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India through SWOT Analysis. The paper in the introduction explained meaning of
microfinance through an example followed by history of microfinance, activities and
principles of microfinance, types of microfinance products. The paper then mentioned
the benefits and challenges of microfinance and also challenges to microfinance
institutions. The paper concluded that microfinance was not yet at the centre stage of the
Indian financial sector. The knowledge, capital and technology to address the challenges
however existed in India but they were not fully aligned. The supply side of
microfinance in India was still grossly inadequate to fill the gap between demand and
supply but it held the promise to act as a great opportunity for the financial sector and
the economy as a whole.
Usha Thorat (2012)28 gave her speech on ‘Promoting financial inclusion
through proportionate standards and guidance’ at first annual GPFI conference on
standard setting bodies and financial inclusion. She started by explaining that financial
inclusion was not merely access to a bank account or to credit but it was access to bank
account, insured deposits, insurance and pension products, loan products and access to
mainstream payments and remittances and because of this, it was significant to have
SSBs relevant to all these services to sub serve the interest of stability, integrity and
consumer protection while promoting economic welfare for all. She mentioned her
previous speech and said that financial regulation and financial inclusion were not at
cross ends but they go hand in hand. Next she informed how in India, the regulation was
implemented gradually till date. She concluded that poor people required just an
opportunity to get out of the poverty and the role of financial regulator was as critical as
government in finding that opportunity.
Dr. Sagir Ahmed (2013)29 in his paper titled ‘SHG Bank linkage program in
India – an overview’ analyzed the trends in SHG-Bank linkage program in India. The
study was based exclusively on the secondary data collected mostly from official
publications of NABARD, RBI and Planning Commission of India. Simple statistical
tools such as percentage, average growth rate etc had been used for data analysis. The
paper consisted of four sections. First section introduced the subject matter by
highlighting evolution and development of microfinance at the international level.
Second section dealt with the evolution of microfinance and self help groups in India.
Trends and performance of SHGs-Bank linkage program had been analyzed in third
section and conclusion had been summarized in the last section. The paper concluded
that SHG-bank linkage program had emerged as the biggest microfinance program in
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India which enabled about 70 million poor households to gain access in microfinance
facilities from the formal banking system.
Vijeta Singh (2014)30 in her paper titled ‘Indian microfinance sector in capital
markets: Perils and prospects’ identified factors that have been discouraging investors
from investing in MFIs. Since the accounting and reporting methods and the monitoring
mechanism adopted by MFIs were quite different from conventional practices that the
investors were used to, they found it difficult to make meaningful comparisons to gauge
the relative potential of MFIs as an asset class in terms of risk and return. Based on the
best practices being followed by some MFIs in India, the author suggested that MFIs
could strengthen their accounting and monitoring methods, which would give the capital
market investors greater confidence to invest in MFIs.
2.3 Performance analysis of microfinance institutions
2.3.1. In India
Jayshree Vyas (1993)31 in her paper titled ‘Banking with poor self
employed women’ discussed about the need of credit and savings facilities to
poor women and their repayment capacities. SEWA had begun to solve women’s
problem by providing them credit and financial facilities. The bank had only 10%
defaulters up to 1985 and 12% defaulter up to 1993. Common reasons were
sickness, death in family, social customs, delay in payment of wages, husband’s
unemployment, anti-social influences, sheer stubbornness, and vengeance against
group leader or organizers etc. The paper concluded that personal and continuous
contact with poor women was almost precondition while banking with them and
that helped bank to understand the need in better ways. Integrated approach of
providing many supportive services over and above credit was also very
important. Close co-ordination between members, organizers and directors
needed to keep the banks’ operations flexible and dynamic.
R. Srinivasan (2003)32 in his paper titled ‘self-help groups as
financial institutions’ used spreadsheet financial model and identified key
financial policy parameters that influence the performance of self help groups
(SHGs) whose primary activity was microfinance. The focus was on long run
(ten-year) performance. The paper also examined the consequences of a
conservative financial policy and of a high interest rate policy at the SHG level. It
was assumed that these SHGs operated under the umbrella of a microcredit
institutions (MCI). The paper concluded that policy makers and MCI managers
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should not be in a hurry as SHGs were somewhat fragile (as indeed were most
financial institutions) and a small reduction in the loan portfolio quality could
seriously damage it. The researcher suggested the in the first few years of an
SHG, institutionalizing group processes was much more important than
accelerating lending. Size was as much an issue as quality. Over a sustained
period, an emphasis on growth was probably unwise and unwarranted. At an
operational level, paper attempted to enhance awareness of the relationship
between decisions on interest rates and borrowing multipliers and outcomes, such
as operating surplus, funds and loan disbursement.
Raghav Gaiha and Ganesh Thapa (2006)33 in their paper titled ‘A
methodology for assessment of impact of microfinance on empowerment and
vulnerability’ conducted study which was based on a small but detailed survey of
members of self-help group in six villages in the Pune district of India. The paper
identified few key indicators that impinge on a aspects of social capital,
empowerment of the poorest and risk, vulnerability and self-insurance. The paper
concluded that the indicators that had been proposed for examining the
interrelationships between different forms of social capital and microfinance,
between microfinance and empowerment of the poorest people – especially
women and between microfinance and the reduction of vulnerability through self
insurance must be tailored for each specific context and application. Cross
validation through a mix of quantitative and qualitative data and methods was
vital for a robust assessment. Even small samples, carefully designed and
analyzed, would yield rich and valuable insights into the potential of
microfinance for empowerment and economic security.
Erica Field and Rohini Pande (2008)34 in their research paper titled
‘Repayment frequency and default in Microfinance: evidence from India’
collected data from a field experiment on repayment schedules conducted in
urban India examined whether repayment frequency affected loan defaults and
delinquency. One hundred microfinance groups each consisting of ten first time
borrowers was randomly assigned to either a weekly or a monthly repayment
schedule after group formation had been completed and clients approved the loan.
The researchers found that switching from weekly to monthly installments did
not affect client repayment capacity. It was also found that delinquency rates
were low and not statistically different across clients on weekly and monthly
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repayment schedules. The researcher suggested that switching to lower frequency

repayment schedules could allow MFIs operating in comparable settings to save
dramatically on the transaction costs of installment collection while facing
virtually no added risk of default.
Centre for Microfinance, Jaipur (2010)35 conducted a study in
Rajasthan state of India which was titled ‘Loan default by SHGs’. The objective
of the study was to understand the reasons underlying the phenomenon and
develops an early warning system so that timely action can be taken to avoid
defaults. The study used stratified sampling methodology and the strata selected
were district, block, SHG and members. The study highlighted several reasons for
default. Few among them were improper process of group formation, erosion in
quality which was visible in records that were not updated for years, small NGOs
not financially supported beyond initial phase and so they found difficult to carry
on with group strengthening work. It was observed that financing targets were
pushed through the banks by the DRDAs in case of BPL groups. Thus the study
clearly showed that all the stakeholders i.e. SHG, SHPI, Banks and improper
implementation of concerned schemes with the system of financing had stake in
making a group defaulter.
Pankaj Agarwal and S. K. Sinha (2010)36 in their paper titled
‘Financial performance of Microfinance Institutions of India’ analyzed the
financial performance of various microfinance institutions operating in India. It
had significance because it was imperative that these institutions be run
efficiently given the fact that they were users of marginal and scarce capital and
the intended beneficiaries were the marginalized sections of society. Out of over
a hundred MFIs in India, that were reporting to Mix Market, researcher had
chosen only five stars rated MFIs for data analysis. They were 22 in number.
Their financial performance was compared on 22 different ratios. These ratios
were chosen again from the reporting format of Mix Market. The reporting
format broadly analyzed the companies on six parameters of financial
performance: Financial Structure, Revenue, Expenses, Efficiency, Productivity
and Risk. The methodology used was difference of means test. The paper
concluded that most of the best performing firms were following different
business models in India.

Literature Review
Arup Roy (2011)37 in his paper titled ‘Microfinance performance of

public sector banks in the NER region of India’ initially assessed the progress of
microfinance in the NER in terms of savings mobilization, loans disbursed, loans
outstanding and non performing assets (NPAs). Then the next section of the study
found out the performance of public sector banks in providing agricultural credit
through microfinance in the North Eastern Region (NER) by calculating a
performance ratio. The study evaluated the microfinance performance of these
public sector banks in terms of SHG bank linkage programme. The study
concluded that only in two states viz., Mizoram and Assam, the microfinance
performance of these public sector banks were satisfactory among all the states of
NER. The study further concluded that the TGBs in Tripura, RRBs in Nagaland,
Mizoram and Arunachal Pradesh, UBI in Manipur, SBI in Meghalaya, and
AGVB in Assam was doing well compared to the other public sector banks in the
NER.
Zohra Bi and Shyam Lal (2011)38 in their paper titled ‘Comparison
of the performance of microfinance institutions with commercial banks of India’
studied the performance and efficiency of microfinance. A sample of
microfinance institutions in India were selected based on their ratings given by
microfinance information exchange (MIX) for the study. Out of the 88 MFIs in
India reported on MIX, 24 MFIs were taken as samples, these samples taken were
five star rated by MIX. The financial parameters of these MFIs were studied and
compared with the financial parameters of commercial banks and their financial
performances were analyzed. The various parameters taken for analyzing the
financial performance of MFIs and banks included: Financial structure,
Profitability and Efficiency. One way ANOVA technique was used to identify if
there exist a significant difference in the performance of MFIs and Commercial
banks which included both the private sector and the public sector banks. The
paper concluded that the large ten microfinance institutions dominating the
sector, the other small microfinance institutions could adopt their business
models, policies and practices in order to increase their outreach and to operate
on a sustainable basis.
Sarita Vichore and Sangeeta Deshpande (2012)39 in their paper
titled ‘Microfinance in India: Comprehensive analysis of the growth and
performance of MFIs’ had two objectives. First was to analyze the performance
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of independent microfinance institutions in terms of cost efficiency, cash

constraints and net portfolio in India providing microfinance services to low
income clients. Second objective was to understand the role of microfinance in
Indian economy and to focus the current performance of the sector in relation to
financial services in the country in general. The data used for the research was
supported by NABARD, M-CRIL and RBI. Semi structure interviews were
conducted of experts in area of microfinance. The paper concluded that Indian
MFIs needed a stable environment in which it could deliver microfinance
services – deposits, remittances, insurance and microcredit, in a responsible
manner. Whether or not MFIs could continue to contribute to financial inclusion
in India was dependent on the passage of draft Microfinance bill by the
parliament.
Tiken Das (2013)40 in his paper titled ‘An analysis of non-performing
assets and recovery performance of self help group bank linkage programme –
unique preference to north eastern region of India’ analyzed the NPAs and
recovery performance of SHGs in southern regions and north eastern region of
India. That data was taken of four years from NABARD. The paper found that
although amount of saving balance of SHGs with banks and amount of loan
disbursed to SHGs by banks was lower in NER as compared with SR, but the
share of NPAs to total loans outstanding was higher and percentage of recovery
to demand of total SHGs was lower in NER. The paper found that there had been
an improvement of situation of NPAs and recovery rate in NER during recent
times but this enhancement was not comparable with SR of India.
Shalini H. S. (2013)41 in her paper titled ‘A study on causes and
remedies for non performing assets in Indian public sector banks with special
reference to agricultural development branch, state bank of Mysore’ identified the
effect of a set of micro economic variables of Indian farmers on the management
of their credit. The variable included were age, sex, education, marital status,
family size, wealth status, religion, caste, money lenders, guarantor, security of
land, security of gold, security of other assets, experience, suitability of land to
crop, type of farming, irrigation facility, any other source of income, subsidy and
volume of land owned by the farmer. The data was collected through self
administered questionnaire and also telephonic interview and it was analyzed
using chi square test. The study concluded that the bankers could avoid
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sanctioning loans to the non creditworthy borrowers by adopting certain measures

and also gave few suggestions to bank to reduce the non performing assets.
2.3.2. Outside India

Meyer (2002)42 through his paper provided insight into how well the
microfinance industry in Asia was performing by evaluating critical triangle of
microfinances i.e.; outreach, sustainability and impact. Outreach was measured
using four indicators, financial sustainability was measured by calculating
operational and financial sustainability and impact assesment was done by
measuring both quantitative and qualitative indicators. The study was conducted
taking 148 number of MFIs in 14 different countries of Asia for the year 2011.
The results revealed that outreach was quite impressive, especially in Bangladesh
and Indonesia. Financial sustainability was an important problem faced by the
industry in most countries. The impact studies reviewed reported some positive
benefits but they vary by gender, type of program and country
Michael Tucker and Gerard Miles (2004)43 in their paper titled
‘Financial performance of microfinance institutions’ compared the performance
of MFIs that had attained self-sufficiency with those that had not and compared
both to regional commercial banks in developing countries on selected financial
ratios. Five financial ratios from three different categories were the basis for the
comparisons. In the first category, the ratio of operating expenses to assets
measures efficiency. The second category, gauging profitability, included the
return on assets, return on equity, and net profit margin. The final category,
measuring leverage, was represented by the debt-to-equity ratio. Commercial
bank data was obtained from FISonline, covering four geographic regions: Africa
(14 banks), Asia (61 banks), Eastern Europe (10 banks), and Latin America (72
banks). The second and third data series were as reported by the Microbanking
Standards Project (MSP). The paper revealed that self-sufficient MFIs were
strong performers on ROA and ROE. The majority of MFIs, however, were very
weak and in need of continued subsidies. Providing financial services to the poor
was an expensive proposition and may mean numerous MFIs would not reach
self-sufficiency.
Giovanni FERRO LUZZI and Sylvain WEBER (2006)44 in their
paper titled ‘Measuring performance of microfinance institutions’ illustrated that
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how some statistical tools could offer new insights in the context of MFIs
performance evaluation. The sample used in the paper was composed of 45
microfinance institutions surveyed by the Graduate Institute of Development
Studies of Geneva for the period 1999-2003. Factor analysis was used in a first
step and constructed performance indices based on several possible associations
of variables. The base variables were combined to produce different factors,
which represented a distinct dimension of performance. The individual scores
ascribed to each MFI on each factor was used as the dependent variables of a
simultaneous –equations model. The paper attempted to shed some light on the
way of performance of MFIs could be evaluated in a multidimensional manner.
Therefore the paper used factor analysis, cluster analysis and also estimated a
SUR model for the year 2003.
Befekadu B. Kereta (2007)45 in his paper titled ‘Outreach and
Financial Performance Analysis of Microfinance Institutions in Ethiopia’
assessed the performance of microfinance institutions of Ethiopia from different
angles. The objectives of the study were to measure outreach of the poor and
financial sustainability of MFIs, to identify challenges faced by the MFIs not to
operate efficiently and to deliver policy recommendations towards efficient
operations of MFIs. The paper was divided into four chapters. The first chapter
was of introduction to study, second chapter included literature review, third
chapter described the findings of the study and fourth chapter included
conclusion and recommendations. The paper gave policy recommendations to
MFIs based of the findings. Recommendations included strengthening women’s
access to credit and as the study found out positive correlation between outreach
and sustainability, it recommended to reach more client to attain social mission
and as well as profitability.
Drew Tulchin et al (2009)46 in their paper titled ‘New Financial
ratios for microfinance reporting’ described eight new ratios in a uniform format,
ratio name, framework number and mathematical equation. To understand the
implications of the ratio, examples were provided with calculations using data
from Banco ProCredit Nicaragua (ProCredit Nic).ProCredit Nic was chosen as an
illustrative example. The eight new ratios for microfinance reporting were capital
adequacy ratio, uncovered capital ratio, foreign currency risk ratio, average
deposits balance per account, yield on liquidity and investments, savings
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liquidity, effective financial expense of savings and effective operating expense

of savings. The paper concluded that these changes to the Framework move MFIs
to more accepted global accounting guidelines, including Basel II and IFRS, and
serve as a ready platform to better align national reporting standards.
Esubalew Assefa et al (2012)47 in their paper titled ‘Competition and
performance of microfinance institutions’ examined the relationship between
competition and the performance of microfinance institutions (MFIs).
Competition was measured by constructing a Lerner index. Next, the researchers
assessed the association between increased competition among MFIs on the one
hand and outreach, loan repayment, efficiency and financial performance on the
other. The empirical investigation was based on data from 362 MFIs in 73
countries for the period 1995-2009. The findings were that there was a general
trend of increased competition in microfinance during the last decade.
Econometric analysis provided evidence that competition among MFIs was
negatively associated with various measures of performance. The analysis
supported the view of those who see increased competition and the related
commercialization of the microfinance sector as a threat to its longer term
stability and success, both in terms of its social and financial objectives.
Wondimagegnehu Negera (2012)48 in his research project titled
‘Determinant of non-performing assets: the case of Ethiopian Banks’ adopted
mixed research approach. Survey was conducted with professionals engaged in
both private and state owned banks in Ethiopia holding different positions using
self administered questionnaire. Secondly, the study used structured review of
documents and records of banks and in-depth interview of senior bank officials in
the Ethiopian banking industry. The study found that poor credit assessment,
failed loan monitoring, underdeveloped credit culture, lenient credit terms and
conditions, aggressive lending, compromised integrity etc were the causes of loan
default. The study suggested that banks should put in place a vibrant credit
process that ensures proper customer selection, robust credit analysis, authentic
sanctioning process, proactive monitoring and clear recovery strategies.
Hina Almas and MuashirMukhtar (2013)49 in their paper titled
‘Measuring the Performance and Achievement of Microfinance Institutions
Incorporating Subsidy Dependence Index and Outreach Index in Pakistan’s case’
investigated the level of subsidy dependence and outreach for measuring
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microfinance institutions impact and poverty outreach. The paper also compared
subsidy dependence index and financially self-sufficiency index, explaining the
objectives and limitations of each of them. While numerous researches have been
conducted indifferent countries to study this issue, but no such study have yet
been done in Pakistan’s context. For the study, researcher focused on eight
microfinance institutions working in Pakistan. Sample institutions comprised of
conventional and Islamic microfinance institutions. Data for this research have
been drawn from financial statements of microfinance institutions and mix
market website, from 2006 to 2012. Findings of the study have thrown some light
on microfinance institutions financial sustainability while fulfilment of their
promise of poverty reduction. Thus, the combination of subsidy dependence
index and outreach index can play a vital role as regulatory and supervisory tool
for microfinance institutions.
Walter Okibo and Lilian Aseyo (2013)50 in their research paper
titled ‘Causes of loan default with microfinance institutions in Kenya’ had main
objective to find out the causes of loan default within microfinance institution in
Trans Nzoia country. The target population comprised a total of 400 loan
borrowers and 200 MFIs out of which a sample of 150 was picked using simple
random sampling for each stratum. The data was collected through structured and
semi-structured questionnaire. The data was analyzed by using both quantitative
and qualitative techniques and tabulated by using frequency tables. The study
found that the loan repayment default was due to non supervision of borrowers by
the MFIs and due to inadequate training of borrowers on utilization of loan funds
before they received loans. It was also found that most borrowers did not spend
the loan amount on intended and agreed projects.
Wangai David et al (2014)51 in their paper titled ‘Impact of
nonperforming loans on financial performance of microfinance banks in Kenya:
A survey of microfinance bank in Nakuru town’ established the effect of non-
performing loans on financial performance of microfinance banks in Kenya. The
study was conducted in microfinance banks in Nakura town, Kenya. It was
guided by one independent variable that was credit risk and one dependent
variable that was financial performance. Descriptive analysis was done to present
the opinions of the respondents regarding all study constructs. Inferential analysis
was done which enabled making deductions pertinent to non-performing loans
Literature Review
and financial performance banks under study. It was deduced that increase in
credit risk would significantly reduce the MFBs’ financial performance. It was
recommended that potential borrowers should be critically analyzed to assess
their credit worthiness before they are awarded loans.
2.4 Mix Model of financial performance of Microfinance Institutions52
MIX is a non-profit organization incorporated in June 2002, with headquarters in

Washington, DC, and regional offices in Peru, Senegal, India and Indonesia. MIX was
founded by CGAP (Consultative Group to Assist the Poor), and is sponsored by City
Foundation, Deutsche Bank Americas Foundation, IFAD and Bill & Melinda Gates
Foundation. MIX provides detailed financial and social performance information from
MFIs, as well as business information from market facilitators and leading donor
organizations and investors in microfinance. To address the issue of diversity in operating
environment of MFIs, while comparing the financial and portfolio data, it has adopted a
peer group framework, where financial performance of MFIs are compared among peer
group members on 8 broad parameters. Each of these parameters has some performance
indicators. The details of these indicators are as under.
1. Institutional characteristics: The details of the indicators under this head are as
under.
 Number of MFIs: Sample size of group
 Age: Years functioning as an MFI
 Number of offices
 Number of personnel
 Total asset: Total assets, adjusted for inflation and standardized provisioning for
loan impairment and write-offs
2. Financing Structure: The details of the indicators under this head are as under.
 Capital/Asset Ratio: Adjusted Total Equity/Adjusted Total Assets
 Commercial Funding Liabilities ratio: (Voluntary and Time Deposits +
Borrowings at Commercial Interest Rates) /Adjusted Average Gross Loan
Portfolio
 Debt to Equity: Adjusted Total Liabilities/Adjusted Total Equity

Literature Review
 Deposits to Loans: Voluntary Deposits/Adjusted Gross Loan Portfolio

 Deposits to Total Assets: Voluntary Deposits/Adjusted Total Assets
 Portfolio to Assets: Adjusted Gross Loan Portfolio/Adjusted Total Assets
3. Outreach Indicators: The details of the indicators under this head are as under.
 Number of Active Borrowers: Number of Borrowers with loans outstanding,
adjusted for standardized write- offs
 Percent of Women Borrowers: Number of active women borrowers/Adjusted
Number of Active Borrowers
 Number of Loans Outstanding: Number of Loans Outstanding, adjusted for
standardized write-offs
 Gross Loan Portfolio: Gross Loan Portfolio, adjusted for standardized write-offs
 Average Loan Balance per borrower: Adjusted Gross Loan Portfolio / Adjusted
Number of Active borrower
 Average Loan Balance per Borrowers/ GNI per capita: Adjusted Average Loan
Balance per Borrower/GNI per Capita
 Average Outstanding Balance/Adjusted Gross Loan Portfolio/Adjusted Number of
Loans Outstanding
 Average Outstanding Balance/GNI per Capita: Adjusted Average Outstanding
Balance/GNI per Capita
 Number of Voluntary Depositors: Number of Depositors with voluntary deposit
and time deposit accounts
 Number of Voluntary Deposit Accounts: Number of Voluntary Deposit and time
deposit accounts
 Voluntary Deposits :Total value of Voluntary Deposit and time deposit accounts
 Average Deposit Balance per Depositor: Voluntary Deposits/Number of
Voluntary Depositors
 Average Deposit Balance per Depositor/GNI per Capita: Average Deposit
Balance per Depositor/GNI per capita
 Average Deposit Account Balance: Voluntary Depositors/Number of Voluntary
Deposit Accounts
 Average Deposit Account Balance/GNI per Capita: Average Deposit Account
Balance/GNI per capita

Literature Review
4. Macroeconomic Indicators: The details of the indicators under this head are as
under.
 GNI per Capita: Total income generated by a country's residents, irrespective of
location / Total number of residents
 GDP Growth Rate: Annual growth in the total output of goods and services
occurring within the territory of a given country
 Deposit Rate: Interest rate offered to resident customers for demand, time or
savings deposits
 Inflation Rate: Annual change in average consumer prices
 Financial Depth: Money aggregate including currency, deposits and electronic
currency (M3)/GDP
5. Overall Financial Performance: The details of the indicators under this head are as
under.
 Return on Assets: (Adjusted Net Operating Income - Taxes) / Adjusted Average
Total Assets
 Return on Equity: (Adjusted Net Operating Income - Taxes) / Adjusted Average
Total Equity
 Operational Self-Sufficiency: Financial Revenue / (Financial Expense +
Impairment Losses on Loans + Operating Expense)
 Financial Self-Sufficiency: Adjusted Financial Revenue / Adjusted (Financial
Expense + Impairment Losses on Loans +Operating Expense)
6. Revenue and Expenses: The details of the indicators under this head are as under.
 Financial Revenue/Assets: Adjusted Financial Revenue / Adjusted Average Total
Assets
 Profit Margin: Adjusted New Operating Income / Adjusted Financial Revenue
 Yield on Gross Portfolio (nominal): Adjusted Financial Revenue from Loan
Portfolio / Adjusted Average Gross Loan Portfolio
 Yield on Gross Portfolio (real): (Adjusted Yield on Gross Portfolio (nominal) -
Inflation Rate) / (1 + Inflation Rate)
 Total Expense/Assets: Adjusted (Financial Expense + Net Loan Loss Provision
Expense + Operating Expense) / Adjusted Average Total Assets
 Financial Expense/Assets: Adjusted Financial Expense / Adjusted Average Total
Assets
Literature Review
 Provision for Loan Impairment/Assets: Adjusted Impairment Losses on Loans /

Adjusted Average Total Assets
 Operating Expense/Assets: Adjusted Operating Expense / Adjusted Average Total
Assets
 Personnel Expense/Assets: Adjusted Personnel Expense / Adjusted Average Total
Assets
 Administrative Expense/Assets: Adjusted Administrative Expense / Adjusted
Average Total Assets
 Adjustment Expense/Assets: (Adjusted New Operating Income - Unadjusted Net
Operating Income) / Adjusted Average Total Assets
7. Efficiency: The details of the indicators under this head are as under.
 Operating Expense/Loan Portfolio: Adjusted Operating Expense / Adjusted
Average Gross Loan Portfolio
 Personnel Expense/Loan Portfolio: Adjusted Personnel Expense / Adjusted
 Average Salary/GNI per Capita: Adjusted Average Personnel Expense / GNI per
Capita
 Cost per Borrower: Adjusted Operating Expense / Adjusted Average Number of
Active Borrowers
 Cost per Loan: Adjusted Operating Expense / Adjusted Average Number of Loan
 Borrowers per Staff Member: Adjusted Number of Active Borrowers / Number of
Personnel
 Loans per Staff Member: Adjusted Number of Loans Outstanding / Number of
Personnel
 Borrowers per Loan Officer: Adjusted Number of Active Borrowers / Number of
Loan Officers
 Loans per Loan Officer: Adjusted Number of Loans Outstanding / Number of
Loan Officers
 Voluntary Depositors per Staff Member: Number of Voluntary Depositors /
Number of Personnel
 Deposit Accounts per Staff Member: Number of Deposit Accounts / Number of
Personnel
 Personnel Allocation Ratio: Number of Loan Officers / Number of Personnel
Literature Review
8. Risk and Liquidity: The details of the indicators under this head are as under.
 Portfolio at Risk > 30 Days: Outstanding balance, portfolio overdue > 30 days +
renegotiated portfolio / Adjusted Gross Loan Portfolio
 Portfolio at Risk > 90 Days: Outstanding balance, portfolio overdue > 90 days +
renegotiated portfolio / Adjusted Gross Loan Portfolio
 Write-Off Ratio: Adjusted value of loans written off / Adjusted Average Gross
Loan Portfolio
 Loan Loss Rate: (Adjusted Write-offs - Value of Loans Recovered) / Adjusted
 Risk Coverage Ratio: Adjusted Impairment Loss Allowance / PAR > 30 Days
 Non-earning Liquid Assets as a % of Total Assets: Adjusted Cash and Banks/
Adjusted Total Assets
 Current Ratio: Short Term Assets / Short Term Liabilities
2.5 Summing up
The literatures studied were classified into four main sections for better understanding.
The first section consisted of literature related to conceptual clarity on the research topic
that is microfinance and various microfinance models that existed in and outside India. It
can be noted that though few literatures fully included the conceptual aspect and so they
are classified in first section but in literatures of other section too the basic concept and
evolution of microfinance is mentioned.
The second section is related to microfinance and microfinance institutions in India. As

the research topic is concerned related to Gujarat state and broadly related to India,
literatures that conducted research based on India and Microfinance Institutions in India
were classified in this section. From these literatures, the history and evolution of
microfinance in India, the working pattern of microfinance Institutions and also the
status of microfinance in India can be learned and analyzed. The detail description of the
analysis of microfinance in India is mentioned in Chapter 3.
The third section of this chapter includes the literatures related to performance analysis
of microfinance Institutions in India and outside India. This section is very important as
it is related exactly to the research topic. Through the literatures under this section,
Literature Review
various performance analysis indicators, methods of collecting data, type of format of

questionnaire and also the statistical tools that can be used for performance analysis was
learned and analyzed.
The last section includes the detail description of the performance evaluation model
adopted by MIX market.org is mentioned. From the literatures in section three, it was
found that the most reliable and exhaustive model for analysis of financial performance
and non performing assets of microfinance institutions is MIX Model. And therefore in
this research also MIX Model has been used for performance analysis of microfinance
Institutions in Gujarat and also for analysis of non-performing assets of microfinance
institutions in Gujarat. It can be noted here that basic indicators of the model have been
included in the research but only the major ratios have been take for the analysis.

Literature Review
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5. Rupapara, B., & Patoliya, J. (2012). Problems faced by Microfinance Institutions
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6. Sa-Dhan. (2012). Financial Inclusion: A study on the efficacy of banking
correpondent model. Delhi: City Foundation.
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10. Bansal, H. (n.d.). SHG-Bank Linkage Program in India: An overview. Journal of
Microfinance; Volume 5, Number 1 , 21-49.
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India: Experiences, Options, and Future. Journal of Microfinance; Volume 6 No. 2 ,
90-112.
12. World bank. (2004). Scaling-up Access to Finance for India’s Rural Poor. India:
World Bank Document.
13. Thorat, Y. S. (2005). Microfinance in India : Sectoral Issues and Challenges. Delhi.
14. Priya Basu, P. S. (2005). Scaling-up Microfinance for India’s Rural Poor. World
Bank Policy Research Working Paper .
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17. Jayasheela, D. P. (n.d.). Financial Inclusion and Microfinance in India: An
overview. Retrieved September 18, 2013, from SSRN:
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18. Savita Shanker, M. G. (2009). Regulating India’s Microfinance Sector: A Suggested
Framework. Economic and Political Weekly, Vol. 45, No. 1 , 1-28.
19. Manish kumar, N. S. (2010; Volume 2 Number 1). Microfinance as an anti poverty
vaccine for rural India. International review of business and finance , 29-35.
20. Thorat, U. (2010). Financial regulation and financial inclusion – working together or
at cross-purposes. Board of Governors of the Federal Reserve System, the
International Monetary Fund and the World Bank (pp. 1-7). Washington DC: BIS
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21. Anurag Priyadarshee, A. K. (2011). The Andhra Pradesh Microfinance crisis in
India: manifestation, causal analysis, and regulatory response. Brooks World
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22. Sinha, S. (2011). Initial Public Offerings: The field’s salvation or downfall? Global
MicroCredit Summit
23. Subramaniyum, K. (2007). Microfinance Lenders: To Profit or Not To Profit. ISB
Insight , 5-8.
24. Rajesh Chakrabarti, S., K. (2007). Financial inclusion: The road ahead. ISB Insight ,
9-12.
25. Roy, S. (2011, January 25). Microfinance in India : An overview of microfinance
and SWOT Analysis of Microfinance. Retrieved September 18, 2013, from SSRN:
26. Legatum. (2012). Indian Microfinance: Looking Beyond the AP Act and its
Devastating Impact on the Poor. Legatum Ventures.
27. S. Ravi, D. P. (2012). Microfinance in India: Challenges and opportunities.
International Journal of reseach in commerce and management , 46-50
28. Thorat, U. (2012). Promoting Financial Inclusion through Proportionate Standards
and guidance. First Annual GPFI Conference on Standard-Setting Bodies and
financial inclusion.
29. Ansari, D. S. (2013). SHG BANK LINKAGE PROGRAMME IN INDIA: An
overview. INTERNATIONAL REFERRED JOURNAL OF ARTS SCIENCE &
COMMERCE- Volume 1, Issue 1 , 12-19.
30. Singh, V. (2014). Indian Microfinance sector in capital markets : Perils and
prospects. Mumbai: Department of humanities and social science, Indian Instiute of
Technology.
31. Jayshree Vyas (1993), “Banking with poor Self-employed women”, paper presented
at European regional meeting in Spain, organized by Women’s World Banking,
November (1993).
32. Srinivasan, R. (2003). Self-Help Groups as Financial Institutions: Policy
Implications Using a financial model. Journal of Microfinance; Volume 5, Number 1
, 1-19.
33. Raghav Gaiha, G. T. (2006). A methodology for assessment of the imapct of
microfinance on empowerment and vulnerability. Asia and the Pacifice Division,
IFAD.
34. Erica Field, R. P. (2008). Repayment frequency and defaults in Microfinance :
Evidence from India. Journal of European Economic Association , 501-509.
35. Centre for Mcirofinance, Jaipur. (2010). Loan Defaults by SHGs. Rajasthan: Bankers
Institute of Rural Development, Lucknow.
36. Pankaj K. Agarwal, S. K. (2010). Financial performance of microfinance insitutions
of India. Delhi Business Review; Voume 11, No. 2 , 37-46.
37. Roy, A. (2011 Volume 4). Microfinance performance of public sector banks in the
NER of India. BIZ and BYTES , 1-18.
38. Zohra Bi, S. l. (2011). Comparision of performance of microfinance institutions with
commercial banks in India. Australian Journal of Business and Management , 110-
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39. Sarita Vichore, S. D. (2012). Microfinane in India : A comprehensive analysis of the

growth and performance of MFIs. Research Journal of Social Science and
Management , 51-56.
40. Das, T. (2013). An Analysis of Non-Performing Assets and Recovery Performance
of Self Help Group Bank Linkage Programme- Unique Preference to North Eastern
Region of India. IOSR Journal of Economics and Finance (IOSR-JEF) , 5-14.
41. S., M. S. (2013). A study on causes and remedies for non performing assets in Indian
public sector banks with special reference to agricultural development branch, state
bank of Mysore. International Journal of Business and Management Invention , 26-
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Asia. Tokyo: ADB Insitute Research paper series no. 49.
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Microfinance Volume 6 Number 1 , 41-54.
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45. Kereta, B. B. (2007). outreach and financial performance analysis of microfinance
institutions in Ethiopia. African Economic Conferance United Nations Conference
Center (UNCC), Addis, Ababa, Ethiopia , 1-30.
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Competition and performance of microfinance institutions. Retrieved september 18,
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microfinance institutions. Retrieved september 18, 2013, from SSRN:
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Microfinance Institutions Incorporating Subsidy Dependence Index And Outreach
Index In Pakistan’s case. Pakistan Institute of Development Economics , 1-18.
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Institutions in Kenya. INTERDISCIPLINARY JOURNAL OF CONTEMPORARY
RESEARCH IN BUSINESS, Volume 4, No. 12 .
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performance of microfinance banks of Kenya: A survey of microfinance banks of
Nakura Town. International Journal of Science and Research, Volume 3, Issue 10 ,
2073-2078.

CHAPTER 3: MICROFINANCE INSTITUTIONS AND NON
PERFORMING ASSETS
Chapter Contents
3.1. Definition of microfinance institutions 59
3.2. Structural evolution of microfinance institutions 60
3.3. Legal forms of microfinance institutions 62
3.4. Microfinance institutions in Gujarat 63
3.4.1. Shri Mahila Sewa Sahkari Bank Ltd 64
3.4.2. The Saath Savings and Credit Co-operative Society Ltd. 87
3.4.3. PRAYAS – Organization for sustainable development 94
3.5. Definition of non-performing assets of microfinance institutions 107
3.6. Existing regulatory framework of microfinance institutions in India 107
3.6.1. The need for regulation 107
3.6.2. Suggestions given by Malegam committee 109
3.6.3. Establishment of NBFC-MFIs 115
3.6.4. Microfinance development and regulation bill 2012 117
3.7. Classification of assets by microfinance institutions 119
3.7.1. Classification of assets by Sewa Bank 119
3.7.2. Classification of assets by Saath Co-operative 120
3.7.3. Classification of assets by PRAYAS 120
3.7.4. Classification of assets for research purpose 121
3.8. Risks: Causes, Impact and Strategy 122
3.8.1. Types of risks 122
3.8.2. Causes of high credit risks 123
3.8.3. Impact of delinquencies 125
3.8.4. Managing credit risk 126
3.9. Summing up 128
References 129
Microfinance Institutions and Non Performing Assets
Chapter 3:
MICROFINANCE INSTITUTIOINS AND NON PERFORMING ASSETS
This chapter mentions in detail about the microfinance institutions in Gujarat. The chapter is
divided into nine sections. The first section defines the microfinance institutions. Second
section explains structural evolution of microfinance institutions. The third section mentions
the current legal forms of microfinance institutions. The fourth section describes the three
microfinance institutions in Gujarat that are studied and analyzed for research. It mentions in
detail about establishment, functioning, lending model, services and products, methodology
of microfinance etc of all the three sample institutions. The fifth sections defines non-
performing assets of microfinance institutions. The sixth section describes existing regulatory
framework of microfinance institutions. The fourth section includes classification of non-
performing assets of microfinance institutions. The section further defines asset classification
for the research purpose. The eighth section describes about the risks faced by microfinance
institutions, impact of credit risks and how to manage the credit risk. The ninth section
contains the summary of the entire chapter.
3.1. Definition of Microfinance Institutions

A microfinance institution (MFI) is an organization that provides financial services to
the poor. MFIs could play a significant role in facilitating inclusion, as they are
uniquely positioned in reaching out the rural poor. Many of them operate in a limited
geographical area, have a greater understanding of the issues specific to the rural poor,
enjoy greater acceptability amongst the rural poor and have flexibility in operations
providing a level of comfort to their clientele (NABARD, 2008)1.
Definition of Microfinance Institutions

The proposed Microfinance Services Regulation Bill defines microfinance services as
“providing financial assistance to an individual or an eligible client, either directly or
through a group mechanism for:
i. an amount, not exceeding rupees fifty thousand in aggregate per individual,
for small and tiny enterprise, agriculture, allied activities (including for
consumption purposes of such individual) or

ii. an amount not exceeding rupees one lakh fifty thousand in aggregate per
individual for housing purposes, or
iii. such other amounts, for any of the purposes mentioned at items (i) and (ii)
above or other purposes, as may be prescribed.” (NABARD, 2008)1.
3.2. Structural evolution of Microfinance Institutions in India

The exchange of money in the form of credit as well as cash between various
participants in the economy is a practice that has been traced to the ancient India with
evidence of its use over 3,000 years ago and the dating of the earliest Indian coins to
shortly after the death of the Lord Buddha around 400 BC (Sa-Dhan Microfinnce
Resource Centre, 2006)2.
 Financial services to the poor do exist

While informal financial services have always been an integral part of the
traditional economy of India, even semi-formal and formal financial services
through agricultural cooperatives and banks are within physical reach (less
than 5 km) of perhaps 99 per cent of the population of the country. A vast
network of commercial banks, cooperative banks and regional rural banks
(RRBs) as well as other financial institutions (FIs) provide such services.
Other FIs include non-bank finance companies (NBFCs), insurance
companies, provident funds and mutual funds.
Formal financial services are, in theory, available to low income families
mainly through rural and sub-urban branches of the major banks and RRBs
and by cooperative outlets – either bank branches or village level primary
societies. A total of 140,000 institutional outlets serving the rural sector and
the poor imply the availability of one outlet for every 5,600 persons – in
theory, a very favourable ratio for catering to the financial needs of-low
income families (Sa-Dhan Microfinnce Resource Centre, 2006)2.
 But their availability is a mirage
For many years, bankers and senior government officers were fond of
describing the Government of India’s (GoI) main poverty alleviation
programme, the Integrated Rural Development Programme (IRDP), as “the

world’s largest microfinance programme”. And so it was. It involved the

commercial banks in giving loans of less than Rs 15,000 to poor people and, in
nearly 20 years, resulted in financial assistance of around Rs 250 billion to
roughly 55 million families. The problem with IRDP was that its design
incorporated a substantial element of subsidy (25-50 per cent of each family’s
project cost) and this resulted in extensive malpractices and misutilization of
funds. This situation led bankers too to see the IRDP loan as a politically
motivated hand-out and they largely failed to follow up with borrowers. The
net result was that estimates of the repayment rates in IRDP ranged from 25-33
per cent. Not surprisingly, the two decades of IRDP experience – in the 1980s
and 1990s – affected the credibility of micro-borrowers in the view of bankers
and, ultimately, hindered access of the usually less-literate poor to banking
services.
Similarly, the entire network of primary cooperatives in the country and the
RRBs – both sets of institutions established to meet the needs of the rural
sector in general and the poor, in particular – has proved a colossal failure.
Saddled with the burden of directed credit and a restrictive interest-rate
regime, the financial position of the RRBs deteriorated quickly while the
cooperatives suffered from the malaise of mismanagement, privileged
leadership and corruption born of excessive state patronage and protection.
(Sa-Dhan Microfinnce Resource Centre, 2006)2.
 So the semi formal NGO-MFI sector has stepped in
Over the past 20-25 years, the resultant vacuum in the financial system has
started to be filled, initially with the pioneering efforts of development
organisations such as the SEWA Bank (Ahmedabad), Annapurna Mahila
Mandal (Mumbai) and Working Women’s Forum (Chennai) but, more
vigorously during the 1990s, by the entry of significant numbers of non-
government organisations (NGOs) into microfinance.
Initially, many NGO microfinance institutions (MFIs) were funded by donor
support in the form of revolving funds and operating grants. But now
development finance institutions such as NABARD, SIDBI and microfinance
promotion organisations such as the Rashtriya Mahila Kosh (RMK - the

National Women’s Fund) have provided bulk loans to MFIs. This has resulted
in the MFIs becoming intermediaries between the largely public sector
development FIs and retail borrowers consisting of groups of poor people or
individual borrowers living in rural areas or urban slums. In another model,
NABARD refinances commercial bank loans to self-help groups (SHGs) in
order to facilitate relationships between the banks and poor borrowers. This
movement has witnessed significant progress over the last 10 years and has
brought changes in the rural banking system.
Though, in most cases, the organisations earlier involved in developmental
works have made a start in providing “user friendly” formal financial services
to the poor, gradually transforming themselves into MFIs, their outreach is still
minuscule in comparison with the need. (Sa-Dhan Microfinnce Resource
Centre, 2006)2.
 And delivers microfinance through a variety of legal forms
Since microfinance was taken up mainly as a development initiative rather

than as a commercial activity, the voluntary development agencies (or NGOs)
who were registered either as societies, trusts or Section 25 companies, did not
think of looking at alternative institutional forms for providing these services –
though some cooperatives and one cooperative bank were also engaged
specifically in microfinance. As the scale of operations of microfinance
activities started growing and, along with that, the desirability of undertaking
such activity on a for-profit basis started coming into focus, the larger
institutions started to feel the need for a transformation in their legal structure.
As a result, MFIs in India can now be found in the form of NBFCs as well.
The following section discusses the legislation on which each of the
organisational forms discussed above is based. (Sa-Dhan Microfinnce
Resource Centre, 2006)2.
3.3. Legal forms of microfinance institutions

The Micro Finance Institutions (Development and Regulation) Bill, 20123 defines
microfinance institutions based on their registration as under:
a. a society registered under the Societies Registration Act, 1860; or

b. a company registered under section 3 of the Companies Act, 1956; or

c. a trust established under any law for the time being in force; or
d. a body corporate; or
e. any other organization, as may be specified by the Reserve Bank,
the object of which is to provide micro finance services in such manner as may be
specified by regulations but does not include—
i. a banking company, the State Bank of India including its subsidiary
banks, a scheduled bank, a co-operative bank, Export and Import Bank,
Reconstruction Bank, National Housing Bank, National Bank, a Regional
Rural Bank and Small Industries Development Bank;
ii. a co-operative society engaged primarily in agricultural operations or
industrial activity or purchase or sale of any goods;
iii. any individual carrying on the activity of money-lending and registered as
a moneylender under the provision of any State law which regulates such
activities
Table 3.1 Types of Microfinance Institutions
Type of entity Non-profit Mutual benefit For-profit

Association Society under Cooperative which can Association of person
Societies be just a savings and
Registration Act 1860 credit cooperative or
be
further licensed as
Cooperative bank.
Trust under Indian Charitable trust Mutual benefit trust Investment trust
Trusts Act 1920
Company under Indian Section 25 company Mutual benefit (Sec 6 Company which is
Companies Act, 1956 20A Nidhi Company) further either an NBFC
or a bank
(Source: (NABARD, 2008)1)
3.4. Microfinance Institutions in Gujarat

Microfinance institutions in Gujarat follow different methodology as mentioned in the
previous section. Next three sub sections discusses in detail about the profile, mission

and vision, products and services, organization structure, methodology used for
providing microfinance services etc of the representative microfinance institutions in
Gujarat taken as sample for tthe
he research namely SEWA, SAATH and PRAYAS.
3.4.1. Shri Mahila Sewa Sahkari Bank Ltd. (Sewa Bank)
The first major development effort of SEWA, the SEWA Co

Co-operative
operative Bank embodies a
well-thought
thought out concept to serve poor, self-employed
self employed women. It aims at providing an
a
integrated set of banking services which make it a multi-service
multi service organization that has
deviated from the general pattern of co
co-operative banks.
Figure 3.1 Logo of Sewa Bank
(Source: (Microfinance Information Exchange Inc., 2016)4)
 Introduction of SEWA Bank
Shri Mahila Sewa Sahkari Bank Ltd. which came in to being in the year 1974 was
established with 4000 self employed women – each of whom deposited rupees ten as
their share in the new venture. The Sewa Bank stands out as the only bank of its kind
in the country and is still growing by attempting to reach out to the maximum number
of poor women engaged in unorganized sector (SEWA Bank, 2008)5.

 Mission of SEWA Bank
Sewa Bank exists to reach to maximum number of poor women workers engaged in
the unorganized sector and provide them suitable financial services for socio-
economic empowerment and self development, through their own management and
ownership (Introduction : Mission, 2012)6.
 Objectives of SEWA Bank
a) Providing facilities for savings and fixed deposit accounts, thus, inculcating thrift
in the women, managing their savings and ensuring safe custody of the cash the
women receive as loans.
b) Providing credit to further the productive, economic and income-generating
activities of the poor and self-employed.
c) Providing integrated insurance services covering death, sickness and asset loss –
as a form of social security protection to informal sector women workers
d) Extending technical and management assistance in production, storage, procuring,
designing and sale of goods and services.
e) Adopting procedures and designing schemes suitable to poor self-employed
women, like collecting daily savings from their places of business or houses, or
providing saving boxes and giving training and assistance in understanding
banking procedures.
(SEWA Bank, 2008)5
 Client profile of SEWA Bank
Sewa bank’s account holders are made up of around 80 percent of urban and 20
percent of rural self employed women. The majority of these women are also
members of Sewa Trade Union. The urban female depositors of Sewa Bank are
engaged in three predominant activities: As vendors, as labourers or small service
providers and as home-based workers. The average monthly income of a member of
Sewa bank is Rs. 1500 where as the average monthly income of whole family of 5-7
members is Rs. 3000.
Sewa bank’s depositors come to bank through three main sources: 1) Through Sewa
organizers: who work in the field and who are in personal contact with self employed

women, on a day to day basis. 2) Through existing members of SEWA and Sewa
Bank. 3) Through word of mouth. (SEWA Bank, 2008)5.
 Products and Services provided by SEWA Bank
 Savings/ Recurring Schemes

Through constant training, Sewa Bank inculcates the habit of saving to its
member. Sewa Bank lays great emphasis on savings, more so when its clients are
all self employed women with low income. Also, from an institutional view point,
building a credit loan fund from members very own savings is cost effective. A
wide range of different saving schemes are available for members (Financial
Services: Savings, 2012)7.
o Jivan Asha – Hope for life (Daily saving Scheme)
This saving schemed was formulated by the board of directors and was started
in May 2000. It has become very popular especially among daily wage
earners. The scheme is designed for women who earn small amount of money
on a daily basis and is ideal for vegetable vendors, seamstresses, bidi
(indigenous cigarette), agarbarti (incense) workers and milk producers. If they
save on a daily basis, they would stand to benefit, else there is every
possibilities that the money earned is easily spent. One of the popular scheme
Jivan Asha has proved to be a boon and lightened up many homes when in
urgent need. (SEWA Bank, 2008)5.
o Ghar Fund Yojana (Housing Fund Scheme)
To enable the member to have a house of their own and in particular in their
own name was started Ghar Fund Yojana (House Fund Scheme) in 1999 with
contributions of Rs. 250, Rs. 500 and Rs. 750. Deposits are made on monthly
basis for a period of 5 years or more. With the amount returned after 5 years
with interest, woman can build their own houses. If the bank finds it
appropriate, members will get the same amount as a loan under bank’s terms
and conditions. This scheme motivate woman to build their own houses or
renovate their houses from the amount (Financial Services: Recurring, 2012)8.
o Chinta Nivaran Yojana ( Worry Riddance Scheme)
To meet small difficulties and overcome worries Chinta Nivaran Yojana
(Worry Riddance Scheme) was started in 1999, that year Sewa Bank

celebrated its silver jubilee with contributions ranging from Rs.40, Rs. 80 and
Rs. 120. Under this scheme, deposits are made every month up to Five Years.
In any emergency like Natural Calamities Cyclone, Earthquake, Flood,
Famine, Accidental death of family member, illness or any kind of emergency,
after one year of joining in the scheme they can get an overdraft loan
(Financial Services: Recurring, 2012)8.
o Mangal Prasang Yojana (Special Occasion Scheme)
This scheme was launched in 1999. This too was for 5 years with
contributions being for Rs. 200, Rs. 400 and Rs. 600. This was primarily
aimed to help members during wedding of their sons and daughters. The main
object is that members start to think for their tomorrow. Also they avoid
unnecessary loans and understand Importance of Saving (Financial Services:
Recurring, 2012)8.
o Kishori Gold Yojana (Buying gold Scheme)
This scheme was started in 2004 which encourage member to save money for
special occasion is Kishori Gold Yojana (Buying Gold Scheme). This was
aimed at meeting expenses towards buying gold and gold ornaments during
the wedding of their progeny. Gold ornaments are assets and a saving. With
this intention the scheme was started with contribution of Rs. 50 and in
multiples of that. This scheme is where gold can be of help for both the
daughter as well as the son’s wedding. Therefore one does not have to borrow
for that and invite a debt. Small savings made gradually or accumulated gold
can be used for future occasions which can then be celebrated without tension.
Also by joining this scheme, not only stress is avoided but also can look
forward to the savings in an emergency (SEWA Bank, 2008)5.
 Pension
Despite having always designed products and schemes as per the life cycle and
requirements of these women, the bank realized that it was lacking somewhere in
its products or schemes to cater to provide same security when turn old.

Hence the bank decided to come up with a new product and scheme which would
be designed specially to meet the needs of the women of unorganized sector and
provide them with old age security.
Figure 3.2 Stages of life cycle
(Source: (Financial Services: Pension, 2012)9)
First generation of experience helped bank to identify need for "Pension"

Service.
 Designed own Pension Saving Product in the year 1995.

 Linked with Pension Product of UTI in the year 2006.
 Linked with NPS from February, 2012.

NPS is an initiative of the Government of India and PFRDA. NPS was initially
for Government employees and was later extended to all citizens of India. NPS/
Swavalmban scheme was launched in recognition of the need to provide old age
income security to marginal income earners.
Swavalamban to encourage Non-organized people to start saving for their old

age, Govt. of India will also contribute Rs. 1000 per year for the NPS accounts.
 National Pension System (NPS) is an initiative of Pension Fund Regulatory

and Development Authority (PFRDA), the apex body established by
Government of India to regulate and develop the pension sector.
 Unorganized Sector people who are yet not getting privilege of pension or
any other social security scheme for old age.
 Promotes small savings during their productive life for their old age
 Financial independency and security in their old age
 "Swavalamban Scheme" of Govt of India, which grants an incentive of Rs
1000 to all eligible NPS accounts shall be available to all NPS Lite account
holders as well, if they meet the prescribed criteria.
 Open NPs Account and Every year deposit Rs.1000/- to Rs.12000/- and get a
grant of Rs.1000/- by the Government of India.
 Age from 18 years to 60 years Indian Citizen anybody can eligible to open
NPS Account.
(Financial Services: Pension, 2012)9
 Loan
Members need loans for a wide variety of purpose: to buy assets, raw materials,
finished goods for resale, old debts, renovation of their homes, buy transportation
means such as Pedal cart, handcart or put in infrastructure in their homes such as
water or electric connections.
Sewa Bank has been providing a wide range of loan products to meet the
productive credit needs of its clients. The bank requires that woman save
regularly for at least one year before she is eligible to apply for a loan. In the
absence of traditional collateral, a regular savings record has been a necessary
from of security in Sewa Bank’s experience of banking with the poor for well

over 38 years. More than 30000 members got the facility of loan in the financial
year 2012-13.
 Sanjivani loans
Sanjivani or ‘rebirth’ loan is a loan product specially designed for the wives
of mill workers laid off due to the closure of textile mills of Ahmedabad.
Thus, most of these families have now become female-headed households.
Sanjivani loans, coupled with business counseling from the bank and
marketing services from Sewa, help these women to start new business or
expand existing ones (SEWA Bank, 2008)5.
 Housing Loans
Financial Institutions have been reluctant to give women housing loans for
women are still perceived as mere housewives who are high credit risks.
Housing loans are not seen as productive loans which will lead to an increase
in income.
Housing however is a productive asset for millions of women who are poor
and work out of their homes and this access to housing finance at long term,
affordable rates is a prime necessity. Moreover, among the poor those with
assets are less vulnerable to the vagaries of life than those without assets
(Financial Services: Loan, 2012)10.
 House Repairing Loans (Paki Bhit Loan)
Sewa Bank has found that as the economic security of SEWA member’s
increases, the demand for housing loans and housing related services also
increases. Most importantly, and as a rule, loans for a new house require that
the house be bought in the name of the women borrower, thereby creating an
asset for the women.
Sewa Bank has given loans for housing purposed to thousands of women.
These include loans to repair or replace a roof, wall, floor or door, for
monsoon proofing, adding a room or kitchen, upgrading as well as loans that
could be used as deposits for rent and to buy or build a new house. Loans
were also taken for infrastructural facilities such as water or electricity
connections, building toilets and paved approach roads to the house
(Financial Services: Loan, 2012)10.

 Unsecured Loans
All the different types of loans discussed above are all unsecured loans but
all of them are for special purpose. If the members want loan for short term
and without any specific purpose related to above loans, then they are given
unsecured loans.
 Secured (Gold) Loans
In India, majority of women own some jewellery and gold is seen as an
investment- a form of insurance against bad times. Even the poorest of
women own some jewellery, usually given to her at the time of her marriage.
Sewa Bank has designed a secured loan product based on jewellery as
collateral. This prevents them from going to money lenders who give bad
rates and often reclaim the jewellery (selling it to a third party) before the
loan due date. Up to 80% of the value of the jewellery is retained with Sewa
Bank until loan is fully paid. Realizing the importance of gold as an
investment, the bank now also gives loan for investment (Financial Services:
Loan, 2012)10.
Except the gold loan which is secured loan against gold, every other loan is
unsecured loans. These all unsecured loans are microfinance loans.
 Other services
o Energy: Sewa Bank has designed a special "energy loan product" for different
types of uses. These energy products include different types of cooking
systems, home lighting fan and lanterns for businesses. These products are
solar products as well as conventional products (Other Services: Energy,
2012)11.
o Fixed Deposit: Sewa Bank also provide fixed deposit services with flexibility
of different time periods.
 Areas of Operations
 Urban banking
Sewa bank’s clientele belong to economically active women from the low income
group like vegetable vendors and rag pickers. They do not have time or means to
make trips to bank. Sewa bank takes care of this. It does the travelling and goes to
them.

Doorstep banking was pioneered by Sewa Bank way back in 1978, when its first
mobile van travelled to areas of high customer concentration to facilitate cash
collection. Today, mobile vans cover the city daily.
Following the introduction of mobile vans, Sewa Bank began opening extension
counter throughout the city of Ahmedabad, Gandhinagar and Sanand. Today the
bank has five branches in Ahmedabad areas such as Rakhiyal, Vasna,
Madhupura, Elissbridge and Behrampura and one branch each in Gandhinagar
and Sanand (SEWA Bank, 2008)5.
 Rural banking
Over 70 percent population in villages is dependent on agriculture for their
survival. In Gujarat, which has an erratic rainfall and where land holding average
size though 7 acres but with skewed distribution, people often land up putting
their assets for mortgage just to meet their day to day needs. Realizing the grave
need for banking for rural poor women, Sewa bank began providing the banking
services at the door step of poor women.
In the year 1993, Sewa bank began it banking activities in the rural districts of
Gujarat, after getting the required permission from Reserve Bank of India (SEWA
Bank, 2008)5.
 Special features of SEWA Bank working methodology
 Banksathi
Banksathis are the Bank's front line worker though they are not the employees
of bank. They are agents of the bank and gets their remuneration in form of
commission. They come from the same communities as the customers and live
alongside them in the same neighborhoods. They typically also pursue the
same trades as the women while working in conjunction with the Bank. A
banksathi is usually someone who has experience at maintaining a bank
account; is a local leader with good credibility; is strong, energetic, and alert;
is active within SEWA; and can preferably read and write. Banksathis have
fixed deposits of 15,000 rupees in SEWA Bank – the amount that is taken as a
“security deposit,” a safeguard against any misappropriation. (Recently, the
Reserve Bank of India has suggested raising the amount.) She may borrow
from the bank and deposit the amount in her fixed – deposit account. A

capable banksathi can serve around 400 borrowers of the bank. A bank staff
in-charge monitors the banksathi (Methodology: Banksathi, 2012)12.
 Hand holder
Hand holders are the employees of the bank and they come in the lowest level
of bank’s organization chart. They supervise the banksathis and also are in
contact of the clients that have been sourced by the banksathis. The hand
holders are all round counselors for the client and in addition to offering
financial advice; they also counsel women to plan for the future and advice
them on the bank’s services and products (SEWA Bank, 2008)5.
 Financial counseling
Along with empowering women, information is crucial to the empowerment
if long term benefits are to accrue. Towards that financial counselling
becomes a necessity for it leads to wiser and sustainable decision making
process.
Sewa Bank trains financial counsellors at the grassroots level and financial
literacy specialists in different aspects of financial planning ultimately to
benefit women workers in arriving at sound financial discipline.
Financial discipline thus arrived at through financial counselling helps take

care of exigencies in future, gives a feeling of security, inculcates a feeling of
economic independence and encourages them to plan for the future.
Financial decision-making based on an informed choice after attaining

knowledge about all services, available to the client, leads to wiser, more
sustainable decision making.
Objectives:
1. To make poor women understand the concept and importance of

financial planning.
2. To help these poor women inculcate sound financial planning in their
normal decision making process.
3. To motivate poor women to plan for the future. They should understand
the fact that the future is very uncertain and anything could happen. She

can be assured of a secured tomorrow, only if she makes adequate

financial provision today.
4. To bring out a change in the mind set of women, by encouraging
them to plan for the future.
5. To lead her to a “Feeling of Security” by giving her information and
access to the various financial services and products available in the
market, and explaining the various life cycle financial needs that each of
the services or product is designed to meet. This is also an important
tool of empowerment as knowledge is power.
6. To inculcate a feeling of economic independence and belief that the
money she is earning today can be useful not only for her present but also
to make her own and her family’s future more secure, provided she plans
and invests properly (SEWA Bank, 2008)5.

 Business counseling
Figure 3.3: Business Counseling at different stage
Workmanship
Busines
s
Production
(Source: (SEWA Bank, 2008)5)
Business Counseling Training idea was conceptualized under Sanjivani Project.

This project was taken up with the main aim of helping women members and their
families who were affected by the closure of major textile mills in Ahmedabad.
The main objective of Business Counseling under Sanjivani Project to these self
employed women members is to help them select the right path which will make
them self confident and self reliant.
Through Business Counseling Trainings, Sewa Bank aims to impart basic knowledge
and information to women members to not only starts their own business but also how
to expand their existing business and be successful.
The training consists of modules like basic accounting, selling, marketing and
making a business plan (SEWA Bank, 2008)5.

 Working pattern of SEWA Bank SHG Model
Every MFI have its own unique method of providing microfinance services. In Sewa
Bank, most of the credit services is provided in a group known as Self help group in
the initial stage. Later on based on the performance of the group, Bank may also give
individual loans. Following is the method adopted by Sewa Bank right from group
formation till the credit is granted to the members.
 Formation of SHG
The group is generally formed by the people of the same village. In addition, there is
some mutual linking among the people. Some known reasons for these mutual
affinities are:
 Similar experience of poverty

 Similar living condition
 Same kind of livelihood
 Same community or caste
 Same place of origin
The group is thus formed of people having any one of more of the above similarities.
This is done to avoid probable future conflicts.
 Size of SHG
 The ideal size of an SHG is 10 to 20 members. (Advantage: In a bigger group,
members cannot actively participate. Also, legally it is required that an informal
group should not be of 20 people.)
 The group need not be registered.
 Membership rules
 From one family, only one person can become a member of an SHG. (More
families can join SHG this way.)
 The group normally consist of either only men or of only women. (Mixed groups
are generally not preferred, since it may obstruct free and frank discussions,
opening up typical personal problems.)
 Women’s groups are generally found to perform better. (They are better in
savings and they usually ensure better end use of loans.)

 Some common factors for membership in an SHG

 Women or Men from very poor household.
 Those who depend on moneylenders even for daily necessities.
 Those with a per capita income not exceeding Rs. 250 per month.
 Those having dry land holding not exceeding 2.5 acres.
 Meetings
 During the initial meetings, following things happen:
 Some members leave
 Some new members come in
 The members slowly learn to decide the subjects for meetings.
 They learn to conduct meetings.
 They understand the value of records and documents.
 They want to remain together and help each other.
 The group should meet regularly. Ideally, the meetings should be weekly or at
least monthly. (Advantage: They become closure, if they meet regularly. This
helps to understand each other’s difficulties better.)
 Compulsory attendance: Full attendance in all the group meetings will make it
easy for the SHG to stabilize and start working to the satisfaction of all.
 Membership register, minutes register etc., are to be kept up, to date by the group
by making entries regularly. (Advantage: This helps to know about the SHG
easily. It also helps to built trust among the SHG members.)
 Leadership
 One member of the group needs to take the lead.
 One more member is also elected, to take the lead in absence of the leader.
 The leaders are selected based on their ability of maintaining the group unity and
handling the members of the group.
 The main functions of the leaders are book keeping, organizing meetings,
depositing the savings to the bank etc.
 If the leader is not efficient, he/she could be replaced by other member with the
confirmation of all the group members.

 Functioning of SHG
Simple rules are required for the SHG to function. The following are some important
rules:
 Common agreement on when to meet
 Decision on time and place of meetings
 Agreed penalties for non attendance
 Agreement on amount of saving
 Giving small loans to each other
 Taking loans from banks
 Repayment habits
 Training of the SHG members

Training of the members is an important need for proper functioning of the SHGs.
These areas of training could do well to the members:
 Basic mathematics
 Writing of books
 Scheduling of the meetings
 Social aspects like women empowerment
 Basics of lending money, borrowing, repayment
Most effective method of training of SHG member is take them to a good working
SHG and allowing free interaction with its members.
 Keeping of account by SHG

 Simple and clear books for all transaction to be maintained.
 If no member is able to maintain the books, the SHG may take outside help. (It
has been seen that a boy or a girl from the village with some educational
qualification does this job enthusiastically. After some months the group can
even consider giving him/her a small reward for this job.)
 Animator can also help
 All registers and account books should be written during the course of the
meeting. (Advantage: this creates confidence in the minds of the members who
are unable to read and write.)
 Books maintained by SHG

 Minute Books
The proceedings of meetings, the rules of the group, the names of the members
etc. are recorded in this book.
 Savings and Loan Register
This shows the savings of the members separately and of the group as a whole.
Details of individual loans, repayments, interest collected, balance etc. are entered
here.
 Weekly/Fortnightly/Monthly Register
In this register the summary of receipts and payments are kept and updated in
every meeting.
 Members’ pass book
Individual members’ pass book in which individuals’ savings and loans balance
outstanding is regularly entered. (Advantage: This encourages regular savings)
 Functions of the SHG

 Saving and Thrift
 All SHG members regularly save a small amount. The amount may be small,
but savings have to be a regular and continuous habit with all the members
 “Saving first-Credit later” should be the motto of every SHG member.
 SHG members take a step towards self-dependence when they start small
savings. They learn financial discipline through savings and internal lending.
(Advantage: This is useful when they use bank loans.)
 Internal Lending
 The SHG should use the savings amount for giving loans to members.
 The purpose, amount, rate of interest, schedule of repayment etc., are to be
decided by the group itself.
 Proper account to be kept by the SHG.
 Discussing problems
In every meeting, the SHG should be encouraged to discuss and try to find
solutions to the problems faced by the members of the group. Individually, the
poor people are weak and lack resources to solve their problems. When the group
tries to help its members, it becomes easier for them to face the difficulties and
come up with solutions.

 Taking bank loan

The SHG takes loan from the bank gives it as loan to its members. The group has
to decide the member who will take the loan first. This is solved through
discussion among the members regarding the purpose of the loan required by the
members. The priority is decided based on the purpose of the loan.
 Planning
The SHG should prepare plans for the future so that each member can
collectively work for the achievement of the same. It should plan to get financial
support from government, bank and NGO for is sustainability. It can take up
some development programmes in the locality and all the members should
themselves in implementation and monitoring of the programmes.
 Linking of SHG to bank

Soon after an SHG is formed and one or two meetings held where the savings are
collected, a savings bank account can be opened in the name of the SHG. There are
some other ways also other than that of the saving account through which the SHGs
could link with the bank as follows:
Opening of S/B Account for the SHG
Official Instructions: The Reserve Bank of India has issued instructions; permitting
banks to open SB A/cs of registered or unregistered SHGs. SB A/c in the name of
SHG could be opened after obtaining from the group the following documents:
o Resolution from the SHG
The SHG has to pass a resolution in the group meeting, signed by all members,
indicating their decision to open SB A/c with the bank. This resolution should be
filed with the bank.
o Authorization from the SHG
The SHG should authorize at least two members, any two of whom, to jointly
operate upon this account. The resolution along with the filled in application form
duly introduced by the promoter may be filed with the bank branch.
o Copy of the rules and regulations of the SHG
This is not a must. If the group has not formulated any such rules or regulations,
loans can be sanctioned without them.

A Savings Bank Account Passbook may be issued to the SHG. This should be in
the name of the SHG and not in the name of any individuals.
 Process of granting Microfinance loans
After the formation of the group, the representative of MFI will monitor the activity
of the group for the first six months. Thus the loan is not granted till the initial six
months in order to supervise the group and to check whether it is working and
functioning as per the rules and regulations of the Microfinance institutions.
After the completion of first six months of the SHG, the representative visits the
group by going to the house of member of the group. The representative, at this time
initiates the process of loan and is described as under:
Step – 1 Decide the grade of the group
The auditor from MFI will go to the place where the group members live, after the
completion of first six months. She/he will check all the activities of the group and
will grade their activities as per grading form.
Table 3.2: Activities of the group
Name of the group: Date of opening of account:

Account No.: Initial number of members:
Name of the village: Present number of member:
Taluka: Individual saving amount:
District: Name of the leader:
Investigator’s Name:
Date:
Sr. Criteria Yes No
No.
1 Number of members are 15 to 20
2 The group members are from homogenous background.
3 Bye laws are available in written form
4 Bye laws are understood by the members.
5 The date of monthly meeting is fixed and at least 60
percent of the meetings have been held as scheduled.

6 The average attendance rate is at least 60 percent for last

year/ period under review.
7 There is regular saving of last 75 percent members on the
decided date.
8 Every year there is increase in the individual savings
amount with the group.
9 Individual Passbook is regularly written by the group
leaders and handed over
10 Minutes are noted down in the minute’s book.
11 Accounts of loan and recovery are written on the basis of
procedures decided by the groups
12 Accounts are audited at least once in a year.
13 Loans are given as per laid down rules.
14 Loan utilization is checked.
15 There is at least 90% on time loan recovery of monthly
installments for last year/period under review.
16 Every member of the group is having all the information
about the group.
17 Group is linked with other type of activities.
18 The group is democratically managed by the leaders.
19 Every member and leader has taken training.
20 Annual meeting is being conducted within three months
after the completion of the year.
Total
(Source: Prepared from the hard copy of format given by representative of Sewa)

Table 3.3: Grading format – SEWA Bank groups
A Grade groups Yes in 76% & above Will be eligible for SEWA Bank loan.
of the criteria.
B Grade groups Yes in 51 to 75% of Will be eligible for SEWA Bank loan after
the criteria. improvement in performance. Capacity
building measures to be undertaken.
C Grade groups Yes in less than 50% Corrective measures need to be taken in
of the criteria. group performance. Groups that are graded
below 5 should be reconstituted.
Step – 2 Decide the credit rating of the group
The group that gets A Grade is the only group that is allowed to move further to the
step – 2 of the loan process. Now, the group’s credit rating is done by using another
form know as credit rating form. The pro-forma of credit rating form is given as
under:
Table 3.4: Credit Rating of the group
Aspect Grades Marks Marks Obtained

1) Regularity of 91% to 100% 10
meeting 81% to 90% 7.5
71% to 80% 05
61% to 70% 2.5
Less than 60% 00
2) Attendance Rate 91% to 100% 10
81% to 90% 7.5
71% to 80% 05
61% to 70% 2.5
Less than 60% 00
savings amount 91% to 95% 7.5
86% to 90% 05

81% to 85% 2.5

Less than 80% 00
members in savings 91% to 95% 7.5
86% to 90% 05
81% to 85% 2.5
Less than 80% 00
5) Book keeping – Individual pass 3
Regular updating book
and accurate Pass book 3
Savings Register 4
Loan Register 4
Minute Book 3
Bye Laws 3
Total
6) Repayment Performance
A) For the groups who have taken only SEWA bank loans
I) On time 97.6% to 100% 20
repayment rate of 95% to 97.5% 15
earlier SEWA bank 92.6% to 94.9% 10
loan 90% to 92.5% 5
Less than 90% 0
II) Overall Full settlement of 20
Repayment of loan loan and interest
with in loan term with loan term
Full settlement of 12
loan and interest
with one month
delay beyond loan
term
loan and interest
with two month

delay beyond loan

term
loan and interest
with more than two
month delay
beyond long term
B) Groups with only internal loans
I) Overall 97.6% to 100% 40
repayment rate of 95.1% to 97.5% 30
internal loan for
92.6% to 95% 20
period under
90.1% to 92.5% 10
review
Less than 90% 00
C) Groups with internal loans and SEWA bank/ External loans

I) Overall 97.6% to 100% 20
internal loan for
92.6% to 95% 10
period under
90.1% to 92.5% 5
review
Less than 90% 0
II) Overall 97.6% to 100% 20

External loan for
92.6% to 95% 10
period under
90.1% to 92.5% 5
review
Less than 90% 0
Table .3.4 (b): Total Marks for credit rating

Total possible maximum marks Total marks scored Percentage

Table 3.5: Some Definition

Regularity of Number of meetings conducted during the period under review
meeting as a percentage of total no. of meetings scheduled to be held.
Attendance rate No. of members present in the meetings held during the period
under review as a percentage of total members that should have
been present
Regularity of Amount of savings actually collected during period under
savings amount review as a percentage of amounts of savings that should have
been collected.
Regularity of Total no. of times the members saved during the period under
members in savings review as a percentage of total no. of times they should have
saved during the period under review
On time repayment The amount of principal actually return during the long term as
rate a percentage of loan amount (principal) that should have been
return within the loan term
Step – 3 Deciding the loan eligibility
Based on the credit rating of the group, it is granted the maximum amount of loan that
the group as a whole could take. The following amount of loan is granted, based on
credit rating:
Loan Eligibility
Minimum 60% to be scored for loan eligibility (Benchmarks are high, therefore those
groups with score more than 60% will be well performing group.)
Table 3.6: Loan Eligibility format
Score of the group Loan eligibility

61% to 70% Three times of savings
71% to 80% Five times of savings
81% to 90% Six to seven times of savings
91% to 100% Ten times of savings

Step – 4 Decision of members that will take loan
At this stage, members of the group have to decide that who among them will take the
loan from the available limit and how much. The group members have generally
decided the loan taker well in advance. The decision is taken in meetings where the
members tell the purpose of the loan. The priority of loan to be taken by each member
is decided based on the requirement of the members. The basic and urgent needs of
the members are satisfied first through loans.
Step – 5 Confirmation from other group members and documents submission
The auditor has also to check that whether the loan is taken by the member after
confirmation from all the other members of the group. Moreover, it is compulsory
condition that all the members of the group should have the information and
knowledge about the person who is taking loan, the amount of loan, the purpose for
which the loan is being taken, etc.
Step – 6 Disbursement of the loan
This is the last phase of the process of the loan. Here, the member to whom the loan is
to be given goes to the bank. Also, the guarantor and one of the family members of
the person who is taking loan will also come. Then the identity of the person is
checked and also all the documents submitted by the member are verified.
After all the above formalities, the loan amount is given to the member.
3.4.2. The SAATH Savings and Credit Co-operative Society Limited

(SAATH)
 Overview of SAATH
Saath had been providing community based financial services to the poor & the
needy of Ahmadabad since 1994. In 1999 Saath expanded its services with small
loans. As demand grew, Saath established its operations in a more formal way,
with the establishment of a co-operative society structure. In 2002, two Co-
operatives were formed to work in two different areas of Ahmedabad. All these
services were brought under the umbrella of one cooperative which was registered
as The Saath Savings and Credit Co-operative Society Ltd. (SSCCSL) in March

2010. The cooperative is registered under Gujarat Cooperative Societies Act 1961
with District Registrar of Cooperative Societies Ahmadabad. In the year 2014, the
permission has been received to work in whole Ahmadabad District (About us:
Background, 2015)13.
Figure 3.4 Logo of SAATH
(Source: (SSCCSL, 2012-13)14)
 Objectives of SAATH
 To develop saving habits in our members for their future needs.
 To provide loans at an affordable rate of interest.
 To provide affordable insurance.
 To make the financial services available in the market accessible to the low
income group, for their use.
 To promote equal participation of people irrespective of religious, economic
and social background, or gender, and to be helpful for their development.
(SSCCSL, 2015-16)15
 Areas of operations of SAATH
Saath co-operative has its branches in different areas of Ahmedabad. Its head office
is situated in Vasna. In addition to this, it has nine more branches in Ahmedabad.
Following are the name of the branches of Saath Co-operative:

Table 3.7: Name of the branches of Saath Co-operative

Vasna Branch Sarkhej Branch
Gomtipur Branch Narol Branch
Saraspur Branch Hathijan Branch
Behrampura Branch Bareja Branch
Vadaj Branch Shyamal Branch (Virtual)
(Source: (SSCCSL, 2015-16)15)
 Products and services of SAATH
Following is the detail description of product and services provided by Saath Co-
operative:
 Savings/Deposit
Saath offers following saving products to its members-
1. Compulsory Saving Scheme:
A member is required to deposit INR. 200 per month. Withdrawal is permitted
only after deposit amount reaches INR. 4800. However a minimum balance of
INR.600 has to be maintained.
2. Voluntary Saving:
Members are allowed to deposit voluntarily additional amount over and above
compulsory deposit. The withdrawals against voluntary savings are allowed
without any restrictions
3. Fixed Deposits:
There are flexible tenures for fixed deposit from six months to 2 year INR. A
Member can save in FD with minimum amount of INR. 3000.
4. Child Plan:
In this product, any member can save INR.200 or any amount in multiples of
200 per month for their children up to 36 months. On maturity, the amount
could be withdrawn or further invested.
5. Monthly Income Scheme (MIS):
There are two monthly income schemes, for 3 years and 5 years periods with
minimum amount of INR.10000. Pre- mature discontinuation of the scheme is
not permissible. The amount payable monthly will be automatically transferred
to his/her voluntary saving

6. Recurring Deposit Scheme:

In this product, any member can save INR.500 or any amount in multiples of
500 per month with varying interest for 12 months, 24 months & 36 months.
Once the monthly deposit is fixed the same cannot be changed during the plan
period.
7. Double Scheme:
This product is exclusive for 6.5 years period with minimum amount of Rs.
5000. Pre- mature discontinuation of the scheme is not permissible.
(Deposit, 2015)16
 Loans
The Saath Cooperative offers 4 types of loan products:
 Production Loan:- For the purpose of establishing micro-enterprises
 Asset Creation Loan:- Includes debt redemption, house repairs and
purchasing assets
 Consumption Loan:- Health, education, social events, household
expenditures
 Individual Loan:- Exclusively for shopkeepers
Main Feature of our Loan Products:

 Loan disbursement in Joint Liability Groups
 Duration of loan is 12 to 30 months.
 Repayment in EMIs
 Interest charges are on reducing balance.
 Flexibility in pre closure
 Credit term life insurance facility for Member and Spouse.
 Loans are disbursed in 4 consecutive cycles:-
(Loans, 2015)17
 Insurance
Credit Term Life Insurance
The Scheme covers the loan amount on behalf of the lone in case of death of the
member or the spouse. The premium is paid by the member at the time of
disbursement of loans for the entire loan amount and the loan period. The claim

amount remains the same as the initial loan amount irrespective of actual
outstanding loan amount at the time of the claim (Insurance, 2015) 18.
 Membership details of SAATH

 Demography :
As of data gathered on March 16, Majority of Saath members (84 %+) are
female and nearly two third of it are of age between 28 to 47 years. Nearly
half of Saath members are educated up to primary level (1-7) and more than
two third of them are married.
 Occupation:
A big chunk of Saath members are daily wagers. Others work as service
providers such as plumbers, mechanics, house maids, technicians, grading and
packaging of cereals and pulses for C & F agent’s etc. Then there are small
traders such as fruits and vegetables vendors, and micro-entrepreneurs. A
significant number of SSCCSL members are self employed. Whereas there are
also members who do not earn themselves, but regularly save and access
credit, house wives getting allowances from their husband for meeting house
hold expenses are among them. (SSCCSL, 2015-16)15
 Other tie-ups and networking of members of SAATH

Besides offering above mentioned services, SSCCSL established few other tie ups
with services in mainstream market such as-
a) Mod Roof: SSCCSL is linking its members to the manufacturer of roofs -Mod
Roof by Re-Materials. Mod Roof is specially designed and produced by Re-
Materials Team with main features are low and affordable cost, highly durable,
water proof, fire proof and mainly reduce heat by 8-10 degree from current
temperature outside. SSCCSL gives loans to its members in Groups( JLG) as
well as individually to get a Mod Roof on their houses
b) MHFC: SSCCSL ran a pilot project of linking its clients to MHFC which
gives loan for renovation of houses.
c) Drishti: To create awareness amongst its clients SSCCSL tied up with a non-
profit Drishti working in media, arts and human rights. It would help publicize
SSCCSL amongst people by highlighting , its success stories through its
community radio program- Radio Nazariya.
d) Awaz De: SSCCSL is implementing partner of Awaz De in a project awarded

by Bill and Milinda Gates Foundation. A social enterprise providing easy-to-
use, cost efficient and time saving mobile solutions for organizations and
communities across multiple sectors Awaz De bagged this project in tough
competition between 1,100 applications made from 91 countries.
(SSCCSL, 2015-16)15
 Community based financial service model
Community-based financial service model required holding hands of its members

at the time of crisis, and thus, the component of affordable insurance was also
included. As the members are socio-economically vulnerable, SSCCSL took up the
task of making mainstream financial services accessible to the low income group,
for their use.
SSCCSL aims at making affordable credit accessible to the marginalized. This is

achieved by offering various micro credit and micro saving options. It also works
closely with Saath Livelihood Services to generate employment/entrepreneurship
options for its member The team constantly keeps generating new ideas, and also
engages with various corporate for benefits of its member.
 Joint liability Group
To create peer support that ensures repayment of loans, The Saath Co-operative
only gives loans to JLGs. A group of 4 to 6 potential clients can form a JLG in
which members share the responsibility of managing their loan repayments on
time. The group must continue until the full loan amount of each individual
borrower in the group has been repaid. Each member of a JLG has the liability of
paying the loan of other members, if any default arises. Field officers organise
these groups and conduct meetings in the field. They also inform the members
about the repayment schedules. (SSCCSL, 2012-13)14.
 Methodology for providing microfinance services

The foundation of microfinance model is membership and savings’ driven. Upon
becoming a member of The Saath Co-operative, a potential client has to pay a
nominal fee and has to become a shareholder of The Saath Co-operative by
purchasing two shares. Saving is mandatory for every client throughout the period

of their membership. To ensure regular savings, our field officers

cers make regular
follow-ups
ups with all the members.
After regular saving for six months, the member
member becomes eligible for a loan in the
first
rst cycle with a Joint Liability Group (JLG). The group is formed of 4 to 6
members from the same area who are acquainted with each other. The group
should be able to take responsibility for each other. A loan to a group ensures that
repayment of the loans is done on time. This approach has proved to be successful
and has resulted in a default rate of less than 2%. Furthermore, The Saath Co-
Co
operative experiments with different research techniques. The Saath Co
Co-operative
is keen on evolving its approach to bring innovation to our micro
microfinance
nance services
so that its clients continue to bene
benefit.
t. It has a strong emphasis on participatory
techniques as have been found that it is hugely empowering for clients to reflect on
their habits and patterns and notice the difference that microfinance
micro nance can make to
their lives. (SSCCSL, 2012-13)14
Figure 3.5 Methodology for providing microfinance services
•Submit
Submit Aplication with Add. Proof, Photo ID
• Purchace Share, Become Shareholde
Acquiring
Member
ship •Compusory
Compusory Saving of INR 200/Month
•Elligibility
Elligibility for 1st Loan Post 3 Months' Saving
Regular
Savings
•Form
Form a JLG with 4/6 Members
Loan •Loan
Loan Apraisel ,Disbursement
Process
Loan •Monthly
Monthly Repayment Schedule Till Setlement
Repayme •All
All JLG Members Repay Their Loans
nt
•Repay
Repay 1st loan and move on to 2nd and 3rd loan cycles in the same manner
Addition
al Loans
•Up to 70,000
Individua •Given
Given to Shopkepers
l Loans
2015-16)15)
(Source: (SSCCSL, 2015

3.4.3. PRAYAS – Organization for sustainable development
 Introduction of PRAYAS
PRAYAS is registered on the 11th of November 1997 under the Trust Registration
Act 1950 and the Society Act 1860. PRAYAS has permanent FCRA number, 80-G
certificate and 12-a registration. The organisation was founded by Bhadresh Rawal
having academic background in agriculture. PRAYAS works with the poorest
communities, backward castes and tribes’ families to improve their quality of life
through various socio economic development programs (Microfinance Information
Exchange Inc., 2016)19
Figure 3.6: Logo of PRAYAS
(Source: (PRAYAS, 2015-16)20)
 Objectives of PRAYAS
1. To establish a sound and professional micro finance programme to provide
access to financial services primarily to low income clients who presently lack it.
2. To strengthen vulnerable sections of the society by making them aware of their
rights and empowering them to assert these rights to protect themselves against
any form of exploitation.
3. To carry out other social interventions such as capacity building, disaster
management, livelihood promotion, community organizationetc which can create
social benefits for the community.
(Prayas Organisation, 2009)21

 Programme run under PRAYAS

The following programs are to be addressed with and by women and destitute
people of working areas.
 Develop CBOs, mainly for the underserved women and vulnerable
communities.
 Livelihood promotion – On and off the farm through CBOs.
 Microfinance – credit, savings (encouraging savings within community
structure) and insurance.
 Awareness of basic rights. (Prayas Organisation, 2009)21
 Operational Areas
January 1998 onwards, the organization started working for the poorest sections of
the society mainly backward, schedule caste and schedule tribe families of Jhabua
District (MP) and Dahod District (Gujarat). In the Prayas office structure, there is a
Head Office based in Anjar and there are Unit Offices. At present, we have
following unit offices:
Table 3.8 : List of offices of PRAYAS
1. Gandhinagar (H.O.) 8. Bhachau (Kutch) 15. Chandkheda
2. Dahod 9. Surendranagar 16. Limdi (Zalaod)
3. Gangardi 10. Wadhwan 17. Jhabua (MP)
4. Anjar (Kutch) 11. Dhranghandra 18. Alirapur (MP)
5. Gandhidham (Kutch) 12. Limbdi (S’nagar) 19. C.Z.Nagar(MP)
6. Adipur (Kutch) 13. Mansa 20. Kukshi (MP)
7. Rapar (Kutch) 14. Dahegam 21. Badwani (MP)
 Target Clients of PRAYAS

Prayas will target clients in accordance with the RBI guidelines. In urban areas those
people with annual household income of less than Rs120,000 and in rural areas those
people with annual housohold income of less than Rs60,000 will be targeted by
Prayas (Prayas, April 2013)22.

 Financial partners of PRAYAS

PRAYAS has experienced to work with many financial partners like; Zilla
Panchayat - Jhabua, CCF, Cord Aid, CASA, IGSSS, Action Aid India, GEC,
CARE India, OXFAM (UK), CONCERN World Wide, IOM, GSACS, Women and
Child Development Department, WASMO, American India Foundation, Help Age
India, The Hunger Project & GAIL India for the various social developmental
programs. For microfinance program, Basix- IGS, HDFC bank, Indian Bank, Dena
Gujarat Grameen bank, Dena bank, Canara Bank, NABARD, SIDBI, Mas
Financial Ltd, Rangde , FWWB, HIVOS, DIA Vikas, IDBI Bank, Gruh Finance,
Miap and Habitat India (PRAYAS, 2015-16)20.
 Organization Structure of PRAYAS
Figure 3.7: PRAYAS Organogram
Board of Trustees
Director
Social Development Microfinanc

Wing e wing
Core Team (HO) Core Team (HO)
 Program/ Project  Operation Manager

Director  Finance Manager
 Project Manager  MIS Manager
Advocacy  Account Officer  HR Manager
 Area Manager
CBOs Unit Team Unit Team

 Program Coordinator  Unit Manager
 Project Officer  Credit officer
 Community Organiser  Account Officer
 Field Supervisor  Cluster Coordinator
 A/c Assistant

Prayas is presently in involved in providing financial and non-financial services to its

members. For carrying out the activities the organisation is divided into two separate
structure.
Social Development Wing (SD Wing): SD wing carries out all the development
activities of non-financial nature. The wing has several programme going under it
such as natural resource management, water and sanitation, rights based programmes,
disaster relief etc. The staff and work is completely separate from the other wing of
the organisation providing financial services.
PRAYAS Jan Vikas Bhandol (PJVB): Jan Vikas Bhandol is the other wing of the
organisation providing microfinance services. PJVB is the name of the microfinance
programme and has completely separate staff at the unit offices.
Figure 3.8: Detail Organisation Structure of Microfinance Wing of PRAYAS
(Source: (Prayas, April 2013)22)

Core Team (HO)

The core team of microfinance is responsible for planning day to day operations of
the organisation to achieve its objectives. It includes financial planning, monitoring
and controlling of microfinance operations. The core team includes managers
heading different departments and functioning together for the achievement of set
targets. The core team members are:
 Operation Manager
 Finance Manager
 MIS Manager
 HR Manager
 Area Manager
Unit Team
The unit is responsible to carry out field level operations in accordance with the
organizational policies. The Unit team comprises of:
 Unit Manager
 Assistant Manager cum Credit Officer
 Account Officer
 Cluster Coordinator
Table 3.9 :A full capacity branch structure of PRAYAS
Unit Manager 1
Credit Officer 1
Cluster coordinator 4
Accounts officer 1
Clusters 20
JLG 500
Members 2500
Active borrowers 2000
22
(Source: (Prayas, April 2013) )
 Microfinance delivery Model followed by PRAYAS

PRAYAS uses the concept of Joint Liability Groups (JLGs) to serve in rural and
urban areas.

Rural areas: Those areas under the jurisdiction of Panchayats will be considered as
‘Rural’ areas.
Urban areas: Those areas which come under the jurisdiction of Municpalities
(Nagar Palika) will be considered as ‘Urban’ areas. This definition will also be
followed to define rural and urban households for fulfilling RBI compliance.
 Microfinance model
Prayas will use JLG model fro delivering microfiance. JLG will be of five
women members living in the vicinity of the area selected by PRAYAS.
Through JLGs PRAYAS brings together women of targeted families and
provides credit to each member of the group. Credit facility is provided to the
group starting with the Compulsory Group Training. The group graduates for
higher loan cycle with increased loan amount on successful completion of the
existing loan cycle. The discipline during the repayment forms the basis of the
amount to be given in the next loan cycle.
 Joint liability – The joint liability will rest within five members of a JLG. Only
these five members within a group will be responsible for making good the
amount in case any members falls short of the amount to repaid on the day of
repayment.
In case of defaults, Prayas would expect other members to pay on behalf of the
defaulting member. However, it will not insist or apply any pressure on the
good members to pay for defaulters. If the other group members express their
inability to pay or find it stressful, they will be allowed not to pay and continue
with Parayas as normal clients (Prayas, April 2013)22.
 JLG Loan Products

PRAYAS will extend credit facility to its members through JLGs, the loan amount
increases as the member graduates to the next loan cycle. Prayas will offer monthly
loans.

Table 3.10: Loan Product of PRAYAS

The JLG Loan (from 1st Dec 2011)
 General purpose loan; preferable be used in generation of livelihood.
 To be given in a JLG of 5 women only
Product  Loan cycle:
1st cycle 5000, 7000, 10000
2nd cycle and onwards 5,000, 7000, 10000, 12000, 15000
Price  Interest rate- 26% reducing per annum for 12 months.

 Loan Processing Fees (LPF) 1% upfront non-refundable.
Place  Disbursement at branch
 Collection at cluster meeting
Purpose
 Income generation and other emergency purposes
 Loan application
 Adress proof (electricity bill or any other government document
Documentation
mentioning address)
 Photo identity proof (voter id, license, PAN card, ration card, letter
from village head or any government official with photo)
Collateral  No collateral or security will be taken by Prayas
 Process for providing Microfinance credit and other services
The following steps are followed while granting a microfinance loan to the clients:
a) General meeting
For forming groups in a new area/village first a general meeting should be
organized in that village/area. The general meeting should start and end on time.
The purpose of the meeting is to inform the residents about Prayas, its vision and
mission, and the services and products available. During the course of the meeting
the following topics should be covered:
A. Prayas target segment (low income women whose families lack access to
financial services). Explain why Prayas engages exclusively with women.
B. Main features of Prayas loan products
 No collateral required
 Loans extension via Joint Liability Groups
 Loan amounts and loan cycles
 Term, interest rate & monthly instalment amounts

 If repaid on time, members are eligible for larger loan amounts in the
following cycle.
C. Methodology adopted & terms and conditions
 Group formation & group training process
 Monthly meetings
 Loan disbursement process
 Repayment collection process
b) Group formation
The group formation meeting is conducted only subject to expression of interest
amongst the client after the conduct of general meeting. During this meeting the
CC should explain the details of the group methodology, the concept of joint
liability, and the responsibilities of the group leader. Thus, the following are the
essential criteria to admit any client into the JLG:
 Only for WOMEN, aged between 18 to 50 years in first cycle.
 Only to women, formed into their own Joint Liability Group (JLG) of 5
members; credit is to be available only in groups, not individually.
 At least three members of the group need to be a permanent resident of the
village / area they are staying in; they need to have their own (or husband
house). The other members could be having rented house, but need to be
staying the same rented house for more than 2 years.
 All the members need to be of same social and economic status and
background
 The annual family income of the applicants’ households must be less than
Rs120,000 in urban areas and less than Rs60,000 in rural areas.
 Not more than two members from a house can become members in a
particular group; .
 The distance of members’ houses from the proposed JLG should not be more
than 10 minutes of walking distance (approx 1km)
 Members should not have availed loan from any other MFI.
 Member should have KYC document.

c) Compulsory group training

In order to train the members in the organizational products and policies Prayas
will carry out three days Compulsory Group Training (CGT). Training sessions
will only be held if the entire group is present and arrives in a timely fashion.
Group members must agree, of their own volition, to the terms and conditions of
joint liability. During the group training process members should learn about the
organisation, and the JLG loan products related processes During the CGT, the
members should choose a name for their group and elect a Group Representative
for the loan cycle. There should be one Group Representative in a JLG. This
position can be rotated with successive loan cycles.
Table 3.11: Person involved and documents required during CGT
Person involved Documents involved
CC register
CC Address proof (original and
photocopy)
ID proof (original and photocopy)
2 Joint Photographs
It is important that all the members submit valid ID and address proofs to the CC
before the completion of the 3 days training. During the three days training the
CC should make sure that the members properly adhere to the time of the
meetings etc. this should help CC to judge the discipline of the client; which is an
important implication of a JLG kind of lending.
Table 3.12: Detail programme for three days of CGT

Day 1, Duration: 45 minutes
 CC Arrive at the meeting venue of the group with the group attendance sheet and
brochure in time for the meeting
 If some members are missing, wait for 5 minutes for them to turn up
 If they do not turn up, reschedule the meeting for another day.
 If some members have dropped out, ask the group to find replacements by the next
meeting. (in the same day)
 In case some members are absent, enquire about the reasons.
 When all the members have been accounted for, check to see if there are any
replacements.
 If there are any replacements, check if the new member meets the eligibility criteria.

 If the member is not satisfactory, ask the group to find yet another replacement and
reschedule the meeting.( (in the same day)
 If the member meets the criteria, then congratulate all members and note down the
starting time.
 Take the attendance and gets all the members to sign the CGT register.
 The training begins and following are explained:
o Name of organization, Head office Location and Branch address
o Name of Director, Unit Manager and Cluster Coordinator
o About PRAYAS
o JLG methodology and group responsibility
o Group discipline and credit discipline
o About product (Loan term, amount, interest rate, processing fee, instalment size
and loan purpose, disbursement process, collection process)
o Insurance premium and benefits
o Role of group leader
o Decide group name and group leader and secretary
o Ask member queries
o Ask members to prepare KYC documents and get them photocopied and bring
next day.
o Take the attendance and gets all the members to sign the CGT register
 Reach the venue on the second day with the application forms and the Group Attendance
Sheet.
 If all the members are not present on time, cancel the meeting and reschedules it for the
next day
 If all the members are present, congratulate the members, note the starting time and take
attendance on CGT register with the members’ signature.
 The training begins and following are explained:
Quick recap of
o Name of organization, Head office location and Branch address
o Name of Director, Unit Manager and Cluster Coordinator
o About PRAYAS
o JLG methodology
Re-explain
o Disbursement process, loan cycle and collection process and collection on
holidays
o Joint liability

o Grievance redressal, explain in case of complaints they can call given no.
o Ask of member queries
o Collect KYC documents and photographs – for those clients whose KYC or
photos are not satisfactory ask them to bring tomorrow
o Check KYC with original and sign
o take attendance on CGT register with the members’ signature.

 Arrive the meeting venue for CGT-day 3 training with group file including application
form (and group attendance sheet
 Check if all the members have arrived at the starting time.
 If any member is absent by starting time, reschedules the CGT day 3 and leave.
 If all the members have arrived on time, congratulate members and note starting time on
group attendance sheet
o Disbursement process, loan cycle and collection process and collection on
holidays
o Joint liability
o Grievance redressal, explain in case of complaints they can call given no.
o Ask of member queries
o Explain the “Group Recognition Test” (GRT) process to the group
o Visit house of each member, fill Member Profile form and Loan application
form. Ask for loan purpose.
o take attendance on CGT register with the members’ signature.

d) Group recognition test
Upon completion of the CGT by the CC, the UM or Credit officer should
administer the Group Recognition Test (GRT) along with all the documents. Any
staff above UM can also administer GRT. The GRT is designed to assess the
quality of the proposed groups, and to confirm that they meet Prayas criteria. All
members must be present for GRT; otherwise the meeting should be cancelled.
All members should come with original KYC documents for verification.

e) Loan process
a. Loan appraisal
Based on the results of the GRT, the UM should decide whether to approve
the group or not. If approved, the UM will check the homes of the prospective
clients to perform verification checks on their assets and income activities as
noted in the Loan Application forms, speak with member’s immediate
relatives to see if there is family support for the member’s interest in
becoming a client of Prayas.
b. Loan sanctioned
Based on the appraisal done by the UM, UM will recommend the loan. This
will be sent to Operation Manager/Area Manager for verification. Here past
loan history and other details as per criteria will be re-checked and the loan
will then be sanctioned by Area Manager/Operation Manager.
c. Loan disbursement
The Group Leader is to be communicated about the loan sanction/rejection
and disbursement over phone. If the loan amount is sanctioned then CC should
once again inform her/him about upfront charges (both individually and Group
wise manner), which is to be deposited at the time of disbursement.
f) Loan utilization check and client contact
Loan utilization check has to be done for 100% clients. The LUC can be done by
UM and AM. Prayas will maintain regular contact with its clients. 1st visit will be
done within one month (LUC), 2nd visit in 6th month and 3rd in the 9th month.
‘LUC and client contact format’ has to be used for these visits.
g) Loan collection
The collections from the members are made only in centre/area meetings. The
date/day of repayment is as per the repayment schedule and the time is as
mutually decided by the group at the time of GRT.
 Books and records maintained at branch and HBO

Following books and registers are to be maintained at all branches:
 CGT register – will contain details of CGT conducted to be maintained by UM.
 Attendance register – all staffs have to mark attendance daily on it and UM has
to sign after verification

 Movement register – all staffs have to make entry of where they going and
purpose n this register every day.
 Complaint register – all client complaints have to be recorded in this register.
UM, AM going for monitroing visits will make entries in it.
 Bank book – will contain transactions in bank account, to be maintained by
Accounts officer and chekced by UM.
 Cash book – Cash book will ecord all cash movement and has to be updated
daily. Accounts officer will maintain it and UM will chekc and sign it every
evenming after reconciling all entries.
 Petty cash book – will record details of the imprest amount of Rs2,000.
 Asset register – will record details of all assets of branch, will be maintained by
Accounts officer.
 LPF/Insurance book – will maintain details of processing fee and insurance
premium collected. To be maintained by Accounts officer and checked by UM.
 Disbursement collection file – This will contain printouts of kdisbursements
made and collection sheet. These have to be signed by UM.
 Internal audit file – will contain audit reports of the branch.
 Leave file – will contain leave applications.
 Circular file – all circulars issued by HO have to be filed in this file.
 Log book (in branches where there is four wheeler) – will contain log of four-
wheeler to be maintained by Accounts Officer and chekced by UM.
 Monitoring Schedule for UMs/ AMs and Operation Manager
Table 3.13: Monitoring Schedule for UMs/ AMs and Operation Manager
S No. Person monitoring Location Frequency
1 Unit Manager 3 Groups Every day
2 Area Managers All branches and Quarterly
5 Groups in each
branch
3 Operation Manager All branches and Six monthly
5 Groups in each
branch

3.5. Definition of non-performing assets

As long as an asset generates income expected from it, it is treated as “performing
asset” and when it fails to generate income, a loan asset become “NPAs. A
nonperforming asset (NPA) refers to a classification for loans on the books of financial
institutions that are in default or are in arrears on scheduled payments of principal or
interest. In most cases, debt is classified as nonperforming when loan payments have
not been made for a period of 90 days. While 90 days of non-payment is the standard
period of time for debt to be categorized as nonperforming, the amount of elapsed time
may be shorter or longer depending on the terms and conditions set forth in each loan
(Investopedia)23.
3.6. Existing regulatory framework of microfinance institutions

The microfinance institutions have different legal forms and therefore they have
different regulatory authority and regulations. Apparently there are no specific
regulations for governing of solely microfinance institutions. This section highlights the
need for regulation, suggestion given by RBI committee and follow up formation of
new NBFC-MFIs and microfinance bill.
3.6.1. The need for regulation
The Board of Directors of the Reserve Bank of India, at its meeting held on
October 2010 formed a Sub-Committee of the Board to study issues and concerns
in the microfinance sector in so far as they related to the entities regulated by the
Bank. The committee was headed by Y.H. Malegam. The committee submitted
its report on January 2011 (Malegam Committee , 2011)24. The report mentioned
different areas of microfinance sector where there was a need for regulation as
under:
 All NBFCs are currently regulated by Reserve Bank under Chapters III-B, III-
C and V of the Reserve Bank of India Act. There is, however, no separate
category created for NBFCs operating in the Microfinance sector.
 The need for a separate category of NBFCs operating in the Microfinance
sector arises for a number of reasons.
 First, the borrowers in the Microfinance sector represent a particularly
vulnerable section of society. They lack individual bargaining power, have
inadequate financial literacy and live in an environment which is fragile and
exposed to external shocks which they are ill-equipped to absorb. They can,
therefore, be easily exploited.
 Second, NBFCs operating in the Microfinance sector not only compete
amongst themselves but also directly compete with the SHG-Bank Linkage
Programme. The practices they adopt could have an adverse impact on the
programme. In a representation made to the Sub-Committee by the
Government of Andhra Pradesh, it has been argued, that the MFIs are riding
“piggy-back” on the SHG infrastructure created by the programme and that
JLGs are being formed by poaching members from existing SHGs. About 30%
of MFI loans are purportedly in Andhra Pradesh. The Microfinance in India- A
State of Sector Report 2010 also says that there are many reports of SHGs
splitting and becoming JLGs to avail of loans from MFIs. The A.P.
Government has also stated that as the loans given by MFIs are of shorter
duration than the loans given under the programme, recoveries by SHGs are
adversely affected and loans given by the SHGs are being used to repay loans
given by MFIs. While we did not, as committee, examine each of these issues
in depth, the fact that these complaints have been made reinforces the need for
a separate and focused regulation.
 Thirdly, credit to the Microfinance sector is an important plank in the scheme
for financial inclusion. A fair and adequate regulation of NBFCs will
encourage the growth of this sector while adequately protecting the interests of
the borrowers.
 Fourth, over 75% of the finance obtained by NBFCs operating in this sector is
provided by banks and financial institutions including SIDBI. As at 31stMarch
2010, the aggregate amount outstanding in respect of loans granted by banks
and SIDBI to NBFCs operating in the Microfinance sector amounted to
`13,800 crores. In addition, banks were holding securitized paper issued by
NBFCs for an amount of `4200 crores. Banks and Financial Institutions
including SBIDBI also had made investments in the equity of such NBFCs.
Though this exposure may not be significant in the context of the total assets
of the banking system, it is increasing rapidly.
 Finally, given the need to encourage the growth of the Microfinance sector and
the vulnerable nature of the borrowers in the sector, there may be a need to
give special facilities or dispensation to NBFCs operating in this sector,
alongside an appropriate regulatory framework. This will be facilitated if a

separate category of NBFCs is created for this purpose.
3.6.2. Suggestions given by Malegam Committee24
The advent of MFIs in the Microfinance sector appears to have resulted in a

significant increase in reach and the credit made available to the sector. While
this growth is impressive, a number of studies both in India and abroad have
questioned whether growth alone is effective in addressing poverty and what the
adverse consequences of a too rapid growth might be. In particular, in the Indian
context, specific areas of concern have been identified and based on this
identification, committee gave following suggestions:
 Transparency in interest rates
MFIs generally levy a base interest charge calculated on the gross value of
the loan. In addition, they often recover a variety of other charges in the form
of an upfront registration or enrolment fee, loan protection fee, etc. They also
recover an insurance premium. It is important in the interest of transparency
that all stakeholders in the industry including borrowers, lenders, regulators,
etc. should have a better understanding of comparative pricing by different
MFIs. This requires the use of a common format.
It is, therefore, suggested that MFIs should levy only two charges apart from
the insurance premium. These two charges should consist of an upfront fee
towards the processing of the loan which should not exceed 1% of the gross
loan amount, and an interest charge.
 Multiple-lending, over borrowing, ghost borrowers

The problems connected with multiple-lending, over-borrowing and ghost-
borrowers are interlinked and can be considered collectively. There is
considerable evidence that these practices are widely prevalent and various
reasons have been advanced for the same.
It has been suggested that with the development of active competition
between MFIs there has been a deluge of loan funds available to borrowers
which has fuelled excessive borrowing and the emergence of undesirable
practices. There are reports that ghost loans have become epidemic in some
states. Finally, it is believed that in consequence of over-borrowing, default
rates have been climbing in some locations but these have not been disclosed
because of ever-greening and multiple lending.
In order to overcome above situation, the committee suggested that:
a. MFIs should lend to an individual borrower only as a member of a JLG
and should have the responsibility of ensuring that the borrower is not a
member of another JLG.
b. A borrower cannot be a member of more than one SHG/JLG.
c. Not more than two MFIs should lend to the same borrower.
d. There must be a minimum period of moratorium between the grant of the
loan and the commencement of its repayment.
e. Recovery of loan given in violation of the regulations should be deferred
till all prior existing loans are fully repaid.
f. All sanctioning and disbursement of loans should be done only at a
central location and more than one individual should be involved in this
function.
g. In addition, there should be close supervision of the disbursement
function.
 Credit information bureau
An essential element in the prevention of multiple-lending and over-
borrowing is the availability of information to the MFI of the existing
outstanding loan of a potential borrower. This is not possible unless a Credit
Information Bureau is established expeditiously.
The function of the Bureau should not be to determine the credit worthiness
of the borrowers. Rather, it should provide a data base to capture all the
outstanding loans to individual borrowers as also the composition of existing
SHGs and JLGs. When more than one bureau discharges the role, adequate
co-ordination between the bureaus will need to be established.
 Co-receive method of recovery

Coercive methods of recovery are, to some extent, linked with the issues of
multiple lending and over-lending. If these issues are adequately addressed,
the need for coercive methods of recovery would also get significantly
reduced. The primary responsibility for the prevention of coercive methods
of recovery must rest with the MFIs. They have to accept responsibility for

the good conduct of their employees and if employees or outsourced workers

misbehave or resort to coercive methods of recovery, severe penalties must
be levied on the MFIs and their management.
 Customer protection code

Between the MFIs and the borrowers, the MFIs have an immeasurably
superior bargaining power. It is, therefore, essential that MFIs are committed
to follow a Customer Protection Code. Based on the evidence from other
countries, the customer protection code could have following core principle:
 Commitment
 Avoidance of over-indebtedness
 Capacity Building and empowerment
 Appropriate marketing
 Transparent and Competitive Pricing
 Appropriate Collection Practices.
 Ethical Staff Behaviour
 Accountability
 Privacy of Client Data
 Improvement of efficiencies
The purpose of regulation should not be confined merely to the prevention of
abuses but should also examine methods by which the efficiency of
operations can be improved. This will benefit both the MFIs and the
borrowers as it will reduce costs and consequently interest charges and also
increase the volume of business. The key areas in improving efficiency are:-
 better operating systems
 simplification of documentation and procedures
 better training
 better corporate governance
 Support to SHGs/JLGs
The purpose of the formation of SHGs and JLGs cannot be merely to share
the liability. More importantly the group is to be seen as the vehicle through
which skill development and training are imparted to the members of the
group. The committee therefore recommend that under both the SBLP model

and the MFI model greater resources be devoted to professional inputs both
in the formation of SHGs and JLGs as also in the imparting of skill
development and training and generally in handholding after the group is
formed.
 Corporate Size
Transaction costs can only be decreased if economies of scale can be
achieved. Also, to improve efficiency and improve control, significant back
office investments are needed. It is, therefore, in the interest of the borrowers
that MFIs should attain an optimal size and consolidation within the industry
appears inevitable. The committee recommend that all NBFC-MFIs should
have a minimum Net Worth of `15 crores.
 Corporate Governance
MFIs have twin objectives, namely to act as the vehicle through which the
poor can work their way out of poverty and to provide reasonable profits to
their investors. These twin objectives can conflict unless a fair balance is
maintained between both objectives. This makes it essential that MFIs have
good systems of Corporate Governance. Some of the areas in which good
corporate governance can be mandated would be:-
a) the composition of the board with provision for independent directors
b) the responsibility of the board to put in place and monitor
organization level policies
c) disclosures to be made in the financial statements
 Maintenance of Solvency
There should be appropriate prudential norms. Currently, since MFIs are not
considered as a separate class of NBFCs, no separate set of prudential norms
have been prescribed. Thus, loans are classified as NPAs if interest or
repayment is overdue for 180 days. This means that a loan where repayment
is weekly becomes an NPA only when 24 installments are overdue.
Given the small size of individual loans, their large number, their short
tenure, the frequency of repayment and the lack of collateral, it is clear that
the existing prudential norms for the provision for loan losses are inadequate

and must be replaced by simpler norms which apply to the universe of loans
and not to individual loans.
 Need for Competition

The agencies operating in the Microfinance Sector can be broadly grouped in
two classes namely
a) The SHG-Bank Linkage Programme (SBLP) and
b) MFIs including NBFC-MFIs, trusts, societies, etc. whereof NBFC-
MFIs hold more than 80% of the outstanding loan portfolio.
Given the lower cost of funds which banks enjoy, there is no reason why
banks cannot acquire a larger share of the market and thereby provide more
effective competition to the MFIs. This could result in a general reduction in
interest rate for borrowers.
 Priority Sector Status

All loans to MFIs are considered as priority sector lending. It has been
suggested that there is no control on the end use of these funds and that there
is significant diversion of these funds from the purposes intended to other
purposes. The committee recommend that bank advances to MFIs should
continue to enjoy “priority sector lending” status. However, advances to
MFIs which do not comply with the regulation should be denied “priority
sector lending” status. It may also be necessary for the Reserve Bank to
revisit its existing guidelines for lending to the priority sector.
 Assignment and Securitization

The committee gave following suggestions regarding assignment and
securitization:
 Disclosure is made in the financial statements of MFIs of the outstanding
loan portfolio which has been assigned or securitised and the MFI
continues as an agent for collection. The amounts assigned and
securitised must be shown separately.
 Where assignment or securitisation is with recourse, the full value of the
outstanding loan portfolio assigned or securitised should be considered
as risk-based assets for calculation of Capital Adequacy.

 Where the assignment or securitisation is without recourse but credit

enhancement has been given, the value of the credit enhancement should
be deducted from the Net Owned Funds for the purpose of calculation of
Capital Adequacy.
 Before acquiring assigned or securitised loans, banks should ensure that
the loans have been made in accordance with the terms of the specified
regulations.
 Funding of MFIs
It is necessary to widen the base from which MFIs are funded in respect of
the Net Owned Funds needed for Capital Adequacy and for that purpose the
following are the recommendations:
 The creation of one or more “Domestic Social Capital Funds” may be
examined in consultation with SEBI.
 MFIs should be encouraged to issue preference capital with a ceiling on
the coupon rate and this can be treated as part of Tier II capital subject to
capital adequacy norms.
 Monitoring of Compliance
The success of any regulatory framework ultimately is determined by the
extent to which compliance with the regulations can be monitored. The
following points are recommended related to monitoring of compliance:
 The primary responsibility for ensuring compliance with the regulations
should rest with the MFI itself and it and its management must be
penalized in the event of non-compliance
 Industry associations must ensure compliance through the
implementation of the Code of Conduct with penalties for non-
compliance.
 Banks also must play a part in compliance by surveillance of MFIs
through their branches.
 The Reserve Bank should have the responsibility for off-site and on-site
supervision of MFIs but the on-site supervision may be confined to the

larger MFIs and be restricted to the functioning of the organizational

arrangements and systems with some supervision of branches.
 The Reserve Bank should have the power to remove from office the
CEO and / or a director in the event of persistent violation of the
regulations quite apart from the power to deregister an MFI and prevent
it from operating in the microfinance sector.
3.6.3. Establishment of NBFC-MFIs

As per the report submitted by the committee formed by RBI, new class of NBFC
for microfinance institutions that is NBFC-MFIs was established. RBI issued
different circulars related to formation and directions for NBFC-MFIs and other
requirements of microfinance institutions. Few of the circulars issued are
discussed as under:
 Bank loans to Micro Finance Institutions (MFIs) – Priority Sector status on
May 3, 201125
The circular mentioned that it has been decided to regulate microfinance
sector by the Reserve Bank as a separate category. In this connection, RBI
gave advise that bank credit to Micro Finance Institutions extended on, or
after, April 1, 2011 for on-lending to individuals and also to members of
SHGs / JLGs will be eligible for categorization as priority sector advance
under respective categories viz., agriculture, micro and small enterprise, and
micro credit (for other purposes), as indirect finance, provided not less than
85% of total assets of MFI (other than cash, balances with banks and
financial institutions, government securities and money market instruments)
are in the nature of “qualifying assets”. The circular further explained the
meaning of qualifying assets in this context and other related regulation.
 Introduction of New Category of NBFCs - ‘Non Banking Financial

Company-Micro Finance Institutions’(NBFC-MFIs) – Directions on
December 02, 201126
Circular mentioned that it has been decided to create a separate category of
NBFCs viz; Non Banking Financial Company-Micro Finance Institution
(NBFC-MFI). It described in details rules and regulations for this new
category. The brief titles of rules were short title and commencement of
directions, extent of directions, definition of NBFC-MFI, regulatory

framework of NBFC-MFI and other regulations like corporate governance
etc.
 Master Circular- Introduction of New Category of NBFCs - ‘Non Banking

Financial Company-Micro Finance Institutions’ (NBFC-MFIs) – Directions
on July 2, 201227
In order to have all current instructions on the subject at one place, the
Reserve Bank of India issues updated circulars / notifications. The
instructions contained in the circular updated as on June 30, 2012 are
reproduced. The circular included updated guidelines for NBFC-MFIs.
 ‘Non Banking Financial Company-Micro Finance Institutions’ (NBFC-

MFIs) – Directions – Modifications on August 3, 201228
A new category of NBFCs, viz., Non Banking Financial Company-Micro
Finance Institution (NBFC-MFI) was created along with a regulatory
framework governing the same. The Bank had been received representations
from NBFCs that were primarily into micro financing, conveying difficulties
in complying with the framework. In the light of that, it has been decided to
make certain modifications in the Directions issued on December 02, 2011.
The modifications are under the following sub-heads: Capital requirement:
Entry points norms, Qualifying assets, multiple lending and indebtness,
ensuring compliance with conditionalities, pricing of credit, capital adequacy
asset classification and provisioning norms, geographical diversification,
customer protection initiatives, formation of SRO, monitoring of compliance
and application for registration as NBFC-MFIs.
 Master Circular- ‘Non Banking Financial Company-Micro Finance

Institutions’ (NBFC-MFIs) – Directions on July 1, 201429
In order to have all current instructions on the subject at one place, the
Reserve Bank of India issues updated circulars / notifications. The
instructions contained in the circular updated as on June 30, 2014 are
reproduced. The circular included updated guidelines for NBFC-MFIs.

3.6.4. Microfinance Development and Regulation bill 2012 3

Based on the suggestions and recommendations received from committee headed
by Malegam, the Microfinance Development and Regulation bill 2012 was
introduced in lok sabha in year 2012. The bill was introduced to provide for
development and regulation of the microfinance institutions for the purpose of
facilitating access to credit, thrift and other microfinance services to the rural and
urban poor and certain disadvantaged sections of the people and promoting
financial inclusion through such institutions and for matters connected therewith
or incidental thereto. The following chapters were included in the bill:
I. Preliminary
This chapter begins with short title and commencement of the bill. This is
followed by definition of various terms used in microfinance bill in further
sections.
II. Microfinance development council

This chapter consists of five clauses namely constitute of microfinance
development council, composition of council, terms of office and
allowances of the members of council, meetings of council and functions of
council.
III. State Microfinance council
Under this head, two clauses are included which describes the establishment
and functions and state microfinance council and term of office and
allowances of state microfinance council.
IV. District Microfinance committees
Three clauses are mentioned in this chapter. They are constitution of district
microfinance committee, functions of district microfinance committee and
report of district microfinance committee.
V. Registration of microfinance institutions
In this chapter five clauses are included namely no microfinance services
without registration, application for registration, grant of certificate, power
of reserve bank to cancel the certificate of registration and appeal against
certain cases.

VI. Reserve, Accounts, Audit and Returns

The titles of the six clauses included in this section are obligation to create
reserve fund, account and balance sheet, audit, special audit, powers of
auditors and returns to be filed by microfinance institutions.
VII. Functions and powers of Reserve Bank
A total of seven clauses are included in this chapter. They are functions and
powers of Reserve Bank, power of reserve bank to issue directions to
microfinance institutions, Margin not to be in excess of maximum limit,
inspection, cease and desist order, closing or restructuring of business and
winding up petition or other application for closure of microfinance
activity.
VIII. Microfinance Development Fund
Grants by central government and funds are the two clauses included in this
chapter.
IX. Redressal Mechanism
This chapter describe in details about redressal of grievances against
microfinance institutions.
X. Offences and penalties
This chapter includes eight clauses. They are contravention of provisions of
Act, orders and directions, giving false information, offences by
microfinance institutions, powers of Reserve Bank to impose penalty, Bar
of civil court jurisdiction, certain offences to be cognizable, cognizance of
offences and application of fine.
XI. Delegation of powers
This chapter mentions in detail about the certain power and procedure for
delegation of rights from Reserve bank to NABARD.
XII. Miscellaneous
This is the last chapter of the bill and it includes ten clauses. The titles of
these clauses are Preference to members or clients of micro finance
institution in repayment, Powers of Central Government to issue directions,
Power of Central Government to call for information, statements, etc.,
Power to exempt class or classes of micro finance institutions from
provisions of this Act, Act to have over-riding effect, Protection of action
taken under the Act, Power to make rules, Power to make regulations,
Rules, regulations and orders to be laid before Parliament and Power to

remove difficulties.
3.7. Classification of assets by microfinance institutions

As seen in the previous section, there are different regulatory authorities governing
microfinance institutions based on their legal form. Thus Sewa bank follows the rules
given by RBI to Bank, Saath follows the rules that come under cooperative societies
Act and PRAYAS incorporate the rules given under Trust Act. Because of this all these
three microfinance institutions follow different method for classifying their assets and
these are mentioned as under:
3.7.1. Classification of assets by Sewa Bank
Sewa Bank classifies its assets based on the guidelines provided by reserve bank
of India. It should be noted here that Sewa Bank has a policy to not to write off
any of its loan accounts till is completely repaid. Therefore right from its
inception year in 1974, Sewa bank have carry forwarded it loan account that has
not been repaid. Following table shows the classification of the assets by Sewa
Bank:
Table 3.15: Classification of Assets by Sewa Bank
Classification of Assets Definition of each class of asset
Standard A Regular payment
Standard B Skip installments for 1-30 days
Sub Standard Skip installments for 31- 90 day
Doubtful 1 Skip installments for 91- 365 days
Doubtful 2 Skip installments for 12-24 months
Doubtful 3 Skip installments above 24 months
(Source: Information provided by the account department personnel of Sewa Bank)
As can be seen from the above table, Sewa Bank classifies its assets into six
different categories from Standard A assets to Doubtful 3 category.
Classification of the assets is being done as per the repayment pattern of the
borrowers on microfinance loan.

3.7.2. Classification of assets by Saath Co-operative

Saath Co-operative prepares its accounts based on the rules and guidelines given
by the Co-operative Society Act of India under which it has registered.
Following is the methodology followed by Saath to classify its assets:
Table 3.15: Classification of Assets by Saath Co-operative

Standard Asset No Overdue
Sub Standard Asset Overdue for less than or equal to 12 months
Doubtful 1 Overdue for more than 12 months and upto 24 months
Doubtful 2 Overdue for more than 24 months
(Source: Information provided by the account department personnel of Sewa Bank)
Depending upon the category of asset, Saath provides provision for bad debt.
Moreover, Saath has a policy to write-off its loan accounts on which loan
installment payment is due crosses three years. Thus maximum the account is
carried till three years. Based on the chances of recovery from loan account,
Saath do write-off the account even before three years of default.
3.7.3. Classification of assets by PRAYAS

PRAYAS is a non-government organization and it has registered as trust under
Trust Act. Following is the classification of assets done by PRAYAS:
Table 3.16: Classification of assets by PRAYAS
Standard Asset 0 day overdue
Sub Standard Asset 1-180 days overdue
Loss Asset More than 180 days overdue
(Source: PRAYAS audited report for year 2014-15)
PRAYAS has a policy to provide hundred percent provisions on loss assets.

And most of the loan accounts are written-off within two years of defaults.

3.7.4. Classification of assets for research purpose

As can be seen from the previous sections, each microfinance institutions which
are being studied follow different method of classifying its assets. Because of
this, it is very difficult to analyze the non-performing assets of all the three
microfinance institutions and compare them. Therefore in order to have a unique
definition of non-performing assets and classification of assets, definition given
by RBI in its circular for NBFC-MFIs is considered for the research purpose.
Following is the definition and classification of assets given by RBI in its
circular on ‘Introduction to new category of NBFC - NBFC-MFIs on December
2, 2011:
 Asset Classification as per RBI circular26
o Standard asset means the asset in respect of which, no default in

repayment of principal or payment of interest is perceived and which
does not disclose any problem nor carry more than normal risk attached
to the business;
o Nonperforming asset means an asset for which, interest/principal
payment has remained overdue for a period of 90 days or more.
 Provisioning norms as per RBI circular26
The aggregate loan provision to be maintained by NBFC-MFIs at any point
of time shall not be less than the higher of:
a) 1% of the outstanding loan portfolio or
b) 50% of the aggregate loan installments which are overdue for more than
90 days and less than 180 days and 100% of the aggregate loan installments
which are overdue for 180 days or more.
 Defining Asset classification for research purpose

Based on the above classification of assets and provisioning norms given by
Reserve Bank of India, following are the classification of assets for research
purpose:
o Standard Assets
Standard asset means an asset or loan account for which neither interest
nor principal is due. That means such loan accounts are regular in
repayment of microfinance loan.

o Overdue Assets
Overdue assets are those asset on which inters or principal has
remained overdue for a period from 1 day to 90 days
o Non- performing Assets
Nonperforming asset means an asset or loan accounts for which,
interest/principal payment has remained overdue for a period of more
than 90 days. Nonperforming assets are further divided into different
categories as mentioned below.
o Sub-standard Assets
Sub-standard asset means an asset or loan accounts for which,
interest/principal payment has remained overdue for a period of 90
days to 180 days.
o Doubtful Assets
Doubtful asset means an asset or loan accounts for which,
interest/principal payment has remained overdue for a period of more
than 180 days.
3.8. Risks: Causes, Impact and strategy

Microfinance institutions (MFIs) essentially act as financial intermediaries, bridging the
gap between mainstream financial institutions and low-income households for a
specific type of credit needs that is short-term and unsecured. The concept of risk lies at
the heart of any such financial intermediation (Kumar, 2011)30. The following sub
section discusses about types of risks and then focuses on causes, impact and
management of credit risk, which is the highest risk among other risks:
3.8.1. Types of Risks
Different types of risks in microfinance can be divided into three main
categories namely financial risks, operational risks and strategic risk. Various
risks under these three categories are described as under:

Table 3.17: Types of risks faced by Microfinance Institutions

Financial Risks Operational Risks Strategic Risks
Credit Risks Transaction Risks Governance Risks
o Transaction o Human capacity o Ineffective oversight
o Portfolio o Information technology o Corporate governance
o Product Development o Back office operations o Management quality
o Interest Rates o Mission drift
o Strategy
o Ownership
Liquidity Risks Fraud/ Integrity Risks Reputations Risks
o Profitability o Staff perpetrated fraud o Undeliverable Social
o Liquidity Expectations
o Lack of funding o Transparency
o Excess Funding
Market Risks Legal & Compliance Risks External Business Risks
o Interest rate o Inappropriate o Competition
o Foreign exchange regulation o Macroeconomic trends
o Investment portfolio o Political interference
(Source: (Ashta & Khan, 2012)31)
3.8.2. Causes of high credit risks

As the major focus of research is on credit risk and dealing with microfinance
loan defaults, from this section onwards, description is given on credit risk. The
major causes of high credit risks are as under (Abhay, 2010)32:
 Poor MIS
MIS on loan outstanding, collection etc plays a critical role in generating
reports and making them available in minimum time to the right people. If
an MFI does not have a good MIS, it may not know how much to collect, it
may not know it’s over dues or age-wise over dues. Sometimes weak MIS
also results in generation of inaccurate report. If the correct and timely
information is not generated and report the problem cannot be dealt with
resulting in delinquencies getting aggravated.
 Poor screening of borrowers
Poor choice of clients results in delinquencies. If client with bad reputation
or history of defaults are selected then it can result in delinquencies

 Weak appraisal
Poor or weak appraisal of loans is one of the major reasons for
delinquencies. Before giving any loan, client’s repaying capacity, status of
business and cash flows must be assessed. Poor appraisal can lead to loans
going to unworthy clients or disbursement of higher amount loans. Loans
given beyond repaying capacity puts clients in stress situation as they do
not have sufficient income to repay installments resulting in delinquencies.
 Unclear communication about product and methodology
Clear communication of policies and procedures is very important. If the
clients do not know the policies and procedures it can result in confusion
and delinquencies even if clients are capable of paying
 No immediate follow-up
MFI having strong overdue follow up system can control over dues to a
large extent. It also gives clear message to the clients that the MFI is serious
on repayments and thus prevents the future occurrences. MFIs which are
weak in overdue follow up give a signal that it is not serious in overdue
collection, resulting other clients to imitate.
 Mixing other social activities with micro-finance
Sometimes delinquencies may also result if MFIs carry out grant based
activities along with micro-finance with the same set of clients and with
same staff. Mixing activities of two different natures confuses the client
wherein one activity is being provided free while repayment is asked on
micro-finance. This confuses the clients who may think that loans to be
given to them may also be grants for them and they need not return it. Also
enforcing repayments and discipline through a staff who is involved with
the community in other social activities also will be very difficult and hence
results in delinquencies.
 Poor product
Delinquencies occur if the product is not suitably designed. If the
repayments do not match with the cash flow of the client then it may result
in delinquencies. Client cash flow means that when do the clients receive
income and when they need to spend. Other important point is if the
repayment period is too long or too short or frequency of payments and
installments size are not well thought off, it can all lead to delinquencies.
 Natural disasters
Delinquencies can also happen as an aftermath of a natural disaster such as
flood, drought, earthquakes or epidemic.
 Corruption
Corruption at field staff level such as taking bribe for loans or frauds can
result in delinquencies. A staff taking favour from clients cannot enforce
discipline or strict repayments. If the staff is committing fraud it will also
show up as delinquency.
 De-motivated employees
If the working conditions or incentive systems are not good, it will result in
staff de-motivation and ultimately delinquencies. Motivated staff can make
a lot of difference in enforcing policies in the field but of staff is de-
motivated then they will not put sufficient efforts to enforce polices with
the clients resulting over dues.
3.8.3. Impact of delinquencies

As seen in previous section, delinquencies do not occur, exclusively on account
of client related reasons. Much of it can be attributed to internal systems and
policies of the MFIs. Delinquencies adversely affect the MFI in many ways.
This section explains how delinquencies can result in multi-dimensional affect
for an MFI as below (Abhay, 2010)32:
 Loss of portfolio for the MFI

The major impact of delinquency is the loss of portfolio. The money given
to a client by the MFI is lost if client defaults. MFI lends to clients and
interests along with principal. However, default by client can result in even
principal getting lost.
 Loss of interest income
If a client does not repay its loan then the MFI loses interest income as well.
Interest is the main source of income for an MFI and loss of it directly
impacts its profitability and sustainability.

 Growth hampered
An MFI having over dues has to invest lot of its time and other resources in
recovering the over dues. This diverts the focus of the MFI from expansion
and growth to controlling the over dues thereby hampering its growth.
 Cost escalation
In order to recover over dues MFI has to spend its staff time on recovering
over dues. Extra visits by staffs at various level also adds to travel costs.
 Cash flow mismanagement
MFI disburses new loans or meets its liabilities such as repayments of its
owing to banks, through repayments that it receives from the field. If the
repayments are timely then the MFI will not be able to collect enough cash
from the field and hence will not be able to meet disbursement target or
even pay back to its lenders. MFI plans its disbursements assuming certain
amount of collection from the field but there are defaults then it disturbs
these plans. This makes cash planning and fund management very difficult.
 Loss credibility of the MFI
An MFI suffering from delinquency may lose reputation and credibility
with other peer MFIs, lenders and donors. Most of the investors put a lot of
weightage on portfolio quality as it is the most important asset for the MFI
and this is where the investors ‘money will be utilized. Poor portfolio
quality makes investors uninterested and fund raising becomes difficult.
 Loss due to competition
MFI struggling with delinquencies may lose out on completions with other
MFIs. While good MFIs may focus on growth, experiment with new
products and other service, the MFI struggling with over dues has to
concentrate on recovering over dues. It may also lose out on its staff and
clients as the MFI is not performing well.
3.8.4. Managing credit risks

As the credit risks is the major risk faced by the microfinance institutions and
the impact of credit risk on MFI is very high, it is required to manage credit risk.
Following are few suggestions which help microfinance institutions to manage
its credit risk (MicroSave, 2010)33:

 Loan Portfolio Audit in Practice

Loan portfolio audit is an essential feedback to the stakeholders in order to
understand the risks in the MFI’s loan portfolio and the systems/procedures
used to mitigate this risk. It explains in details the process for conducting
loan portfolio audit which includes sample selection, verification of loan
management processes and documentation to check for consistency and
completeness, and looking at portfolio management policies, systems and
procedures in relation to international best practices.
 Establishing a Credit Administration & Control Unit
Credit administration and credit controls are the two key components in the
active management support of the frontline credit processes of making
individual loans and client management.
 Diagnosing Financial Stress in Group Lending Methodology
The recent past has seen instances in the south of India where groups refuse
en masse to repay, which has, unsurprisingly, challenged MFI operations.
The reasons for this are many, including the competitive environment,
multiple borrowing, the perceived threat from MFIs to the SHG movement
and the increasing attention being focused on the sector. Thus in order to
avoid such situation and manage effectively group lending, microfinance
institutions should diagnosis the financial stress in group lending
methodology.
 Avoiding giving multiple loan to clients
It is difficult to attribute multiple borrowings just to unmet demand for
credit from borrowers, or to dumping of loans by the MFIs on clients well
versed with the MFI methodology. However, MFIs can reduce the
incidence of multiple borrowing. The appropriateness of disbursement
timing can be improved through studying microenterprise cash flows by
type, and changing operational policies to reduce mismatches between
client cash flows and the timing of loan cycles.
 Managing delinquency in Self-Help Groups
There is need for periodic SHG performance assessment and portfolio
quality monitoring. In addition it is also required to study group member’s
psychology. Peer pressure and other informal means of ensuring
repayments by group members also provide an overview to delinquency
mitigation strategies at group level. As far as the MFIs are concerned, the
provision of subsequent microfinance loans acts as a pressure for group
members to make timely repayments.
 Provisioning for Loan Impairment in MFIs
Maintaining adequate reserves to cushion against future loan losses has
again been highlighted in the wake of recent financial crisis.
3.9. Summing up
This chapter mentions in details about the microfinance institutions and non performing
assets of microfinance institutions. Through this chapter, researcher studied the
microfinance delivery models of microfinance institutions in Gujarat. Next it also
analyzed the current regulation of microfinance institutions and the risks faced by
microfinance institutions. The chapter helped to understand the credit risk that is risk
arising through NPA in microfinance institutions, its causes, impact and how to control
and reduce this risk. Further the chapter also clearly defined asset classification which
will be used for data analysis of non-performing of assets of microfinance institutions
which is one of the objective of the research.

REFERENCES
1. NABARD. (2008). Report of the comittee on Financial Inclusion. NABARD.

2. Sa-Dhan Microfinnce Resource Centre. (2006). Existing legal and regulatory
framework for Microfinance Insitutions in India: Challenges and Implications. New
Delhi: Sa-Dhan.
4. Microfinance Information Exchange Inc. (2016). Sewa Bank: At a Glance. Retrieved
September 25, 2016, from Mix Market :
https://www.themix.org/mixmarket/profiles/sewa-bank
5. SEWA Bank. (2008). SEWA Bank Information Booklet. Ahmedabad: SEWA Bank
Broucher.
6. Introduction : Mission. (2012). Retrieved September 22, 2016, from Shri Mahila
Sewa Sahkari Bank Ltd.: http://www.sewabank.com/introduction.html
7. Financial Services: Savings. (2012). Retrieved September 22, 2016, from Shri
Mahila Sewa Sahkari Bank Ltd.: http://www.sewabank.com/saving.html
8. Financial Services: Recurring. (2012). Retrieved September 22, 2016, from Shri
Mahila Sewa Sahkari Bank Ltd.: http://www.sewabank.com/recurring.html
9. Financial Services: Pension. (2012). Retrieved September 22, 2016, from Shri
Mahila Sewa Sahkari Bank Ltd.: http://www.sewabank.com/pension.html
10. Financial Services: Loan. (2012). Retrieved September 25, 2016, from Shri Mahila
Sewa Sahkari Bank Ltd.: http://www.sewabank.com/loan.html
11. Other Services: Energy. (2012). Retrieved September 25, 2016, from Shri Mahila
Sewa Sahkari Bank Ltd.: http://www.sewabank.com/energy.html
12. Methodology: Banksathi. (2012). Retrieved September 25, 2016, from Shri Mahila
Sewa Sahkari Ltd.: http://www.sewabank.com/banksathi.html
13. About us: Background. (2015). Retrieved September 26, 2016, from The Saath
Savings and Credit Co-operative Society Ltd.:
http://www.saathcooperative.org/background.php
14. SSCCSL. (2012-13). SAATH's Institutional Annual Report. Ahmedabad: SAATH.
15. SSCCSL. (2015-16). SAATH's Institutional Draft Annual Report. Ahmedabad:
SAATH.
16. Deposit. (2015). Retrieved September 26, 2016, from The Saath Savings and Credit
Co-operative Society Ltd.: http://www.saathcooperative.org/deposit.php
17. Loans. (2015). Retrieved September 26, 2016, from The Saath Savings and Credit
Co-operative Society Ltd.: http://www.saathcooperative.org/Loan.php
18. Insurance. (2015). Retrieved September 26, 2016, from The Saath Savings and
Credit Co-operative Society Ltd.: http://www.saathcooperative.org/insurance.php
19. Microfinance Information Exchange Inc. (2016). PRAYAS: At a Glance. Retrieved
September 26, 2016, from MIX MARKET:
https://www.themix.org/mixmarket/profiles/prayas

20. PRAYAS. (2015-16). PRAYAS Profile. Adalaj: PRAYAS.

21. Prayas Organisation. (2009). Home Page. Retrieved September 26, 2016, from
PRAYAS - Organisation for Sustainable Development:
http://www.prayas4development.org/
22. Prayas. (April 2013). Prayas Jan Vikas Bhandol (Microfinance Programme):
Operations Manual; Version 1.2. Adalaj: PRAYAS - Organisation for sustainable
development.
23. Investopedia. (n.d.). Non-Performing Assets. Retrieved October 8, 2016, from
Investopedia: http://www.investopedia.com/terms/n/non-performing-assets.asp
25. RBI. (May 2011). Circular on Bank loans to Micro Finance Institutions (MFIs) –
Priority Sector status. Mumbai: Reserve Bank of India; RBI/2010-11/505;
RPCD.CO.Plan BC. 66 /04.09.01/2010-11.
26. RBI. (December 2011). Circular on Introduction of New Category of NBFCs - ‘Non
Banking Financial Company-Micro Finance Institutions’(NBFC-MFIs) - Directions.
Mumbai: Reserve Bank of India; RBI/2011-12/290; DNBS.CC.PD.No.
250/03.10.01/2011-12.
27. RBI. (July 2012). Master Circular- Introduction of New Category of NBFCs - ‘Non
Banking Financial Company-Micro Finance Institutions’ (NBFC-MFIs) -
Directions. Mumbai: Reserve Bank of India; RBI/2012-13/31;
DNBS.(PD)CC.No.293/03.10.38/2012-13.
28. RBI. (August 2012). Circular on ‘Non Banking Financial Company-Micro Finance
Institutions’ (NBFC-MFIs) – Directions – Modifications. Mumbai: Reserve Bank of
India; RBI/2012-13/161; DNBS (PD) CC.No.300 /03.10.038/2012-13.
29. RBI. (July 2014). Master Circular- ‘Non Banking Financial Company-Micro
Finance Institutions’ (NBFC-MFIs) - Directions. Mumbai: Reserve Bank of India;
RBI/2014-15/43; DNBS.(PD) CC.No. 395/03.10.38/2014-15.
30. Kumar, G. (2011, February 16). Managing Risks in Microfinance. Retrieved October
8, 2016, from Article published in newspaper- The Hindu:Business line:
http://www.thehindubusinessline.com/opinion/article1458600.ece?homepage
31. Ashta, A., & Khan, S. (2012, November 14-16). Risk Mitigation in Microfinance:
The need for microequity. Retrieved October 8, 2016, from European Microfinance
week: http://www.e-mfp.eu/sites/default/files/resources/2014/02/04%20AA%20-
%20Risk%20in%20Microfinance.pdf
32. Abhay, N. (2010, May 10). Types of Risks Faced by Microfinance Institutions: Part
I. Retrieved October 8, 2016, from Indian Microfinance:
http://indiamicrofinance.com/types-risks-faced-microfinance-institutions.html
33. MicroSave. (2010). Risk Management Booklet. Lucknow: MicroSave : Optimising
Performance and Efficieny Series.

CHAPTER 4: RESEARCH METHODOLOGY
Chapter Contents
4.1. Rationale of the study 133
4.2. Objectives of the study 134
4.3. Research Design 135
4.4. Research Process 135
4.5. Scope of the study 136
4.5.1. Geographical area of the study 136
4.5.2. Time horizon of the study 137
4.6. Sources of Secondary Data 137
4.6.1. Mix Market 138
4.6.2. Sa-Dhan 138
4.6.3. Financial statements of MFIs 139
4.7. Sources of primary data 139
4.7.1. Section I – Personal Information of borrowers 140
4.7.2. Section II- Microfinance loan and repayment trends 140
4.7.3. Section III – Role of training and supervision on loan 141
repayment
4.8. Sample Design 142
4.8.1. Sample frame 142
4.8.2. Sample size 143
4.8.3. Sampling method 144
4.8.4. Response rate 144
4.9. Indicators used for financial performance analysis 145
4.9.1. Financing structure 145
4.9.2. Outreach indicators 146
4.9.3. Overall financial performance 146
4.9.4. Revenue indicators 147
4.9.5. Expense indicators 148
Research Methodology
4.9.6. Efficiency indicators 148

4.9.7. Productivity indicators 149
4.9.8. Risk and liquidity indicators 149
4.10. Indicators used for analysis of non-performing assets 150
4.10.1. Gross NPA ratio 150
4.10.2. Net NPA ratio 151
4.10.3. Stress asset ratio 151
4.10.4. Sub-standard asset ratio 151
4.10.5. Doubtful asset ratio 151
4.10.6. Provision coverage ratio 151
4.10.7. Write off ratio 152
4.10.8. Loan loss rate 152
4.11. Research tools and techniques used for data analysis 152
4.11.1. Trend Analysis 152
4.11.2. Tabulation 152
4.11.3. Descriptive statistics 153
4.11.4. Cross tabulation analysis 153
4.11.5. Chi-square test 153
4.11.6. One way ANOVA test 155
4.11.7. Post hoc test 155
4.11.8. Correlation Analysis 156
4.11.9. Stepwise multiple regression analysis 156
4.12. Contribution of the study 157
4.13. Limitation of the study 158
References 159

Chapter 4:
RESEARCH METHODOLOGY
To obtain accurate and relevant information for solving any research problem, methodology is an
important part. Based on the literatures analyzed and study of microfinance and microfinance
institutions in previous three chapters, this chapter presents rationale, objectives and detailed
methodology of the research. This chapter is divided into thirteen sections as under:
4.1. Rationale of the study
In India, microfinance service is majorly provided by two ways. One way is the SHG-Bank
linkage programme. Through this the group of people is linked with the bank by opening a
group account and through this account all the transactions of group savings and loan are
conducted. This is very successful and widely followed all over India and this can be seen
from yearly reports published by NABARD.
The other way to provide microfinance service in India is through microfinance

institutions. This microfinance institution has different legal forms and so they have been
registered under different Acts. Moreover, as they are having different legal forms, there
are different ruling authorities and again different form of reporting standards and methods.
Because of the above reason, there are very few researches which have analysed the
financial performance of microfinance institutions.
Moreover, many microfinance institutions have entered into the sector which have resulted
increased competition among them. And hence though microfinance has attracted
widespread attention for its developmental impact for the poor, but it too has multitude of
issues and complications. For example while providing credit facility to poor people, the
MFIs do not have any security against that credit and hence it becomes difficult to recover
it from the borrowers. Therefore the most challenging area for microfinance institution is
recovery. At the same time it should be checked that microfinance institutions should not
adopt any coercive methods for recovery as it affects the basic purpose of microfinance

that is social development of the poor. Therefore, this research has analyzed the NPAs of
microfinance institutions and causes of defaults in microfinance loans.
In India, microfinance has been evolved and is very successful in southern region and so
majority of the research of microfinance are based on the southern states. There are very
few researches which have studied the development and performance of microfinance in
western region of India. Hence this research is based on analysis of microfinance
institutions in Gujarat state, which represent the western region of India.
Therefore the rationale behind the selection the research title was to study the less
researched geographical area and less focussed topic of microfinance which is non-
performing assets.
4.2. Objectives of the study

Based on the rationale mentioned in the previous sections, this section describes the
objective of the study. The main objective of the research is to study the non-performing
assets of microfinance institutions in Gujarat and to know the causes behind non-
performing loans from borrowers’ view point. The causes of defaults have been compared
with various other indicators to find the relationship and reasons behind cause. But before
analyzing the non-performing assets, it is required to study the overall financial
performance of microfinance institutions. Hence following are the three main objectives
and six sub-objectives of the research:
 To measure the financial performance of microfinance institutions in Gujarat

 To understand and analyze the non-performing assets of microfinance
institutions in Gujarat
 To investigate the causes of defaults in microfinance loans of microfinance
institutions in Gujarat
o To understand and analyze factors that has resulted into microfinance loan to
overdue/NPA of MFIs in Gujarat
o To evaluate and compare different combination of factors which might have lead
to defaults in microfinance loans of microfinance institutions in Gujarat.

o To understand and derive association between causes of defaults in microfinance

loan and various factors such as demographic factors of borrowers, lending terms
and supervision & training of borrowers of microfinance institutions in Gujarat.
o To know the association between microfinance loan amount and various factors
such as demographic factors of borrowers, lending terms and supervision &
training of borrowers of microfinance institutions in Gujarat.
o To understand and analyze overall loan adequacy with different factors such as
demographic factors of borrowers, lending terms and supervision & training of
borrowers of microfinance institutions in Gujarat.
o To understand and analyze the relationship and impact of borrower’s combined
causes/ situations that lead to arrears/defaults in microfinance loan on overall
reasons behind NPA in microfinance loan of MFIs in Gujarat
4.3. Research Design

On the basis of objectives of the research, it can be classified into: Exploratory research
and Conclusive Research. Conclusive research can further be sub-classified into:
Descriptive and Causal research.
Descriptive research is used to describe marketing phenomena while trying to determine
association among variables. The objectives in this type of research are generally
describing the characteristic of consumer segment namely demographic, socio-economic,
geographic, and psychographic and benefits sought. (Gupta S. L., 2012)1.
The current research objectives is to determine the causes of default in microfinance loan
and study the association of variables or factors which have lead to the default in
microfinance loan. Thus, the research design is Descriptive Research.
4.4. Research Process

Research process is the steps or methods used to achieve research objective. This section
briefly describes the methods and tools used in order to achieve each objective.
In order to evaluate financial performance and non performing assets of MFIs, three
microfinance institutions have been selected and selection process has been included in the

section of ‘Sample design’. The evaluation is done using various indicators. These
indicators are identified based on the literature and are mentioned in follow up sections.
The data for this has been sourced from secondary data sources. The analysis of these
indicators is then represented through table and chart.
In order to achieve third objective, primary data was collected by survey. The data
collected through this is analyzed by frequency analysis. Further, to know the factors
affecting microfinance loan default, cross tabulation analysis is conducted. Next to
evaluate the association of causes of default and loan amount with other factors hypothesis
has been tested through chi-square test. One way ANOVA Test is done to check the
difference amongst various groups of factors regarding overall adequacy factors of
microfinance loan. Next, in order to understand the relationship and impact of borrower’s
causes/situation that lead to default and overall reasons of nonperforming assets were
analyzed using correlation analysis and stepwise multiple regression analysis.
4.5. Scope of the study

Scope of the study defines the boundaries of the research. It identifies the target area of the
study as well as the time frame of the study. The current research is also bounded by
specific time frame and also the study is conducted in particular area. Defining scope of the
research helps researcher to focus on particular area and time frame and hence study could
be done in depth of the scope defined. Following is the scope of the studied defined in
terms of area and time period:
4.5.1. Geographical area of study
As the title of the research mentions, the study has been conducted in the Gujarat
state of India. Further, the study is limited to microfinance institutions that are
established and working in Gujarat state. That is microfinance institutions which
are operating in Gujarat but are not established in Gujarat have not been considered
for study.
As can be seen from the literature, microfinance institutions have different legal
forms and therefore they report to different governing authorities. Because of this

the methodology adopted for preparing financial statements also differs from each
other. In fact it has been found from research that there is no standardized form of
reporting for all microfinance institutions and even many of MFIs operating at
smaller scale do not report regularly. Thus, it was difficult to find the exhaustive list
of microfinance institutions operating in Gujarat and many microfinance
institutions do not maintain their accounts regularly.
In order to overcome about difficulty, the study is limited to the microfinance

institutions that has been reporting regularly to MIX MARKET or/and Sa-Dhan.
Thus the research area covered the microfinance institutions that have been
established and working in Gujarat state and in addition to this, they are regularly
preparing and reporting their financial statements to either MIX MARKET or Sa-
Dhan.
4.5.2. Time horizon of study
In order to have the most recent analysis of the study, most recent time period has
been chosen. Research has been conducted for the five year period from financial
year 2010-11 to 2014-15. Thus the microfinance institutions that have been
established or have changed their legal form or have stopped working after the year
2010-11 could not be studied as they do not have data for the five year period
considered for study.
4.6. Sources of Secondary Data

In order to achieve first objective of the research of analyzing financial performance of
microfinance institutions in Gujarat, data has been sourced from Mix Market and Sa-Dhan.
For the data for analyzing non-performing assets of microfinance institutions which is
second research objective, it has been taken from the financial statements and other
information provided by respective microfinance institutions. The secondary data sources
used have been discussed as under:

4.6.1. Mix Market
Mix Market is a premier source for objective, qualified and relevant microfinance
performance data and analysis. Incorporated in 2002, Mix is a non -profit
organization headquartered in Washington, DC with regional offices in Azerbaijan,
India, Senegal and Peru.
MIX Market is an online platform that allows users to assess market conditions,
individual FSP performance, and the financial inclusion landscape. It offers robust
and comprehensive datasets - spanning thousands of organizations and over 100
markets - it focus on selecting strategically
strategically-important
important information that enables
industry actors to make better decisions. Thousands of financial service providers
(FSPs), policy makers and regulators, and funders and investors use the MIX
Market platform to kee
keep their finger on the pulse of thee financial inclusion industry
(Mix Information Exchange Inc, 2016)2.
Figure 4.1: Mix Market Logo
4.6.2. Sa-Dhan
There
re was a need for common platform which was felt by the key Microfinance
practitioners in India, who recognized that despite their diversity, they had to
increase the outreach of existing programmes, launch new initiatives and negotiate
with policy maker
makerss for a favourable environment.
Sa-Dhan was designed and developed as such a platform. Sa-Dhan
Dhan was founded as
the Association of Community Development Finance Institutions by SEWA Bank,
BASIX, Dhan Foundation, FWWB, MYRADA, RGVN, SHARE and PRADAN in
year 1999.
The major scope of work of Sa
Sa-Dhan are: To provide a forum for organisations
organis and
individuals engaged in the field of community development finance, to meet, share

and exchange their experiences, expertise and resources and To disseminate and
publish sound financial practices from India and abroad (Sa-Dhan, 2009)3.
Figure 4.2: Sa-Dhan Logo
4.6.3. Financial statements and other information from MFIs

Financial statements of the MFIs selected for the study have been used as data for
the purpose of analysis. There were some information which was not disclosed in
financial statements and this information has been sourced from the internal records
managed by the microfinance institutions. Information such as structure, working
pattern, client profile and their data, classification of assets into different categories,
accounting methods and policies etc have been sourced from microfinance
institutions through their internal documents and through their representatives.
4.7. Sources of primary data

Third objective of the research is to study and investigate the causes of non-performing
assets of microfinance institutions and for this data has been source from primary data
collection instrument – Questionnaire. Self administered questionnaire was used as an
instrument for primary data collection. Primary survey was conducted in two phase. The
first phase was pilot survey, which was conducted to check the reliability of the
questionnaire. The second phase was the final survey. Initially the questionnaire was
framed based from the literature and guidance received from representatives of
microfinance institutions. Later on modifications were done in the initial questionnaire and
final questionnaire was prepared for the survey.

In order to collect data for pilot survey, questionnaire was framed with twenty four main
questions and fifteen sub questions. Many questions were kept open-ended to know the
type of responses.
Based on the responses received in pilot survey, all open ended questions of pilot survey
were given class intervals so that analysis could be done perfectly. The questionnaire for
final survey is attached in form of appendix. Thus in final survey there were a total of
thirty seven questions and eight sub questions. All these questions were divided into three
sections as under:
4.7.1. Section I: Personal information of the respondent
Questions from 1 to 12 belonged to Section I which was related to personal
information of the respondent. Demographic and socio-economic questions such as
name, address, MFI name, gender, age, caste, education, marital status, number of
family members, number of earning members, and economic activity of individual
and family members, income of individual and family members were asked.
Demographic and socio economic factors play an important role in deciding the
repayment capacity of individual and therefore all these questions were included.
Further, in order to understand the association of causes of default, overall
adequacy factors and loan amount with demographic and socio-economic factors,
these questions were necessary.
4.7.2. Section II: Microfinance loan and repayment trends

Section II was related to microfinance loan and repayment trends and the questions
under this section were numbered 13 to 32. In this section the question on initial
loan details such as source of information, number of borrowing cycle, amount of
disbursement, time period since loan is disbursed, installment amount, number of
installment, purpose of borrowing, type of borrowing were asked.
Next in order to know the group characteristics questions such as number of
members in group, formation of group, homogeneity factor in group, status of
group loan, amount of loan among group members, loan taken from through were
asked.

Further to know the repayment status of microfinance loan, question such as

number of installment paid, time period since payment of last installment and
amount of last installment.
In order to check who take various decision related to microfinance loan, three
questions such as person who decided to take microfinance loan, person who used
microfinance loan and person who was responsible to pay microfinance loan was
asked.
It was found from literature that microfinance services is provided to people who
do not have any reach to formal financial institutions. Thus, it can be said that
borrower needs financial services and they do not have any other option and so they
accept all the terms and conditions of MFI. In order to check the adequacy of loan
factors from borrowers’ side three questions such as adequacy of loan amount,
installment amount and repayment time period were asked.
Question no. 32 is the most important question of the questionnaire as it relates to
the causes and reason behind microfinance loan becoming non-performing assets.
Initially, the respondent is asked the causes that lead to the defaults in microfinance
loan. Later on the statements are framed describing various situations of borrowers’
that lead to the defaults in microfinance loan. These are independent situation and
borrowers’ had to give their responses in a scale of five starting from most affected
to least affected. Further the borrowers’ were asked the reasons behind
microfinance loan in default again in a scale of five from strongly agree to strongly
disagree. These reasons were the dependent factors of the above situation.
4.7.3. Section III: Role of supervision and training on loan repayment

Section III was related to role of training and supervision in loan repayment and the
questions under this section were numbered 33 to 37. One of the features of
microfinance institutions that differentiate it from formal financial institutions is
that it only provides financial services to poor but it also gives training related to
business skills and suggestions on economic usage of loan amount. Next in
microfinance services, it is the MFI who visits regularly to borrowers’ place and
does all the transactions rather that borrowers’ coming to MFI office. Thus it is

important to check the role of training and supervision on loan repayment. Question
such as knowledge and receipt of training and information, type of training and
information received, if training is not received reasons behind it, number of
meetings held, frequency and purpose of visit of MFI staff were asked.
4.8. Sampling Design

Sample design includes the sample frame, sample size, sample selection method and
response rate as under:
4.8.1. Sample Frame

A sample frame is the source of material or device from which a sample is drawn. It
is a list of all those within a population who can be sampled and may include
individuals, households or institutions (Särndal, Swensson, & Wretman, 2003)4.
Hence in the current research sample frame are the number of microfinance
institutions in Gujarat and also the borrowers of these microfinance institutions
whose microfinance loan accounts are in defaults.
Based on the scope of the research, there were four microfinance institutions listed
in Mix Market as on March 31, 2015 (Mix Market)5 and five microfinance
institutions listed in Sa-Dhan report as on November 2014 (Sa-Dhan, 2014)6. Many
of the institutions mentioned in both Mix Market and Sa-Dhan were overlapping
and hence in total there were total of five microfinance institutions which were the
sample frame of the research.
In order to get exact total number of default borrowers of all the three microfinance
institutions, one date was finalized. That is the total number of default borrowers as
on December 31, 2015 were sample frame for the research.

4.8.2. Sample Size

A sample is a subset of population. The sample reflects the characteristics of the
population from which it is drawn (Reddy & Acharyulu, 2008)7. Sample size is the
number of sample drawn out of the population or sample frame.
 Number of Microfinance Institutions
Three microfinance institutions established in Gujarat before year 2010 and
reporting regularly their financial statements either to Mix Market of Sa-
Dhan, has been selected for the research. Following is the name and inception
year of the microfinance institutions selected as sample:
Table 4.1 List of Sample Microfinance Institutions
Sr. Name Inception
No. Year
1 Shri Mahila Sewa Sahkari Bank Ltd. 1974
2 PRAYAS – Organization for sustainable development 1997
3 The Saath Savings and Credit Co-operative Society Ltd. 2010
 Number of Default Borrowers

For the primary survey through questionnaire, respondents were the
borrowers of sample microfinance institutions whose microfinance loan
accounts are in default. Primary survey was conducted in two phases: pilot
survey and final survey and so different number of borrowers were selected
for both the phases as under:
o For Pilot Survey
A total of sixty five borrowers were selected from all the three sample
microfinance institutions for pilot survey.
o For Final Survey
A total of five hundred and fifty borrowers were selected from all the
three sample microfinance institutions for final survey.

4.8.3. Sampling method

 For selecting microfinance institutions
Out of a total five microfinance institutions of sample frame, three microfinance
institutions were selected as sample. These three microfinance institutions were
selected based on their year of establishment (inception year). Inception year plays
an important role in the performance of microfinance institutions. Thus, one from
each category of young, old and mature microfinance institutions was chosen for
the research.
 For selecting default borrowers
The research is very specific and the respondents are the borrowers who have taken
microfinance loan but did not pay installment regularly that is borrowers who
microfinance loan account is overdue or NPA. Therefore the research needs to work
on specific characteristics, specific demographic factors and so research has
purposefully selected non random convenient sampling method.
4.8.4. Response Rate

Response rate is the number of respondents who gave their responses during the
survey out of the total number of respondents that were chosen as sample. While
conducting survey of default borrowers, it was found that many of them were not
available on the address given to respective MFIs. The reasons for this were that
they had gone out for economic activity, to attend social function or for some other
household work and if they were present, they hesitate to give response. The
following is the number of respondents who were available and gave their response
during both the phases of survey:
o For Pilot Survey:
A total of fifty eight borrowers gave their response out of sixty five selected
from all the three sample microfinance institutions for pilot survey.
o For Final Survey:
A total of four hundred sixty three borrowers gave their response out of five
hundred fifty selected from all the three sample microfinance institutions for
final survey.

4.9. Indicators used for financial performance analysis

Mix Model of performance evaluation is one of the most reliable and accurate model for
performance evaluation of microfinance institutions. It was concluded from the literature
review in previous chapter that many of the researchers have used this model for their
analysis of microfinance institutions around the world. The detail description of mix model
is given in previous chapter of literature review. In this section, indicators and ratios that
has been used for the current research is mentioned as under:
4.9.1. Financing structure
 Capital/Asset Ratio: Adjusted Total Equity/Adjusted Total Assets
It indicates how much of a safety cushion the institution has to keep so that
creditors are not at risk. It also shows how well the MFI is able to leverage its
equity to increase assets through lending. It is usually an important ratio for
investors and lenders. Currently all NBFCs are required to maintain Capital
Adequacy Ratio to Risk Weighted Assets of 12%. Considering the greater risks
in the microfinance sector, the high gearing, and the high rate of growth, NBFC
MFIs be required to maintain Capital Adequacy Ratio of 15% and subject to all
of the Net Owned Funds should be in the form of Tier I capital.
 Debt to Equity Ratio: Adjusted Total Liabilities/Adjusted Total Equity
Debt to equity ratio shows the proportion of total equity as compared to the
outside burden. In general term, it is usually advisable to have more of own
fund as compared to loan fund. In MFIs, it does not exactly work because MFIs
generally are not a public company and so partners, members or owner’s fund
is not very high proportion. Additionally, the co-operative and trust form does
not have any other source of income except outside liability.

4.9.2. Outreach indicators

 Number of Active Borrowers: Number of Borrowers with loans outstanding,
adjusted for standardized write- offs
The number of loans extended per year and since inception show the ability of
an MFI to reach more clients and achieve a degree of scale. However,
effectiveness will also depend on portfolio quality.
4.9.3. Overall financial performance

 Return on Assets: (Adjusted Net Operating Income - Taxes) / Adjusted
Average Total Assets
Return on Assets is a measure of the productive use of the company’s assets
rather than the productive use of a firm’s equity in the case of ROE. ROA is
different than ROE in that it measures profitability irrespective of the
institution’s underlying funding structure and doesn’t discriminate against MFIs
that are funded with equity. Therefore, ROA is a good measurement to compare
commercial and non-commercial MFIs. A higher ROA means that the company
is generating a higher return from employing their assets. In the case of MFIs,
this will generally mean, they are generating a higher return from their loan
portfolio.ROA includes the return on the loan portfolio of an MFI as well as
other revenue generated from investments and other operating activities. A high
ROA will matter to both commercial and noncommercial MFIs because it gives
an indication of management’s capability to employ assets productively
regardless of the source of funding. Productive assets mean that more is
accomplished with the resources the MFI has, something of interest from both a
commercial and social impact standpoint.
 Return on Equity: (Adjusted Net Operating Income - Taxes) / Adjusted

Average Total Equity
Return on Equity is one of the most commonly used financial indicators for
publicly held companies and therefore, for commercial for-profit MFIs, it is the
most important profitability indicator. ROE measures an MFI’s ability to

reward shareholders’ investment, build its equity base through retained

earnings, and to raise additional equity investment. For a non-profit MFI, ROE
shows its ability to build equity through retained earnings, and increased equity
enables the MFI to leverage more financing to grow its portfolio. By excluding
donations and non-operating revenues, ROE demonstrates an institution’s
ability to generate income from its core financial service activity. ROE tends to
fluctuate more than Return on Assets (ROA), defined above, and thus monthly
measurements can be misleading. However, managers should look for a
positive trend over several years and a similar or better ratio than competitors.
 Operational Self-Sufficiency: Financial Revenue / (Financial Expense +

Impairment Losses on Loans + Operating Expense)
The OSS measures how well an MFI can cover its costs through operating
revenues. It is the most basic measurement of sustainability, indicating whether
revenues from operations are sufficient to cover all operating expenses. OSS
focuses on revenues and expenses from the MFI’s core business and thus,
reflects the MFI’s ability to continue its operations if it receives no further
subsidies. A positive OSS trend can be achieved through growth and increased
efficiency. The drives behind OSS should be considered when assessing an
MFI. Is increases in OSS is due to larger loan sizes, high yields, low financial
expenses, or efficient operations? OSS must be considered within the context of
the MFI’s mission.
4.9.4. Revenue
 Profit Margin: Adjusted New Operating Income / Adjusted Financial Revenue
Profit margin shows the proportion of operating income as compared with the
major source of income that is financial revenue. MFIs one of the major
indicator of performance other than outreach, is its operational sufficiency. In
order to sustain long term, MFI needs to be operationally efficient.

 Financial Revenue/Assets: Adjusted Financial Revenue / Adjusted Average

Total Assets
The above ratio is one of the indicators of return of assets. It is a bit in narrower
terms as it only considers financial revenue but it should be noted here, that
MFIs major function is to lend money and therefore the major chunk of their
revenue is in form of financial revenue.
4.9.5. Expenses
 Total Expense/Assets: Adjusted (Financial Expense + Net Loan Loss
Provision Expense + Operating Expense) / Adjusted Average Total Assets
While analyzing financial performance as it is important to study the revenue
indicator, similarly the other side of the coin that is the cost of organization
should also be taken into consideration before reaching to any conclusion. The
above ratio shows the proportion of expense as compared to the total assets of
firm.
 Financial Expense/Assets: Adjusted Financial Expense / Adjusted Average

Total Assets
As mentioned earlier, MFIs generally do have higher debt/equity ratio and so it
is important to analyze the financial burden that is the interest burden as
compared to total assets.
4.9.6. Efficiency
 Operating Expense/Loan Portfolio: Adjusted Operating Expense / Adjusted
This ratio highlights personnel and administrative expenses relative to the loan
portfolio and is the most commonly used efficiency indicator. It allows
managers to compare quickly administrative and personnel expenses to the
MFI’s yield on the gross portfolio. For this reason it is frequently referred to as
the efficiency ratio. Lower ratio indicates that the MFI is more efficient in
operation. Thus, MFIs should strive to have a downward trend in this ratio even

when portfolio growth is flat. While this ratio may fluctuate from month to
month, it should decline from year to year.
 Cost per Borrower: Adjusted Operating Expense / Adjusted Average Number

of Active Borrowers
The major reason of not giving the loans to the poor section of the society by
the commercial bank is that the cost per borrower is much higher as compared
to the formal lending. So above ratio plays a very important role for every MFI
in order to decide their profit margin.
4.9.7. Productivity
 Borrowers per Staff Member: Adjusted Number of Active Borrowers /
Number of Personnel
This ratio is defined as the overall productivity of the MFI’s personnel in terms
of managing clients, including borrowers, voluntary savers, and other clients.
Since MFIs may want to create caseload targets for loan officers, this ratio is an
easy and effective way to measure progress against such targets. The ratio will
increase until it reaches the optimal range and plateau, but plateaus can be
surpassed through structural or technological changes. The ratio should also be
evaluated in light of portfolio at risk to ensure that productivity gains are not at
the expense of asset quality.
4.9.8. Risk and liquidity

 Portfolio at Risk > 30 Days: Outstanding balance, portfolio overdue > 30 days
+ renegotiated portfolio / Adjusted Gross Loan Portfolio
PAR is the most accepted measure of portfolio quality since the primary asset
of an MFI is its gross loan portfolio. The most common international
measurements of this ratio is PAR > 30 days and PAR > 90 days. PAR is
important because it indicates the potential for future losses based on the
current performance of the loan portfolio. PAR is the most widely accepted
measure of loan performance in the microfinance industry. The ratio also

includes renegotiated loans which prevents hiding troubled loans through

rescheduling or refinancing and indicates a higher level of risk associated with
clients that have had repayment problems. When referring to PAR, the number
of days should always be specified. For the purpose of this study PAR > 30
days, the most common measure, will be used for all MFIs. PAR should be low
and fairly stable for an MFI.
 Risk Coverage Ratio: Adjusted Impairment Loss Allowance / PAR > 30 Days
In order to provide back up to the previous ratio, every firm should have
adequate provisions well in advance. As there are no formal rules demanding
check the capability of MFIs in dealing with the risk of nonpayment of
installment amount.
4.10.Indicators used for analysis of non-performing assets

There are no unique guidelines given for microfinance institutions in India for the
classification of the assets. Thus different microfinance institutions have different methods
of classifying its assets. The detail of this classification has been given in previous chapter
3. For the research purpose, in order to have uniqueness, classification of assets has also
been defined in chapter 3. This section mentions eight ratios or indicators (Rana, 2011)8
used for the analysis of non-performing assets of microfinance institutions as under:
4.10.1. Gross NPA Ratio: Gross NPA /total gross loan portfolio
Gross NPA is an advance which is considered irrecoverable, for microfinance
institutions has made provisions, and which is still held in MFIs' books of account.
Gross NPAs are the sum total of all microfinance loan assets that are classified as
NPAs as per RBI Guidelines for asset classification of NBFC-MFIs. Gross NPA
reflects the quality of the loans made by MFIs. It consists of all the nonstandard
assets like as sub-standard, doubtful, and loss assets (Yadav, 2014)9.

4.10.2. Net NPA Ratio: Gross NPA - provisions/ gross advances – provisions
Net NPAs are those type of NPAs in which the MFI has deducted the provision
regarding NPAs. Net NPA shows the actual burden of MFIs. The ratio is calculated
as proportion of net NPA minus provisions compared to gross advances minus
provisions.
4.10.3. Stress asset ratio: Gross NPA / total assets

This ratio calculates the proportion of stressed assets that is gross non-performing
assets compared to the total microfinance loan assets. The higher the ratio, the more
the problematic situation for the microfinance institution, as it is difficult to recover
from stress assets.
4.10.4. Sub – standard Assets ratio: Total sub–standard assets/ Gross NPAs
Sub-standard assets are a part of non-performing assets and are calculated as per the
guidelines given by RBI. This ratio calculates the proportion of sub-standard assets
as compared to gross NPAs. This ratio shows the percentage of sub-standard assets
in total NPAs.
4.10.5. Doubtful Assets ratio: Total doubtful assets/ Gross NPAs

Doubtful assets are defined as per the guidelines given by RBI in its circular on
asset classification of NBFC-MFIs. Accordingly the amount of doubtful assets of
each microfinance institutions has been calculated. The ratio is calculated by
dividing doubtful assets by gross NPAs.
4.10.6. Provisions coverage ratio :Total Provision / Gross NPAs

Provisions means the amount kept aside every year by microfinance institutions in
order to cover the future loss, if any, due to non recovery of microfinance loan
installment amount. The more the provision coverage ratio indicates the
microfinance institution is prepared in advance to deal with any such future losses.
It is calculated as a proportion of gross NPAs.

4.10.7. Write off ratio :Total Loans write off / (Gross NPAs + write off loans)
This ratio calculates the proportion of loan amount return off as there was no
recovery from that particular loan account compared to total of gross NPAs and
write off loans. This ratio do not considered the loan amount recovered in future, in
calculation.
4.10.8. Loan loss rate: (Write-offs – value of loan recovered) / Average gross loan
portfolio
Loan loss rate represent the proportion of loss on microfinance loan due to lack of
recovery of installment amount compared to gross loan portfolio. Thus higher loan
loss rate means that there is more loss to microfinance institution. Through this
ratio microfinance institutions can check the proportion of overall loss on portfolio
and can take some precautionary actions to reduce this rate.
4.11. Research tools and techniques

In order to achieve the objectives mentioned in the starting of this chapter, research tools
and techniques have been applied which has been mentioned under this section.
4.11.1. Trend analysis
In order to analyze the financial performance of microfinance institutions and also
to analyze the non-performing assets of microfinance institutions, trend analysis has
been used. Trend analysis is an interpretations technique that can be used to
establish a pattern. Thus, in the research, in order to analyze the inter-period pattern
of different financial and non-performance indicators, for five years, trend analysis
has been used. The analysis is shown in form of clustered column chart. Each
indicator of financial performance analysis and non-performing asset analysis is
shown as different clustered column chart and it includes five year figures of all
the three microfinance institutions which have been studied.
4.11.2. Tabulation
Tabulation was used to classify the raw data which was collected by using primary
data collection instrument through questionnaire. The raw data is divided into

groups and various numbers which fall into these groups are counted (Gupta,
2003)10. As the questionnaire was structured, each question formed one group.
Frequency of each class interval in every question was calculated and was
presented in table. The frequency was calculated in numbers and also in percentage.
Further, for better representation, pie charts were prepared for each question.
4.11.3. Descriptive Statistics

Descriptive statistics summarizes the entire data in different ways. Mean, median
and mode have been analyzed of the responses collected through questionnaire.
Mean calculates the average, median calculates the middle point and mode
calculates the highest number of responses. In current research, descriptive statistics
has been applied to questions in questionnaire with five scales. Descriptive statistics
has been represented in a table.
4.11.4. Cross tabulation Analysis

In order to analyze the relationship or pattern of responses on two or more
questions at the same time, cross tabulation analysis needs to be run. For that it is
necessary to determine independent and dependent variable because independent
variable explain or predict a response or an outcome, which is the dependent
variable under study (Reddy & Acharyulu, 2008)11. It is not compulsory every time
to identify independent and dependent variable for cross tabulation analysis. Cross
tabulation analysis is done for analyzing the data collected through questionnaire.
Cross tabulation analysis is done using two factors and three factors at a time
respectively. The analysis is presented in table format. Eight cross tabulation tables
are prepared using two factors at a time and another eight cross tabulation tables are
prepared using three factors at the same time. Further, each cross tabulation table is
shown in form of stacked column charts.
4.11.5. Chi-square as a Non-Parametric Test
Chi-square is an important non-parametric test and as such no rigid assumptions are

necessary in respect of the type of population. One requires only the degrees of

freedom (implicitly of course the size of the sample) for using this test. As a non-
parametric test, chi-square can be used (i) as a test of goodness of fit and (ii) as a
test of independence.
As a test of independence, chi square test enables us to explain whether or not two
attributes are associated. Here, first the expected frequencies are calculated and then
the value of chi square. If the calculated value of chi square is less than the table
value at a certain level of significance for given degrees of freedom, it is concluded
that null hypothesis stands which means that the two attributes are independent or
not associated. But if the calculated value of chi square is greater than its table
value, inference then would be that null hypothesis does not hold good which
means the two attributes are associated and the association is not because of some
chance factor but it exists in reality. It may, however, be stated here that chi square
is not a measure of the degree of relationship or the form of relationship between
two attributes, but is simply a technique of judging the significance of such
association or relationship between two attributes.
Chi square is calculated as follows for the research study:
X2 = ∑ (Oij – Eij)2
Eij
Where,
Oij = observed frequency of the cell in ith row and jth column.
Eij = expected frequency of the cell in ith row and jth column.
If two distributions (observed and theoretical) are exactly alike, X2 = 0; but
generally due to sampling errors, X2 is not equal to zero and as such one must know
the sampling distribution of X2 so that we may find the probability of an observed
X2 being given by a random sample from the hypothetical universe. Instead of
working out the probabilities, one can use ready table which gives probabilities for
given values of X2. Whether or not a calculated value of X2 is significant can be
ascertained by looking at the tabulated values of X2 for given degrees of freedom
[d.f. = (c – 1) (r – 1) where ‘c’ means the number of columns and ‘r’ means the

number of rows] at a certain level of significance. If the calculated value of X2 is

equal to or exceeds the table value, the difference between the observed and
expected frequencies is taken as significant, but if the table value is more than the
calculated value of X2, then the difference is considered as insignificant i.e.,
considered to have arisen as a result of chance and as such can be ignored (Kothari,
2004)12.
4.11.6. One way ANOVA test
Analysis of variance (abbreviated as ANOVA) is an extremely useful technique
when multiple sample cases are involved. The significance of the difference
between the means of two samples can be judged through either z-test or the t-test,
but the difficulty arises when we happen to examine the significance of the
difference amongst more than two sample means at the same time. The ANOVA
technique enables researcher to perform this simultaneous test and as such is
considered to be an important tool of analysis in the hands of a researcher. (Kothari,
Chapter 11 : Analysis of variance and co-variance, 2004)13.
While encounter with the respondent different factors like demographic, socio-
economic, microfinance loan, training and supervision were analyzed. These
categories are classified into more than two types. Therefore, independent t-test
cannot be applied to derive right conclusion for the various factors in order to study
the overall adequacy loan factors. Therefore, one way ANOVA has been applied to
understand overall loan adequacy factors.
4.11.7. Post hoc test

ANOVA never tell us which group is different from other groups, so to understand
homogeneity within groups Post-Hoc test can be used. Post-Hoc test will derive
where the differences among groups occur. Thus in hypotheses test using one way
ANOVA, post hoc test is applied on hypotheses where significance difference has
been found.

4.11.8. Correlation Analysis

It is vital to comprehend intra-relations and effect of every cause that leads to
default on reasons of microfinance loan becoming non-performing asset in order to
assess intra connections among different elements and effects investigations of
numerous variables. It is required to concentrate on relationship examination and
different relapse investigation.
Estimation of connection coefficients demonstrates quality of relationship between
2 variables. Here I have arranged intra connection network of all elements I have
considered and attempted to comprehend their intra connection and quality of such
relationship among different variables.
On off chance that r is < 0.30 than there is powerless connection between two
variables, if r is between 0.30 to 0.50 than there is medium relationship between’s
two variables and if r is > 0.50 than there is solid relationship between’s two
variables. I have additionally checked whether these components are noteworthy at
5% or 1% level
4.11.9. Stepwise multiple regression analysis

The research study is related with the situation or causes that lead to the arrears and
their impact on the reason behind microfinance loan becoming NPA. The major
focus of the study is to understand the inter relationships amongst the various
factors which is influencing to reasons of NPA in microfinance loan of MFIs in
Gujarat. Further I want to analyze the impact of each factor which directly creates
the impact on a vital parameter of overall reasons for NPA. I have purposefully
select multiple regression models to understand & analyze the impact of
independent variables like overall situation where no or less income was generated,
overall situation where income was utilized for other things and combined
miscellaneous causes on dependent variable overall reasons for NPA in
microfinance loan.
In the multiple regression models it’s challenging to derive impact of 3 different

independent variables on to dependent variable. It is required to identify which

factors are most influencing on the dependent variable and which are the factors
least influencing on the dependent variable, therefore step wise multiple regression
model have been applied. The entire multiple regression model analysis is classified
in “3” parts. In the first part it is very important to check how many factors are
significant with the dependent variable. This analysis is derived in model summary.
Secondly, it has also been tested whether the combine influence of which
independent variable create significant impact on overall reasons of NPA with
ANOVA analysis. In the third part, impact of each individual factor on dependent
variable which is overall reasons of NPA has been derived with the help of the
regressions coefficient chart and co-linearity chart.
4.12. Contribution of the study

The study helps to understand the overall industry analysis and status of growth and
development of microfinance in India and Gujarat. It studies the microfinance delivery
models and financial performance of microfinance institutions in Gujarat. It also analyses
the non-performing assets of microfinance institutions and studies the causes of defaults
in microfinance loans. Hence the research undertaken helps to understand in depth the
microfinance institutions in Gujarat which has not been conducted widely till date.
Based on the analysis and findings of the research, recommendations have been
suggested to microfinance institutions in Gujarat. Thus, the research contributes in better
understanding and need of clients of microfinance and thereby reducing the ratio of non-
performing assets of microfinance institutions. This study can be useful to academicians
and researchers as they can take the basis from this research and carry further by
exploring new areas.

4.13. Limitation of the study

 First limitation of the study is that data for the microfinance institutions has been
sourced from Mix Market and Sa-Dhan only. But as microfinance in Gujarat state is
not much developed, it was very difficult to find financial data from any other source.
 Second limitation is related to the sample size of the microfinance institutions. Only
three microfinance institutions were studied as there are only a total of five
microfinance institutions which report regularly to either Mix Market or Sa-Dhan.
 Third limitation of the study is time period of the study. Performance analysis of
microfinance institution is studied for only last five years that is 2010-11 to 2014-15.
The data before 2010-11 was not available for all the microfinance institutions as one
of the institution studied was established in year 2010.
 Fourth limitation is related to primary data collection. The responses given by the
respondents are subject to their personal biases and choices as the case may be. But
this limitation prevails in every research whenever the data sources have been
collected through questionnaire.

REFERENCES
1. Gupta, S. L. (2012). Research Design. In S. L. Gupta, Marketing Research (pp. 41-

47). New Delhi: Excel Books.
2. Mix Information Exchange Inc. (2016). What we do. Retrieved October 1, 2016,
from Mix Market: https://www.themix.org/mix-market
3. Sa-Dhan. (2009). About us. Retrieved October 1, 2016, from Sa-Dhan:
http://www.sa-dhan.net/Inner.aspx?Others/About.htm
4. Särndal, C.-E., Swensson, B., & Wretman, J. (2003). Survey Sampling in Theory
and Practice. In B. S. Carl-Erik Särndal, Model Assisted Survey Sampling (pp. 1-
20). New York: Springer-Verlag New york Inc.
5. Mix Market. (n.d.). Countries and region: India. Retrieved February 10, 2015,
from Mix Market: http://www.mixmarket.org/mfi/country/India#ixzz2uajGZbHQ
6. Sa-Dhan. (2014). Directory of microfinance institutons (MFIs) in India: Version I.
New Delhi: Sa-Dhan.
7. Reddy, P. N., & Acharyulu, G. V. (2008). Sampling . In P. N. Reddy, & G. V.
Acharyulu, Marketing Research; ISBN : 978-81-7446-616-7 (pp. 192-217). New
Delhi: Excel Books.
8. Rana, R. D. (2011). Chapter 6 - PA – NPA ANALYSIS AND INTERPRETATION
OF DATA OF SELECTED UCBs taken together. Retrieved October 4, 2016, from
Shodhganga:
9. Yadav, D. S. (2014). NPAs: Rising Trends and Preventive Measures in Indian
Banking Sector. International Journal of Advance Research in Computer Science
and Management studies; Volume 2; Issue 1; ISSN: 2321-7782 , 129-140.
10. Gupta, S. L. (2003). Processig of data and tabulation: Tabulation. In S. L. Gupta,
Marketing Research (pp. 297-299). New Delhi: Excel Books.
11. Reddy, P. N., & Acharyulu, G. V. (2008). Data Processing. In P. N. Reddy, & G.
V. Acharyulu, Marketing Research (pp. 229-231). New Delhi: Excel Books.
12. Kothari, C. R. (2004). Chi-Square Test. In C. R. Kothari, Research Methodology :
Methods and Techniques (Second Revised Edition) (pp. 236-238). New Age
International Publisher.
13. Kothari, C. R. (2004). Chapter 11 : Analysis of variance and co-variance. In R. M.
techniques, C. R. Kothari (pp. 256-260). New Delhi: New Age International
Publishers.

CHAPTER 5:
DATA ANALYSIS AND FINDINGS
Chapter Contents
SECTION A : SECONDARY DATA ANALYSIS
5.1. Trend Analysis of the indicators of financial performance of MFIs in 162
Gujarat
5.1.1. Financing structure indicators 162
5.1.2. Outreach indicators 165
5.1.3. Overall financial structure indicators 166
5.1.4. Revenue indicators 169
5.1.5. Expense indicators 171
5.1.6. Efficiency indicators 173
5.1.7. Productivity indicators 175
5.1.8. Risk and liquidity indicators 176
5.2. Trend Analysis of the indicators of nonperforming assets of MFIs in 179
Gujarat
5.2.1. Gross NPA ratio 179
5.2.2. Net NPA ratio 180
5.2.3. Stress asset ratio 181
5.2.4. Sub-standard asset ratio 182
5.2.5. Doubtful asset ratio 183
5.2.6. Provision coverage ratio 184
5.2.7. Write-off ratio 185
5.2.8. Loan loss rate 186
SECTION B: PILOT SURVEY DATA ANALYSIS
5.3. Analysis of the responses of the questionnaire (Frequency Analysis) 188
5.3.1. Demographic information 188
5.3.2. Economic Information 190
5.3.3. Details of microfinance loan 192
5.3.4. Repayment of loan 195
5.3.5. Loan decision and adequacy 196
5.3.6. Reasons/ causes of loan default 198
5.3.7. Training provided by MFI 199
5.3.8. Supervision and monitoring by group or MFI 200
5.4. Modifications in preliminary questionnaire based on the responses 201
5.5. Major Findings of pilot survey 203
SECTION C: PRIMARY DATA ANALYSIS
5.6. Analysis of the responses of the questionnaire (Frequency Analysis) 206
5.6.1. Socio Economic Information 207
5.6.2. Details of Microfinance Loan 216
5.6.3. Repayment of loan 232
Data Analysis and Findings
5.6.4. Loan decision and adequacy 236

5.6.5. Reasons/ Causes of loan default 246
5.6.6. Training and Supervision 251
5.7. Factors affecting microfinance loan default (Cross Tabulation 259
Analysis)
5.7.1. Cross tabulation analysis taking two factors 260
5.7.2. Cross tabulation analysis taking three factors 270
5.8. Analysis of association of causes of microfinance loan default with 287
other factors (Testing of Hypothesis)
5.8.1 Socio demographic factors 289
5.8.2 Economic factors 293
5.8.3 Microfinance loan related factors 299
5.8.4 Factors related to microfinance group loan 308
5.8.5 Factors related to repayment of microfinance loan 312
5.8.6 Factors related to decision regarding microfinance loan 317
5.8.7 Factors related to training and supervision of borrowers 321
5.9. Analysis of association of microfinance loan amount with other 324
factors (Testing of Hypothesis)
5.9.1 Socio demographic factors 326
5.9.2 Economic factors 329
5.10. Analysis of overall adequacy factors with other factors (Testing of 344
Hypothesis)
5.10.1 Socio-economic factors 345
5.10.3 Factors related to repayment of microfinance loan 358
5.11. Analysis of relationship of borrowers’ combined causes/ situations 363
and overall reasons of NPA
5.11.1 Correlation analysis 363
5.11.2 Quality of relationship 363
5.11.3 Output of correlation analysis 364
5.12. Analysis of impact of borrowers’ combined causes/ situations and 368
overall reasons of NPA
5.12.1 Process in stepwise multiple regression model 368
5.12.2 Analysis of model summary and hypothesis testing 369
5.12.3 ANOVA Analysis and hypothesis testing 371
5.12.4 Analysis of coefficients 373
5.13. Summing up 377

CHAPTER 5:
DATA ANALYSIS AND FINDINGS
This chapter includes data analysis of both secondary and primary data. The chapter is divided into
three main section and thirteen sub sections. Following is the analysis of data collected:
SECTION A: SECONDARY DATA ANALYSIS
This section discusses data analysis and findings of secondary data collected from the financial
statements of the sample MFIs for a period of five years. Financial performance and non
performing assets of MFIs have been measured through various indicators using ratio analysis.
Following is the detailed analysis of secondary data:
5.1 Trend Analysis of indicators of financial performance of MFIs in Gujarat

One of the objectives of the research is to analyze the financial performance of MFIs in
Gujarat. As a part of that objective, financial performance of MFIs is measured by using MIX
MARKET Model. Under this model, financial performance has been analyzed under eight
major indicators and each indicator is measured by using ratio analysis as under:
5.1.1. Financing Structure Indicators

Financial structure indicator includes the formation of capital of MFI. Two ratios
indicating the proportion of type of capital, namely capital/asset ratio and debt/equity
ratio were analyzed.
1) Capital/Asset Ratio
Capital/Asset ratio calculated the proportion of capital compared to the total assets of
MFI. The higher capital/asset ratio meant assets of the firm were purchased from its
own capital.

Table 5.1 Capital/Asset Ratio

Years
MFIs
2010-11
11 2011-12 2012-13 2013-14 2014-15
15
SEWA 18% 21% 24% 24% 22%
SAATH 12% 13% 14% 15% 12%
PRAYAS 29% 11% 14% 23% 27%
(Source: prepared from secondary data)
Figure 5.1 Capital/Asset Ratio

35%
30%
25%
20% SEWA
15% SAATH
10% PRAYAS
5%
0%
2010-11 2011
2011-12 2012-13 2013-14 2014-15
It can be seen from table 55.1 PRAYAS had higher Capital/Asset ratio compared to
other two MFIs. SAATH had stable proportion of capital to asset for a given period of
five years while the ratio was very fluctuating in case of PRAYAS. It can be concluded
that as all the three MFIs had less capital/asset rratio
atio (maximum 29%), the assets of
MFIs were purchased
hased from other sources of fund.
2) Debt/Equity Ratio
Debt to equity ratio measured the proportions of debt fund that was borrowed or outside
capital to equity fund that is own capital. The higher debt/equity ratio meant the firm
had more debt fund compared to equity capital in its total fund. As it can be observed
from table 5.2,
.2, debt percentage of all the three MFIs was far higher compared to their
equity.

Table 5.2 Debt/Equity Ratio

Years
MFIs
2010-11
11 2011-12 2012-13 2013-14 2014-15
15
SEWA 462% 380% 309% 316% 358%
SAATH 700% 654% 594% 549% 717%
PRAYAS 242% 804% 602% 326% 266%
Figure 5.2 Debt/Equity Ratio

900%
800%
700%
600%
500% SEWA
400% SAATH
300% PRAYAS
200%
100%
0%
2010-11 2011
2011-12 2012-13 2013-14 2014-15
The debt equity ratio of SEWA was comparatively stable than other two MFIs as
SEWA is a co-operative
operative bank and so it have share capital base. Addition to this it
initially collects savings from its members before disbursement of microfinance loan
and because of this its debt equity ratio was lower compared to other two MFIs. The
debt to equity ratio of PRAYAS was most fluctuating compared to the other two MFI
as it is an NGO and its working depends on funds received in form of donation and
additionally no savings is collected from the borrowers. The donation every
ev year keeps
on fluctuating which has effect on its debt equity ratio. As SAATH is a co-operative
co
society, it do collects deposits from its members, but the amount of savings is lower
compared to SEWA and so its debt/equity ratio was higher compared to SEWA.
S

5.1.2. Outreach Indicators

3) Number of active borrowers
One of the main objectives of microfinance is to reach to the maximum number of
people who do not have access to formal banking system. Through outreach indicator
the reach of MFI was measured by calculating number of active borrowers of MFI. The
higher the number of active borrowers the more the efficient was MFI.
Table 55.3 Number of Active Borrowers

Years
MFIs
2010-11
11 2011-12 2012-13 2013-14 2014-15
15
SEWA 30293 23362 29969 16638 14078
SAATH 5,908 8,251 9,563 10,701 8,221
PRAYAS 8194 10537 14812 16734 17219
Figure 6.3 Number of Active Borrowers

35000
30000
25000
20000 SEWA
15000 SAATH
10000 PRAYAS
5000
0
2010-11 2011-12 2012-13 2013-14 2014-15
As it can be seen from figure 55.3,

.3, SEWA had the highest number of active borrowers
followed by PRAYAS and SAATH respectively. Outreach of an MFI mainly depends
on its year of establishment that is the older the MFI, the more the number of client
base. It is applicable to above MFIs too. SEWA is the oldest among the three and so

had highest outreach. PRAYAS is older than SAATH and therefore it had more client
based compared to SAATH.
5.1.3. Overall Financial Performance Indicators

4) Return on Assets ratio
Return on assets ratio calculated the pro
proportion
portion of income compared to its total assets.
The higher return on assets indicated the better use of assets by MFI. MFIs are service
providing firms and therefore the proportion of fixed assets was very less in total assets.
The major assets of MFIs con
consisted
sisted of loan and advances given to clients or members
of MFI. Similarly the major income of MFI consisted of interest collected from loans
and advances given to the clients or members.
Table 55.4 Return on Assets
Years
MFIs
2010-11
11 2011-12 2012-13 2013-14 2014-15
15
SEWA 0.49% 0.58% 0.95% 0.37% -0.41%
0.41%
SAATH 3.37% 4.50% 0.85% 1.45% 0.31%
PRAYAS 4.17% 8.56% 3.34% 4.76% 5.22%
Figure
igure 55.4 Return on Assets
10.00%
8.00%
6.00% SEWA
4.00% SAATH
PRAYAS
2.00%
0.00%
2010-11 2011-12 2012-13 2013-14 2014-15
-2.00%
As can be seen from figure 55.4

.4 above, the return on assets of PRAYAS was highest
over a period of five years followed by SAATH and SEWA respectively. SEWA’s

return on asset was negative in year 2014

2014-15 as its number
ber of active borrowers (table
5.3)
.3) had decreased in that year which res
resulted
ulted into less income generation.
5) Return on Equity ratio

Return on equity ration calculated the proportion of income compared to the equity
capital of the MFI. Similar to previous ratio, higher return on equity ration indicated
that firm has earned bette
betterr return on its equity capital. All the three MFIs that were
studied have their legal form of co
co-operative bank, co-operative
operative society or an NGO and
hence they did not have much equity capital. Therefore, the return on equity was higher
in MFI as compared too its return of assets.
Table 5.5 Return on Equity
Years
MFIs
2010-11
11 2011-12 2012-13 2013-14 2014-15
15
SEWA 3.77% 6.02% 5.77% 1.56% -2.54%
2.54%
SAATH 26.94% 33.94% 5.88% 9.42% 2.51%
PRAYAS 45.44% 44.39% 24.74% 27.87% 18.67%
Figure 5.5 Return on Equity

50.00%
40.00%
30.00%
SEWA
20.00% SAATH
PRAYAS
10.00%
0.00%
2010-11 2011-12 2012-13 2013-14 2014-15
-10.00%

As can be seen from above figure 55.5,

.5, PRAYAS had the highest return on equity
followed by SAATH and SEWA respectively. All the three MFIs had fluctuating return
of equity over the period of five years.
6) Operational self sufficiency ratio

In order to measure the overall financial performance of MFI, it was also necessary to
know operational self sufficiency along with return on asset and return on equity. If
MFI was not operationally self sufficient, it was difficult for MFI to sustain in long
term. Operational self sufficiency was calculated by measuring the proportion of
financial revenue to total expenses of MFI. Thus higher operational self sufficiency
meant that the financial revenue of MFI was suffi
sufficient
cient to cover all the operational
expenses.
Table 55.6 Operational self sufficiency

Years
MFIs
2010-11
11 2011-12 2012-13 2013-14 2014-15
15
SEWA 109% 109% 114% 107% 99%
SAATH 117% 133% 105% 92% 80%
PRAYAS 129% 147% 115% 121% 120%
Figure 55.6 Operational self sufficiency

160%
140%
120%
100%
SEWA
80%
SAATH
60%
PRAYAS
40%
20%
0%
2010-11 2011-12 2012-13 2013-14 2014-15

From the above Table 5.6 and figure 5.6, it can be observed that all the three MFIs had
operational self sufficiency ratio of equal to more than 100% in majority of the five
years time period. This meant that financial revenue of MFIs was more than the total
expenses of MFI in a given year.
5.1.4. Revenue Indicators

In revenue indicators, overall income of MFI at different stage was compared to its total
assets and total revenue. This measured the earning capacity of MFI and hence the
higher the revenue ratio, the better the earning capacity of MFI.
7) Financial Revenue/Asset ratio

This ratio calculated the proportion of financial revenue earned by MFI to its total
assets. This helped to know how efficiently the MFI had used its assets to generate
income from it. Financial revenue was calculated to measure efficiency of assets as the
major source of income of MFI was through interest income.
Table 5.7 Financial Revenue/ Assets Ratio
Years
MFIs
2010-11 2011-12 2012-13 2013-14 2014-15
SEWA 9.28% 9.33% 11.20% 10.93% 11.34%
SAATH 15.06% 14.55% 15.72% 17.04% 15.04%
PRAYAS 21.82% 26.86% 25.94% 27.18% 31.64%

Figure 5.7
.7 Financial Revenue/ Assets Ratio
35.00%
30.00%
25.00%
20.00% SEWA
15.00% SAATH
10.00% PRAYAS
5.00%
0.00%
2010-11 2011-12 2012-13 2013-14 2014-15
It can be observed from table 5.7 and figure 55.7

.7 that all the three MFIs had stable
financial revenue/asset ratio. PRAYAS had the highest financial revenue/asset ratio
followed by SAATH and SEWA respectively.
8) Profit Margin ratio

Profit margin ratio is the basic ratio calculated in order to measure the performance of
any firm for the given year. It was calculated by comparing net operating income with
financial revenue. It gave idea of percentage of profit from total revenue.
Table 5.8 Profit Margin

Years
MFIs
2010-11
11 2011-12 2012-13 2013-14 2014-15
15
SEWA 7.87% 8.65% 11.92% 6.67% -0.54%
0.54%
SAATH 22.34% 31.00% 6.82% 8.92% 2.41%
PRAYAS 19.13% 31.85% 12.87% 17.53% 16.49%

Figure 5.8 Profit Margin

35.00%
30.00%
25.00%
20.00% SEWA
15.00% SAATH
10.00% PRAYAS
5.00%
0.00%
2010-11 2011-12 2012-13 2013-14 2014-15
-5.00%
From the above table and figure it can be analyzed that profit margin of all MFIs was
fluctuating over the five year period. As it was seen earlier that number of active
borrowers of SEWA had decreased in five years and because of this its financial
revenue had also been decrease
decreasedd and this effect is seen in its profit margin ratio.
SAATH was established as co
co-operative society in the year 2010-11
11 from trust form. It
had carried forward all the accounts of trust to the books of co
co-operative
operative firm. SAATH
had not written off any accou
accounts
nts in the first two years and it had written off its account
in third year that is 2012
2012-13
13 and so profit margin had greatly declined in that year.
5.1.5. Expense Indicators

Expense indicator measured proportion of different expenses of MFI to its total assets.
This indicator checked whether the expenses of MFI were in control and it did not
exceed more than the industry percentage of total assets. Thus in order to perform
better, MFI had to maintain lower expense ratios.
9) Total expense/asset ratio

Total expense/asset
asset ratio calculated proportion of total expense of MFI to total assets.

Table 55.9 Total Expense/ Asset Ratio

Years
MFIs
2010-11
11 2011-12 2012-13 2013-14 2014-15
15
SEWA 8.55% 8.53% 9.87% 10.20% 11.40%
SAATH 12.86% 10.96% 15.03% 17.92% 18.75%
PRAYAS 16.88% 18.30% 22.60% 22.41% 26.42%
Figure 55.9 Total Expense/ Asset Ratio

30.00%
25.00%
20.00%
SEWA
15.00%
SAATH
10.00%
PRAYAS
5.00%
0.00%
2010-11 2011-12 2012-13 2013-14 2014-15
It can be observed from table 5.9 above that SEWA had the lowest total expense/asset
ratio compared to other two MFIs. SEWA is older MFI compared to other two and also
it’s a co-operative
operative bank and so its asset base was higher than the other two MFI, while
the expenses were equal as other two MF
MFIs
Is and hence it had lowest ratio.
10) Financial expense/asset ratio

Financial expense/asset ratio calculated the proportion of financial expense to the total
assets of MFI. As discussed earlier, MFI is a service providing firm and its main
revenue was generated from interest income. Similarly, the major expense of MFI was
interest expense on deposit received and expenses related to microfinance loan that the
type of major expenses was of financial expense. Thus this ratio was important while
analyzing the
he financial performance of MFI.

Table 55.10 Financial Expense/ Asset
Years
MFIs
2010-11
11 2011-12 2012-13 2013-14 2014-15
15
SEWA 4.04% 3.71% 4.35% 3.94% 4.18%
SAATH 3.07% 2.78% 2.84% 4.23% 4.00%
PRAYAS 7.71% 7.95% 8.34% 7.93% 6.64%
Figure 55.10 Financial Expense/ Asset
9.00%
8.00%
7.00%
6.00%
5.00% SEWA
4.00% SAATH
3.00%
PRAYAS
2.00%
1.00%
0.00%
2010-11 2011-12 2012-13 2013-14 2014-15
As observed from
om above table 5.10 and figure 55.10,
.10, PRAYAS was having the highest
financial expense/asset ratio as in previous ratio of total expense/asset ratio. While this
was not same with other two MFIs that is SAATH was having lowest financial
expense/asset ratio compared to SEWA that had lowest total expense/asset ratio.
5.1.6. Efficiency Indicators

Efficiency indicator measures how efficient the firm was, in managing its portfolio.
portfol
Efficiency meant getting maximum output by incurring minimum cost.
11) Operating expense/loan portfolio ratio

Operating expense/ loan portfolio ratio was measured by calculating the proportions of
operating expense of MFI for a given period to the total aamount
mount of its loan outstanding.
The less the operating expense/ loan portfolio ratio, the more efficient was
wa the MFI.

Table 55.11
.11 Operating Expense/ Loan portfolio
Years
MFIs
2010-11
11 2011-12 2012-13 2013-14 2014-15
15
SEWA 14.20% 15.45% 15.00% 15.36% 17.18%
SAATH 10.04% 10.82% 17.45% 18.06% 21.53%
PRAYAS 9.58% 7.58% 11.56% 10.75% 12.18%
Figure 55.11
.11 Operating Expense/ Loan portfolio
25.00%
20.00%
15.00% SEWA
10.00% SAATH
PRAYAS
5.00%
0.00%
2010-11 2011-12 2012-13 2013-14 2014-15

.11 that PRAYAS was having lowest
operating expense/loan portfolio that meant the cost incurred per microfinance loan was
lowest compared to other two MFIs.
12) Cost per borrower

Cost per borrowers was calculated by dividing operating expenses with total number
num of
borrowers of MFI. Cost per borrower measured the average cost incurred by MFI on
each borrower. The less the cost per borrower the more efficient was the MFI in
managing its borrowers.

Table 55.12 Cost per borrower (in Rs.)

Years
MFIs
2010-11
11 2011-12 2012-13 2013-14 2014-15
15
SEWA 60 62 68 87 147
SAATH 658 702 1134 1393 2381
PRAYAS 496 10 15 13 16
Figure 55.12 Cost per borrower (in Rs.)

2500
2000
1500 SEWA
1000 SAATH
PRAYAS
500
0
2010-11 2011
2011-12 2012-13 2013-14 2014-15
The cost per borrower of SAATH had gradually increased over the five year period
while SEWA had lowest cost per borrower. SEWA has a policy and accordingly it does
not write off its borrower and so it had more client base which resulted into less cost
per borrower.
5.1.7. Productivity Indicators

13) Borrowers per staff members
Borrowers
orrowers per staff member calculated the average number of borrowers per staff
member of MFI. It measured the productivity of employee of MFI in handling the
borrowers. The more the numbers of borrowers per staff member, the more the
productive was the staff
ff of that MFI.

Table 5.13 Borrowers per staff member

Years
MFIs
2010-11 2011-12 2012-13 2013-14 2014-15
SEWA 187 136 173 96 77
107 127 128 126 87
SAATH
PRAYAS 182 211 279 232 162
Figure 5.13 Borrowers per staff member

300
250
200
150
SEWA
100 SAATH
PRAYAS
50
0
2010-11 2011-12 2012-13 2013-14 2014-15
Years
As can be observed from above table 5.13 and figure 5.13, PRAYAS had an increasing
trend that is its employee’s productivity had gradually increased over the five year
period. While this was reverse in case of SEWA which had a decreasing trend of
number of borrowers per staff members. SAATH is having stable ratio over the five
year period.
5.1.8. Risk & Liquidity Indicators

Through risk and liquidity indicator, MFI’s capacity to handle the risk was measured.
There were two ratios calculated under this indicator.

14) Portfolio at risk >30 days ratio

Portfolio at risk>30 days ratio calculated the proportion of portfolio at risk greater that
30 days compared to the total outstanding loan portfolio. This ratio measured the
proportion of risky portfolio to total portfolio. This meant the higher the ratio of
portfolio at risk>30 days, the more the MFI was exposed to risk.
Table 55.14 Portfolio at risk>30 days
Years
MFIs
2010-11
11 2011-12 2012-13 2013-14 2014-15
15
SEWA 12.83% 11.43% 21.71% 15.23% 12.37%
SAATH 0.08% 0.09% 0.09% 0.08% 0.10%
PRAYAS 0.02% 0.61% 0.27% 0.21% 0.42%
Figure 55.14 Portfolio at risk>30 days

25.00%
20.00%
15.00% SEWA
10.00% SAATH
PRAYAS
5.00%
0.00%
2010-11 2011-12 2012-13 2013-14 2014-15
15
It can be observed from table 5.14 and figure 55.14,

.14, that SAATH and PRAYAS had very
less proportion of risky portfolio (within 1%) while SEWA had higher risky portfolio
(up to 22%). The reason behind high risky portfolio of SEWA was because of the
policy of SEWA. The policy was such that SEWA did not write off the bad debt
accounts and it carried forward all the bad debt accounts right from its establishment.
Therefore SEWA showed the highest risky portfolio compared to other two MFIs.

15) Risk coverage ratio

Risk coverage ratio was calculated the proportion of provision provided for bad debt
compared to portfolio
ortfolio at risk>30 days. The higher the ratio the more prepared was the
MFI to deal with the risky portfolio.
Table 5.15 Risk Coverage Ratio

Years
MFIs
2010-11
11 2011-12 2012-13 2013-14 2014-15
15
SEWA 49% 1% 20% 26% 33%
SAATH 0% 0% 1260% 357% 100%
PRAYAS 826% 725% 1583% 2233% 967%
Figure 5.15 Risk Coverage Ratio

2500%
2000%
1500% SEWA
1000% SAATH
PRAYAS
500%
0%
2010-11 2011-12 2012-13 2013-14 2014-15
It can be seen from table 5.15 and figure 55.15

.15 that PRAYAS had the highest risk
coverage ratio compared to other two MFIs. SAATH had not risky portfolio in the initial
two years of study and therefore its risk coverage was zero percentage but from the third
year it started identifying and writing off bad debt and so provided the provision for the
same. SEWA had the least risk coverage ratio among the three MFIs.

5.2 Trend Analysis of indicators of nonperforming assets of MFIs in Gujarat

As discussed in chapter number four of research methodology, there are no unique rules for
MFIs for the classification of its assets and therefore based on the legal form of MFI, it
followed the rules prescribed under that legal form. Hence for the study and analysis of
nonperforming assets of the three MFIs with different legal form, I had defined the
classification of assets. Accordingly, non performing assets were those accounts whose interest
or principal was outstanding for more than 90 days. Similarly, sub-standard assets were those
accounts whose interest or principal was outstanding for more than 90 days and less than 180
days and doubtful assets were those accounts whose interest or principal was outstanding for
more than 180 days. Based on this classification following analysis was done of nonperforming
assets of MFIs in Gujarat.
5.2.1. Gross NPA Ratio

Gross NPA ratio calculated the proportion of gross nonperforming of assets of MFI to
its total outstanding loan portfolio. The less the Gross NPA ratio meant that the MFI
had less proportion of gross nonperforming assets in its total portfolio.
Table 5.16 Gross NPA Ratio

Years
MFIs
2010-11 2011-12 2012-13 2013-14 2014-15
SEWA 8.97% 6.97% 6.24% 6.28% 5.90%
SAATH 0.06% 0.07% 0.07% 0.07% 0.08%
PRAYAS 0.00% 0.26% 0.22% 0.24% 0.20%

Figure 5.16 Gross NPA Ratio

10.00%
9.00%
8.00%
7.00%
6.00%
SEWA
5.00%
4.00% SAATH
3.00% PRAYAS
2.00%
1.00%
0.00%
2010-11 2011-12 2012-13 2013-14 2014-15
As seen from the above tabl

table 5.16 and figure 5.16
.16 that SEWA was having the highest
gross NPA ratio among the three MFIs as it did not write off its bad debt. PRAYAS and
SAATH on the other hand, were having gross NPA ratio of less than one percent.
5.2.2. Net NPA Ratio

Net NPA ratio calculated the proportion of net NPA (gross NPA – provisions)
compared to the proportion of net loan portfolio (total loan outstanding – provisions). It
measured the proportion of NPA in depth compared to gross NPA ratio as it deducted
deduc
the provision to check the proportion of portfolio exposed to risk without any back up
or provisions. Similar to previous ratio, the less the net NPA ratio meant the MFI was
performing better and had well managed its accounts.
Table 5.17 Net NPA Ratio

Years
MFIs
2010-11 2011-12 2012-13 2013-14 2014-15
SEWA 2.89% 2.09% 2.40% 2.86% 2.27%
SAATH 0.06% 0.07% -1.07% -0.23% -0.02%
PRAYAS -2.02% -2.78% -1.45% -0.95% -0.27%
(Source: prepared from secondary data
data)

Figure 5.17 Net NPA Ratio

4.00%
3.00%
2.00%
1.00% SEWA
0.00% SAATH
-1.00% 2010-11 2011-12 2012-13 2013-14 2014-15 PRAYAS
-2.00%
-3.00%
-4.00%
As can be observed from table 55.17 and figure 5.17,

.17, SEWA had the highest net NPA
ratio similar to that in previous ratio. SAATH and PRAYAS had net NPA ratio in
negative which indicated that both the MFIs had more provisions made for bad debt
compared to the actual bbad
ad debt which meant that both the MFIs were 100% prepared
for any bad debt of microfinance loan.
5.2.3. Stress Asset Ratio
Stress Asset ratio calculated the proportion of gross NPA compared to the total assets
of MFI. This ratio measured what proportion of total assets were nonperforming assets.
The lesser stress asset ratio meant that firm was efficient in managing its assets.
Table 5.18 Stress Asset Ratio

Years
MFIs
2010-11
11 2011-12 2012-13 2013-14 2014-15
15
SEWA 2.81% 2.42% 2.49% 2.75% 2.44%
SAATH 0.06% 0.06% 0.05% 0.05% 0.05%
PRAYAS 0.00% 0.25% 0.25% 0.36% 0.34%

Figure 5.18 Stress Asset Ratio

3.00%
2.50%
2.00%
SEWA
1.50%
SAATH
1.00% PRAYAS
0.50%
0.00%
2010-11 2011-12 2012-13 2013-14 2014-15
It can
an be observed from above table 55.18 and figure 5.18,
.18, that SEWA was having
highest stress asset ratio compared to other two MFIs. SAATH had the lowest stress
asset ratio. SAATH and PRAYAS were having the stable stress asset ratio for a period
of five years.
5.2.4. Sub-Standard
Standard Asset Ratio
Sub standard asset ratio calculated the proportion of sub standard asset compared to
gross NPAs of MFI. This ratio measured the percentage of sub standard asset in total
gross NPAs. Though sub standard assets were not good for MFI but they were better
compared to doubtful assets as doubtful assets were older than sub standard assets.
Therefore
fore when calculating the ratio on the type of NPAs of MFI, the more the sub-
sub
standard asset ratio, the better were chances to recover money from NPAs of MFI.
Table 55.19 Sub-Standard Asset Ratio

Years
MFIs
2010-11
11 2011-12 2012-13 2013-14 2014-15
15
SEWA 43% 49% 47% 50% 38%
SAATH 21% 15% 15% 15% 15%
PRAYAS 0% 100% 52% 100% 9%

Figure 55.19 Sub- Standard Asset Ratio

120%
100%
80%
SEWA
60%
SAATH
40%
PRAYAS
20%
0%
2010-11 2011-12 2012-13 2013-14 2014-15

.19 that sub standard asset of all the
three MFIs were having very different percentages ranges. SAATH and SEWA had
stable sub standard asset ratio while PRAYAS had very fluctuating ratio. This ratio
totally was totally dependent on the policy of MFI to wr
write
ite off its NPA accounts.
PRAYAS had a policy to write off its NPA accounts within a year and therefore all its
NPAs were sub standard assets and in two years its sub
sub-standard
standard asset ratio was 100%.
5.2.5. Doubtful Asset Ratio

Doubtful asset ratio calculated the proportion of doubtful assets compared to the gross
NPAs of MFI. It measured the percentage of doubtful assets in total NPAs accounts. As
it was discussed in previous section, doubtful assets were more difficult to recover
compared to sub standard asset aand
nd so lesser the doubtful asset ratio meant MFI was in
a better position to recover from its NPAs accounts.
Table 5.20 Doubtful Asset Ratio
Years
MFIs
2010-11
11 2011-12 2012-13 2013-14 2014-15
15
SEWA 57% 51% 53% 50% 62%
SAATH 79% 85% 85% 85% 85%
PRAYAS 0% 0% 48% 0% 91%

Figure 55.20 Doubtful Asset Ratio
100%
80%
60%
SEWA
40% SAATH
PRAYAS
20%
0%
2010-11 2011
2011-12 2012-13 2013-14 2014-15
It can be observed from table 5.20 and figure 5.

5.20
20 that SEWA and SAATH were
having higher doubtful asset ratio compared to their sub standard asset ratio. This
meant that they were having more percentage of older NPAs and so it was difficult to
recover much from such accounts.
5.2.6. Provision Coverage Ratio

Provision coverage ratio calculated the proportion of provision for bad debt compared
to gross NPAs. Based on the classification of assets, MFI provided the percentage of
provision for each asset class. As the policy of classification of assets was different
differ for
each MFI, the policy of providing provisions for bad debt was also different. Provisions
help MFI to deal with losses that incurred from bad debt accounts. Thus higher
provision coverage ratio meant that the firm was better prepared for the bad debt
deb losses
that may occur in future.
Table 55.21 Provision Coverage Ratio
Years
MFIs
2010-11
11 2011-12 2012-13 2013-14 2014-15
15
SEWA 70% 72% 63% 56% 63%
SAATH 0% 0% 1591% 451% 126%
PRAYAS 0% 1138% 753% 491% 235%

Figure 55.21 Provision Coverage Ratio

1800%
1600%
1400%
1200%
1000% SEWA
800% SAATH
600% PRAYAS
400%
200%
0%
2010-11 2011-12 2012-13 2013-14 2014-15
From the above table 5.21 and figure 55.21,

.21, it can be analyzed that PRAYAS and
SAATH were having provision coverage ratio of more than 100 % but their ratio was
very fluctuating. SEWA was having provision coverage ratio of around 60% but it was
stable compare to other two MFIs.
5.2.7. Write-off Ratio

Write off ratio calculated the proportion of loans written off by MFI compared to the
total of gross NPAs and loans written off. This ratio showed the write off policy of MFI
and measured the percentage of loans written off of total NPAs.
Table 5.22 Write – off Ratio

Years
MFIs
2010-11
11 2011-12 2012-13 2013-14 2014-15
15
SEWA 0% 0% 0% 0% 0%
SAATH 0% 0% 0% 93% 54%
PRAYAS 100% 0% 42% 32% 30%

Figure 5.22 Write – off Ratio

120%
100%
80%
SEWA
60%
SAATH
40%
PRAYAS
20%
0%
2010-11 2011
2011-12 2012-13 2013-14 2014-15

.22 that write off ratio of SEWA was
zero that is because SEWA have a policy in which it do not write off any accounts.
SAATH was converted to co
co-operative society from trust form in year 2010-11
2010 and so
for initial three years of its establishment as a co
co-operative
operative society, it did not write off
any loans and in fourth years it had written off all the accounts that it carried forwarded
from trust form and co
co-operative society
ety for three years and so it had very high write-
write
off ratio. Write-off
off policy of PRAYAS was different in the initial two years of study
while from the third year it had fixed policy and so from that year its write-off
write ratio is
comparatively stable.
5.2.8. Loan loss Rate

Loan loss rate calculated the proportion of loan written off by MFI compared to total
loan portfolio of MFI. It measured portfolio written off as a percentage of total
portfolio. The lesser the loan loss rate meant that the MFI was incurring less amount on
loss on loan disbursed.
Table 5.23 Loan loss Rate
Years
MFIs
2010-11
11 2011-12 2012-13 2013-14 2014-15
15
SEWA 0.00% 0.00% 0.00% 0.00% 0.00%
SAATH 0.00% 0.00% 0.00% 0.91% 0.09%
PRAYAS 0.26% 0.00% 0.16% 0.11% 0.09%

Figure 5.23 Loan Loss Rate

1.00%
0.90%
0.80%
0.70%
0.60%
SEWA
0.50%
SAATH
0.40%
0.30% PRAYAS
0.20%
0.10%
0.00%
2010-11 2011-12 2012-13 2013-14 2014-15

.23 that the loan loss rate ratio of SEWA is
zero because as discussed earlier, it did not write off its loans. While loan loss rate ratio of
SAATH was fluctuating the reason was same as mentioned in previous ratio. Both SAATH
and PRAYAS had loan loss rate within one percent of its total loan portfolio.
In order to analyze the financial performance and non

non-performing
performing assets of microfinance
institutions in Gujarat, three
hree microfinance institutions were selected based on their year of
establishment and were studied. All three MFIs chosen were having different legal form and
therefore the method of preparation of accounts and different accounting items were different
for each of MFI. Thus the main purpose was to analyze the financial performance and
nonperforming assets of each MFI separately rather than comparing their performance. In
addition to that, another purpose was to study the impact of different methodology and polices
adopted by microfinance institutions while providing microfinance services on their financial
performance and nonperforming assets.

SECTION B: PILOT SURVEY ANALYSIS
It is important to have an idea of your population and type of responses you are getting from your
respondent. Hence, in order to test the framing of questionnaire and to check whether the responses
given by the respondents through the questionnaire are in line with the objectives of the research,
pilot survey is conducted.
As per the definition given by Dr. P Narayan Reddy and Dr. G V R K Acharyulu in their book titled
‘Marketing Research’, when data is collected from a limited number of subjects selected from the
population targeted by the researcher, we refer to it as a pilot study. Further they mentions that in a
pilot study, the rigorous standards used to obtain precise, quantitative estimates from large,
representative samples are often relaxed, since the objective is to gain insight into how subjects will
respond prior to administering the full survey instruments.
5.3 Analysis of the responses of questionnaire

Analysis is done of all questions included in pilot survey questionnaire using a frequency
analysis. As mentioned earlier in this chapter, many questions were open ended and hence
based on the responses from the survey they have been converted into close ended by
providing different categories and analyzed accordingly. Following is the analysis of the
responses of questionnaire divided under different heads:
5.3.1. Demographic Information

Demographic analysis of the survey includes the gender, age, caste, education and
marital status of respondents. It should be noted that two MFIs namely SEWA and
PRAYAS is providing microfinance services to women only where as SAATH
provides microfinance services to both male and female, though from the data given
my SAATH, it was found that around ninety percent of the loan portfolio is given to
women. Hence, during the pilot survey, it was found that all the respondents were
women. The analyses of other demographic detail of respondents are shown in the
following table:

Table 5.24 Demographic profile of borrowers
Sr. No. Demographic details FREQUENCY PERCENTAGE

AGE
1 0-30 10 17.24
2 31-40 24 41.38
3 41-50 18 31.03
4 50< 6 10.35
Total 58 100.00
CASTE
1 General 2 3.45
2 OBC 32 55.17
3 SC/ST 6 10.34
4 Any other 14 24.14
5 Does not know 4 6.90
Total 58 100.00
EDUCATION
1 Uneducated 40 68.97
2 Primary (1-7) 10 17.24
3 Secondary (8-10) 6 10.34
4 High school (11-12) 2 3.45
5 Graduate (1-4 years) 0 0.00
6 Post graduate 0 0.00
7 Technical Training 0 0.00
8 Others 0 0.00
Total 58 100.00
MARITAL STATUS
1 Unmarried 0 0.00
2 Married 42 72.41
3 Divorced 0 0.00
4 Deserted 6 10.34
5 Widow 10 17.24
Total 58 100.00
(Source: prepared from responses)

5.3.2. Economic information

Economic information includes the information related to earning of respondent. It
includes number of family members and earning members of respondent, economic
activity of respondent and her family and income of respondent and her family. The
question related to economic information of the respondent were kept open ended to
get insight of the information and based on the responses, it has been classified under
different categories. Following table shows the categories framed and their frequencies
of the economic information:
Table 5.25: Economic information of borrowers
Sr.No. PARTICULARS FREQUENCY PERCENTAGE
Total no. of family members
1 0 to 4 34 58.62
2 5 to 7 24 41.38
3 8 to 10 0 0.00
4 More than 10 0 0.00
Total 58 100.00
Total no. of earning members
1 0 to 2 40 68.97
2 3 16 27.59
3 4 2 3.45
4 equal to or more than 5 0 0.00
Total 58 100.00
Individual Income
1 no income 24 41.38
2 1 to 5000 28 48.28
3 5001-15000 6 10.34
4 15001-25000 0 0.00
5 25001-35000 0 0.00
6 35001-45000 0 0.00
45000< 0 0.00
Total 58 100.00
Family Income
1 no income 2 3.45
2 1 to 5000 6 10.34
3 5001-15000 36 62.07
4 15001-25000 10 17.24

5 25001-35000 4 6.90
6 35001-45000 0 0.00
7 45000< 0 0.00
Total 58 100.00
The economic activities of the respondent and her family members were of wide
categories and their analysis is done by including all of them as a separating category.
Following table shows various economic activities of respondent and her family
members:
Table 5.26: Economic activities of borrowers and their family members
Sr.No. Economic Activities Of Individual and Family FREQUENCY

1 Preparing Toran 2
2 Rickshaw driving (owned) 6
3 Applying Mehndi 2
4 Housemaid 8
5 Rickshaw driving (Rented) 8
6 garage worker 4
7 Threading work (bharat work) 4
8 daily laborer 6
9 housewife (No outside work) 24
10 tailoring at home 8
11 Loading truck of onion - potato 2
12 vegetable vendor 6
13 Making number plate 2
14 electricity work 2
15 work of painting house 2
16 Fish selling 2
17 shop of flesh selling 2
18 non -veg. hotel 6
19 Driver 6
20 shop of pan masala 2
21 hand cart of bhel-puri 2
22 house selling broker 2
23 Driver at govt. office 2

24 Gas cylinder delivery 2

25 worker at catering firm 4
26 collecting paper waste 2
27 ironing clothes at hospital 2
28 selling tea 2
29 government job 2
TOTAL 124
It was found that every member of family including respondent, were involved in
different economic activity and so there were a total of one hundred and twenty four
persons from a survey of fifty eight questionnaires involved in twenty nine different
economic activities Though for better analysis of primary survey, the above different
economic activities were classified under five different heads which are mentioned in
later section of modification.
5.3.3. Details related to microfinance loan

Under this head, the questions were asked regarding terms of microfinance loan. This
include how borrower got the information about MFI, number of borrowing cycle
from MFI including current microfinance loan, amount of microfinance loan, time
period since date of disbursement of current microfinance loan, rate of interest of
current microfinance loan, installment amount and total number of installment of
current microfinance loan. In addition to this, purpose of taking loan, person from
whom borrower took the loan and type of borrowing were asked to the respondents.
From the type of borrowing question, the bifurcation was done between individual
borrowing and group borrowing. Respondents, who took group borrowing, were
further asked number of members in a group. Following table shows the analysis:
Table 5.27 Information related to borrowers’ microfinance loan

Information about MFI
1 Group member 4 6.90
2 Agent/ mediator 2 3.45
3 MFI 44 75.86

4 Self 0 0.00
5 Relative/ Friends 8 13.79
Total 58 100.00
No. of borrowing cycle
1 One 22 37.93
2 Two 22 37.93
3 Three 6 10.34
4 Four 8 13.79
5 more than four 0 0.00
Total 58 100.00
Amount of disbursement
1 Less than or equal to Rs.10,000 6 10.34
2 Rs.10,001 to Rs.20,000 38 65.52
3 Rs.20,001 to Rs.30,000 12 20.69
4 Rs. 30,001 to Rs. 40,000 2 3.45
5 Rs.40,001 to Rs. 50,000 0 0.00
6 More than Rs. 50,000 0 0.00
Total 58 100.00
Time period since date of disbursement
(As on December 31, 2015)
1 Less than 1 year (after 31/12/2014) 0 0.00
2 1 to 2 years (01/01/2014 to 31/12/2014) 12 20.69
3 2 to 3 years (01/01/2013 to 31/12/2013) 30 51.72
4 3 to 4 years (01/01/2012 to 31/12/2012) 14 24.14
5 4 to 5 years (01/01/2011 to 31/12/2011) 2 3.45
6 More 5 years (Before 01/01/2011) 0 0.00
Total 58 100.00
Rate of Interest (%) (per annum)
1 0-20 16 27.59
2 20.01-22 2 3.45
3 22.01-24 18 31.03
4 24.01-26 22 37.93
5 26< 0 0.00
Total 58 100.00
Amount of installment (Monthly)
1 Less than or equal to Rs.500 0 0.00
2 Rs.501 to Rs.1,000 24 41.38
3 Rs.1,001 to Rs.15,00 24 41.38
4 Rs.1,501 to Rs.2,000 10 17.24

5 Rs.2,001 to Rs.2,500 0 0.00

6 More than Rs. 2,500 0 0.00
Total 58 100.00
Total number of installments (loan
duration) (monthly)
1 Less than or equal to 12 24 41.38
2 13 to 15 0 0.00
3 16 to 18 4 6.90
4 19 to 21 10 17.24
5 22-24 4 6.90
6 More than 24 16 27.59
Total 58 100.00
Purpose of loan
1 Invest in existing Business 28 48.28
2 Starting a new business 14 24.14
3 Repayment of previous debt 0 0.00
4 Consumption 8 13.79
5 Others; please specify (No answer) 8 13.79
Total 58 100.00
Borrowing Type
1 Group 40 68.97
2 Individual 18 31.03
Total 58 100.00
Members in group
1 <= 5 40 100
2 6 to 10 0 0
3 11 to 15 0 0
4 16 to 20 0 0
5 20< 0 0
Total 40 100
Loan taken through
1 Agent 18 31.03
2 MFI employee 40 68.97
3 Approached MFI by own 0 0
Total 58 100
All the above questions were kept open ended so that exhaustive list of responses
could be collected. Based on the responses received, answers of all the questions were

classified into range so that it becomes easy to analyze the questions and interpret the
result.
5.3.4. Repayment of loan

Questions related to details of microfinance loan were divided into two sections; one
was details related to microfinance loan and another related to current status of
microfinance loan. This section includes questions related to status of microfinance
loan. Three questions were asked regarding this and they were total number of
installments paid, time period since payment of last installment paid and amount paid
at the time of last installment.
Table 5.28: Information related to repayment of borrowers’ loan

Total no. of installments paid
1 0 to 3 0 0.00
2 4 to 6 8 13.79
3 7 to 9 18 31.03
4 10 to 12 24 41.38
5 13 to 15 2 3.45
6 15< 6 10.34
Total 58 100.00
Time period since payment of last installment
(As on December 31,2015)
1 Less than or equal to 3 months (on or after 30/09/2015) 10 17.24
2 Between 3 to 6 months (01/07/2015 to 30/09/2015) 4 6.90
6 More than 36 months (Before 01/01/2013) 0 0.00
Total 58 100.00
Again the questions were kept open ended, in order to have exact idea of forming
range. It was found that during the collection date, borrowers used to pay the amount
they have with them that it could be either less or more than installment amount and

hence the third question was included to know the pattern of payment of microfinance
loan.
5.3.5. Loan decision and adequacy
Three questions were asked related to who make decision related to purchase of loan,
usage of loan amount and usage of profits and three questions were asked regarding
whether the loan amount, loan period and installment amount was adequate to the
borrowers. The purpose behind asking the questions of decision making was to know
the who in the family of borrowers took various financial decision and whether the
borrower was independent or dependent in making loan related decision. It is was
found that as the borrowers were already defaulters and so they were not able to
generate any economic profit from the loan amount and hence the third questions
related to decision had no response (10%) from borrowers in the pilot survey.
Moreover, the borrower who answered the question were giving responses based on
the overall profit of the economic activity done by family members and not particular
answer of the profits or income generated from the current microfinance loan and so
the question was modified in final questionnaire.
The other three questions under this section were related to adequacy. The purpose of
asking these questions was to find out impliedly the reason behind default as it may
happens that the loan amount is not adequate with the purpose and so it is not used to
fulfill the purpose. Similarly if loan period and installment amount is not found
adequate to borrower, it may lead to default in microfinance loan.

Table 5.29 Decisions regarding loan and its utilization
Sr.No. PARTICULARS FREQUENCY PERCENTAGE FREQUENCY PERCENTAGE FREQUENCY PERCENTAGE

Decision to take loan Decision to use loan Decision to use profit
1 Self 16 27.59 16 27.59 12 20.69
2 Spouse 8 13.79 10 17.24 8 13.79
3 self & spouse 14 24.14 14 24.14 10 17.24
4 self & other 10 17.24 6 10.34 6 10.34
5 Other 10 17.24 12 20.69 16 27.59
6 no response 0 0.00 0 0.00 6 10.34
Total 58 100.00 58 100.00 58 100.00
Table 5.30 Adequacy of loan & installment amount and repayment period
Sr.No. PARTICULARS FREQUENCY PERCENTAGE FREQUENCY PERCENTAGE FREQUENCY PERCENTAGE
loan amount repayment period installment amount
1 strongly agree 16 27.59 20 34.48 22 37.93
2 Agree 16 27.59 16 27.59 12 20.69
3 Neutral 24 41.38 22 37.93 24 41.38
4 Disagree 2 3.45 0 0.00 0 0.00
5 strongly disagree 0 0.00 0 0.00 0 0.00
Total 58 100.00 58 100.00 58 100.00

5.3.6. Reasons/ causes of loan default

One of the objective of the research was to find out the reasons or causes behind
microfinance loan becoming default from the borrowers. This question directly asked
the borrower their reason behind nonpayment of loan installment. It was found that
there were more than one reason of default and hence the question was a multiple
choice question i.e., borrowers ticked more than one option. Thus from the survey of
58 questionnaire in pilot survey, a total of 100 responses were collected for reasons of
default.
Table 5.31 Causes of arrears of microfinance loan
SR.NO. Reasons for arrears (Multiple choice question) FREQUENCY
1 Business not profitable 20
2 Natural calamities 0
3 Inventory sold for credit 0
4 Loss of assets (Stolen, damaged) 0
5 High fluctuation in income 8
6 Illness (Self/spouse) 10
7 Death of spouse 6
8 Loan amount used for household expenses 8
9 Loan amount used to repay other debt 10
10 Loan amount used for social purpose 10
11 Loan amount used on education/ children expenses 2
12 Loan amount used to cure family health problems 6
13 Loan amount invested in family/spouse business 0
14 Migration 0
15 Ghost loan 16
16 Not satisfied with policy of MFI 4
17 Carelessness of field agent 0
TOTAL 100

As per the responses received from respondent, there were certain reasons which were
not included in pilot study questionnaire such as dissatisfaction with agent or
employee or organization as a whole, not interested in taking any future loan,
irregularity of officer to collect installment. These reasons were found while
conducting the pilot survey and thus all these reasons have been included in
questionnaire of final survey and additionally classification has done in three
categories for repayment of other debt.
5.3.7. Training provided by MFI

Two main questions were asked related to training provided by the MFI which include
whether the borrower had knowledge of training provided by the MFI and second
related to whether the borrower had received the training before getting loan. The
second question had two sub questions which were based on the yes or no answer
given by the borrowers. If borrower had received the training the sub question asked
the agreement of borrower on improvement in business skill after receiving training. If
the borrower did not receive the training the question followed asked the reason for not
getting training.
Table 5.32 Training provided by MFI to borrowers
Knowledge of training
1 Yes 15 25.87
2 No 8 13.79
3 No Response 35 60.34
Total 58 100
Receipt of training
1 Yes 13 22.42
2 No 10 17.24
3 No response 35 60.34
Total 58 100
It was found from pilot survey that clients were not able to specify benefit from the
training given by MFI and so there were very few responses (23) on that question.

Hence the modifications were done in framing the questions which is mentioned in
detail in next section.
5.3.8. Supervision or monitoring by group or MFI

Supervision and monitoring plays an important role in microfinance in loan recovery.
Four questions were included related to supervision of microfinance loan. Firs
question was related to number of meeting conducted by MFI agent or employee if it’s
an individual loan and number of meetings conducted by group if it’s a group loan.
Second question was open ended and it asked the number of meeting conducted. Next
two questions were related to supervision done by MFI employee or agent on loan
amount utilization and on loan recovery.
Table 5.33 Supervision by MFI
Time duration between meetings
1 Weekly 7 12.06
2 Fortnightly 7 12.06
3 Monthly 8 13.79
4 More than one month 10 17.24
5 No meetings 26 44.85
Total 58 100
Supervision by MFI on loan utilization
1 Yes 7 12.06
2 No 16 27.60
3 No Response 35 60.34
Total 58 100
Supervision by MFI on loan recovery
1 Yes 20 34.48
2 No 3 5.18
Total 58 100
The answer given by borrowers to the question related to duration between meetings
had maximum answer that no meeting was held before loan disbursement. Therefore
the analysis includes ‘no meeting’ option and it is also modified in final

questionnaire. The borrowers were not able to properly answer either yes or no in the
questions related to how supervision was done by the MFI and hence there were
maximum number of no responses (35) in that question. Therefore the questions on
supervision were modified by including the options on how much they agree in a
scale of five in final questionnaire.
5.4 Modifications in preliminary questionnaire based on the responses

The main purpose of the pilot study was to check the formation of questions and the nature
of responses for every question. Thus, from the analysis of pilot study data, observations
and meeting with managers of MFI, modifications and reframing is done in some questions
and their class interval so that at the time of final survey, the analysis becomes simpler and
without any bias. In addition to modifying some questions, some questions were added
regarding the group characteristic, in case of group loan as it was found from observations,
that group nature and working plays an important role on functioning of repayment
schedule of clients.
The questionnaire in pilot survey had a total number of twenty six questions with many sub
questions which were kept open ended. In final questionnaire, all the sub question which
were kept open ended had been converted into close ended by giving class intervals and
where ask as a main question. Hence, there were thirty seven questions in final
questionnaire.
Question number 1 to 8 of pilot study questionnaire, related to basic information and

demographic detail were almost kept same in final questionnaire except the class interval
in age were increased for better analysis. Questions 9 to 11of pilot study questionnaire
were open ended and so they were given class interval based on the responses in pilot
study and were numbered Questions 9 to 12 in final questionnaire.
Question number 12 of pilot study questionnaire was not modified and was included into
final questionnaire as question number 13.
Question number 13 of pilot study questionnaire had 13 sub questions and each of them
was kept open ended. In final questionnaire, all the above 13 sub questions were converted

into close ended by providing class interval to each question and given separate question
number. In addition to this, four sub questions under type of borrowing were added related
to group dynamics. The purpose of adding these questions was to know the difference
between individual and group borrowing and its effect on microfinance loan becoming
default. One more questions related to amount paid during last installment was included as
it was found in pilot study analysis that whenever the collection was done by MFI, the
borrowers used to pay whatever money they had with them at that time and so it may be
either less or even more than the installment amount. Thus, question number 13 of pilot
study questionnaire was included in final questionnaire in questions numbered 14 to 25.
Question number 14 to 16 in pilot study questionnaire were related to decision making and
first two related to decision of taking loan and usage of loan amount were kept unchanged
and included in final questionnaire. While the third questions in this section was related to
decision to use profit but from pilot study analysis it was found that as the respondent were
defaulters, they were not able to generate profit from loan and hence were not able to
answer the question. So, the question was modified and it asked who was responsible to
pay installment. The above three questions were numbered 26 to 28 in final questionnaire.
Question numbers 17 to 19 in pilot study questionnaire were related to adequacy and they
were included in final questionnaire in question numbers 29 to 31.
Question number 20 in pilot study questionnaire was related to causes of microfinance loan
default which was included in final questionnaire in question number 32 by re-framing
certain options of the question for clear understanding and by adding five options in that
question so that the analysis could be exhaustive.
Question number 21 and 22 in pilot study questionnaire were related to training of the
borrowers. The training and information provided by all the three MFIs was different and
so it was not possible to analyze the question through yes or no on training received. Hence
the question was modified by including different type of information as an option and
borrower’ had to tick whether they received the information on a scale of five. The above
questions on training were numbered 33 and 34 in final questionnaire.

Question numbers 23 to 26 in pilot study questionnaire were related to supervision done by

the MFI through number meeting conducted by MFI and visit by MFI employee or agent.
The question on number of meeting was modified by adding ‘no meeting’ option while the
question on supervision on different stages of loan were converted into purpose of visit and
under that different purposes were mentioned. Thus the above questions of supervision
were numbered 35 to 37 in final questionnaire.
5.5 Major findings of Pilot survey

Total of 65 borrowers were included in pilot survey. Out of which five were not available at
their registered address during survey and two were migrated to other place which was not
known by the MFI. Hence analysis included the responses of 58 borrowers.
 Major findings of demographic profile of borrowers were that majority of the age group of
the borrowers was between 31-40 years (24) and majority of the borrowers belongs to OBC
caste (32). In addition to this, most of the borrowers were uneducated (40) and no borrower
had education level more than high school. Majority of the borrowers were married.
 Findings of the economic activity of the borrowers’ shows that all the family members of
the borrowers were involved in different activities. Though all the economic activities were
shown in the table, it can be seen that majority of the borrowers were involved in labour
work with payment on daily basis and therefore no fixed income. The family members of
borrowers were mostly between 1-4 (34) that is the family was nuclear and majorly a
maximum of two (40) family members in the family were earning. The individual income
of the borrowers majorly range between 1-5000 Rs. (28) followed by no income (24) as
majority of the female borrowers were homemakers and did not go outside for any work.
The family income of the borrowers was majorly between Rs. 5000-15000 (36).
 The majority of the borrowers get information about microfinance loan through MFI
employee (44) only during the initial stage and they did not have any knowledge of
microfinance before. The borrowing cycle of majority of the borrowers were either one
(22) or two (22) while the amount of microfinance loan were majorly in the range of Rs
10001 – 20000 (38) as MFI have rule of fixed loan amount in the initial one or two
borrowing cycle. The microfinance loans were majorly 32-3 years (30) old and the interest
rate charged in most of microfinance loan was 26% (22). The major purpose of borrowers

behind taking microfinance loan was to invest in business and in that 28 borrowers had
purpose to invest in existing business while 14 borrowers had purpose to invest in new
business.
 The installment amount of microfinance loan was majorly between Rs. 501-1000 (24) and
Rs. 1001-1500 (24) while the number of monthly installments of majority of microfinance
loan were less than or equal of twelve (24) followed by more than twenty four installments
(16).
 A total of 40 borrowers took microfinance loan in a group with maximum of five members
while 18 borrowers took individual microfinance loan. It was found from the discussion
with the representatives of MFI that in the first cycle of lending to borrowers, MFIs
generally give in group in order to ensure recovery. And based on the group performance,
individual loan is given.
 It was found that majority of the borrowers paid number of installments between 10-12
(24) followed by 7-9 (18) installments. This means that most of the installments have been
paid by the borrowers and only one or two installments are pending. This is because MFI
do collect savings from borrowers and if installments are not paid by the borrowers
regularly, the amount of installments is debited from the balance of borrowers’ savings and
so outstanding installments are very few. The time period since payment of last
installments majorly range between 12 to 24 months (22).
 The decision to take and use microfinance loan is majorly taken by borrower
himself/herself (16) followed by decision taken by both borrower and his/her spouse (14).
But the decision to use profit is taken majorly by others (16). From this it can be concluded
that loan decision is taken by one person but usage of profit from it is taken by other person
and therefore this may lead to default in microfinance loan.
 The borrowers were asked whether the loan amount, loan period and installment amount
was adequate to them and in all the above three questions majority of the borrowers agreed
that the adequacy (average - 34) of all the above three while remaining borrowers were
neutral to the above questions.
 The major reason of microfinance loan default was that the business of the borrower was
not profitable (20). The second major reason was that the microfinance loan was a ghost
loan (16) i.e.; the microfinance loan was taken on the name of borrower but it was used by

some other person. The third major reason of the default was that the loan amount was used
in other expenses like social expenses (10), other debt (10) or in illness of family member
(10).
 35 out of 58 borrowers were not able to exactly answer the question on training as they did
not remember and so they did not gave response to that question. This was because the
borrowers do not received training every time and only during the first cycle of the
borrowing, they got training and that too related to information related to microfinance
loan.
 The borrowers were asked the duration between the number of meetings conducted in order
to know the regularity of meetings but it was found through conversation with the
borrowers, that in most of individual loan, there did not held any meeting. The meetings
that were held in other cases were majorly held only before the disbursement of
microfinance loan and once they receive loan amount, no meeting was held.
After discussing analysis of pilot survey of borrowers in this section, the next section
discusses detailed analysis of secondary data related to financial statements of MFIs
SECTION C: PRIMARY DATA ANALYSIS
The detail of pilot survey and the modifications done based on pilot survey analysis was
mentioned in the previous chapter. Based on those modifications, final questionnaire was
prepared and final survey was conducted. One of the objectives of the research is to investigate
the causes of non-performing assets of microfinance institutions in Gujarat and in order to
achieve that objective, primary survey was conducted. The result and analysis of the final
survey is presented in this section. This section is divided into seven sub sections. The first sub
section includes analysis of the responses of questionnaire through frequency analysis of
number of responses and percentage. In addition to this, descriptive statistics has been studies
for the questions having five point scales. The second sub section analyze different factors that
lead to the causes of microfinance loan default through cross tabulation analysis taking two
factors and three factors at a time. The third sub section analysis the association of causes of

loan default with other factors through testing of hypothesis. The fourth sub section includes
analysis of association of loan amount with other factors through testing of hypothesis. Chi-
square test is used in order to test hypothesis in both sub section three and four. Fifth sub
section analyze the overall adequacy of different loan parameter with other factors through
testing of hypothesis and using one way ANOVA to test the hypothesis. Next in order to
understand the significance, post hoc test has been conducted after analyzing result of one way
ANOVA test. Sixth sub section analyzes the relationship of borrowers’ causes/ situations of
default and overall reasons of NPA using correlation analysis. Seventh sub section analysis
impact of borrowers’ causes/ situations of default and overall reasons of NPA applying
stepwise regression model.
5.6 Analysis of the responses of questionnaire (Frequency Analysis)

The data was collected through self administered questionnaire and responses were taken from
the borrowers whose microfinance loan account is overdue or default. Out of total sample size
of 550 borrowers across all the three microfinance institutions studied, 463 responses were
taken as rest were not available at the time of survey or were hesitate to give response.
During the survey it was found that 12 borrowers were not alive and 35 borrowers had
migrated from their original registered address. These both are causes of microfinance loan
default therefore both these type of borrowers were included in total 463 respondents. Thus in
cases of above 47 cases, information were collected either from their relatives or neighbour and
basic loan information was taken from respective MFI. But the questions asking their opinions
and other personal details which can be known only through borrowers has not been collected.
Therefore in the following analysis of responses, few questions have total respondents of 451
(not including borrowers who are not alive) and in some questions total respondents are 416
(not including borrowers who are not alive and borrowers who have migrated).
This sub section includes analysis of responses of all 463 borrowers and is divided into six sub
section as under:

5.6.1. Socio Economic Information

Borrowers’ social and economic information has been analyzed in this section. The
section is divided into two sub
sub-heads,
heads, namely social and economic information and all
the questions related to that heads are analyzed respectively.
A. Social Information
Social information includes socio and demographic informa
information
tion of the borrowers like
gender, age, education, caste and marital status. The analysis is presented in form of table
and pie chart as under:
a) Borrowers’ Gender
Out of a total of three microfinance institutions, two MFIs namely Sewa Bank and Prayas
provides microfinance services only to female clients and third MFI Saath co-operative
co
serves microfinance services mostly to female clients. Therefore, during the survey, as can
be seen from table and figure below, out of tota
totall responses, 92.2% were female while only
7.8% were male.
Table 5.34 Borrowers’ Gender
No. Gender Frequency Percent
1 Female 427 92.2
2 Male 36 7.8
Total 463 100.0
Figure 5.24 Borrowers’ Gender

male,
7.78%
female
female, male
92.22%

b) Borrowers’ Age
Maximum borrowers’ age that were survey
surveyed,, were in the age range of 31-40
31 years and
this formed 40.1% of the total borrowers. Followed by this was age range of 41 to 50
years which were 26.8% and age range of 21 to 30 years which was 26.4% respectively.
Above three ranges of age are the most suitable range
ranges for disbursement of microfinance
loan as borrowers have the capacity to generate income during these years and so
repayment of loan can be assured.
It should be noted here that, out of ttotal
otal responses, 12 borrowers’ age has not been
included in the below represented table and figure as they were not alive but even though
their loan accounts were continue and were managed by their legal heirs.
Table 5.35 Borrowers’ Age
No. Age Frequency Percent

1 31-40 181 40.1
2 41-50 121 26.8
3 21-30 119 26.4
4 51-60 22 4.9
5 Above 60 5 1.1
6 0-20 3 .7
Total 451 100.0
Figure 5.25 Borrowers’ Age

Above 60 0-20, 0.70%
51-60, 4.90% 1.10%
21--30 31-40, 31--40

26.40% 40.10%
41--50
21--30
41-50 51--60
26.80% Above 60
0-20
20

c) Borrowers’ Caste
33.5% of borrowers survey belonged to SC/ST caste and followed by this were borrowers
belonging to OBC caste which were 32%. Microfinance loan is given to poor section of
thee society and people belonging to SC/ST and OBC caste are generally poor people.
There were borrowers who did not know their caste and they were 17.1% of the total
respondents.
Table 5.36 Borrowers’ Caste
No. Caste Frequency Percent
1 SC/ST 155 33.5
2 OBC 148 32.0
3 Does not know 79 17.1
4 Minority 71 15.3
5 General 10 2.2
Total 463 100.0
Figure 5.26 Borrowers’ Caste
General,
Minority,
2.20%
15.30%
SC/ST, 33.50% SC/ST

OBC
Does not know
Minority
OBC, 32.00%
General
Does not
know, 17.10%
d) Borrowers’ Education level

Education is very important for the awareness of the borrowers regarding financial
services provided by financial institutions. But it was found that majority of the borrowers

that is 43.6% had studied till primary school and 33.7% of the borrowers were uneducated
un
and were not able to even read or write. This could be one of the reasons
reason of default in
microfinance loan as uneducated or less educated borrowers have less knowledge about
working of microfinance loan.
Table 5.37 Borrowers’ Education Level
No. Education Frequency Percent
1 Primary 11-7 202 43.6
2 uneducated 156 33.7
3 Secondary 88-10 89 19.2
4 High school 11
11-12 9 1.9
5 graduate 11-4 years 5 1.1
6 Technical Training 1 .2
7 Ph.D. (Pursuing) 1 .2
Total 463 100.0
Figure 5.27 Borrowers’ Education Level

High graduate 11-4 Techinical Ph.D. (Pursuing),
school 11- years, 1.10% Trainning, 0.20%
12, 1.90% 0.20%
Secondary Primary 1-7

1
Primary
8-10,
10, 19.20%
1-7, 43.60% uneducated
Secondary 8-10
8
High school 11-12
11
uneducated,
33.70% graduate 1-4
1 years
Techinical Trainning
Ph.D. (Pursuing)
e) Borrowers’ Marital status

As can be seen from below table 5.38 and figure 5.28
5.28,, majority of borrowers that is 82%
were married. Rests of the borrowers were single and among them 11.3% were widow,
3.4% were deserted, 2.4% were unmarried and 1% was divorced. From MFIs view point,
female borrowers that are married are assumed to more ccapable

apable to repay loan as their
husbands also earn income but this is not true in this case as it was found that many of the
husbands of the borrowers were not earning, this can be seen from follow on tables.
Table 5.38 Borrowers’ Marital Status

No. Marital Status Frequency Percent
1 Married 341 82.0
2 Widow 47 11.3
3 Deserted 14 3.4
4 Unmarried 10 2.4
5 Divorced 4 1.0
Total 416 100.0
Figure 5.28 Borrowers’ Marital Status
Desserted, 3.40% Unmarried, Divorced,

2.40% 1.00%
Widow, 11.30%
Married
Widow
Desserted
Unmarried
Divorced
Married, 82.00%
B. Economic Information
In order to know the economic condition of the borrowers, six questions were asked to
borrowers. They were economic activity and income of borrower and family and number of
total family members and number of earning family members. Through these questions,

repayment capacity of the borrower can be identified. Following is the analysis of all the
six questions:
a) Borrowers’ Individual economic activity
At the time of formal lending method too, economic activity of the borrowers plays a very
important role while deciding the loan amount to be sanctioned. It can be seen from below
table 5.39 and figure 5.29 that borrowers were involved in different types of
o economic
activity and there is not much majority in any particular activity. 32.4% of borrowers were
self employed and were doing small retail business or small services while 24% were
employed in private firm. The major concern was that 30.5% of borrowers
borrowe were not
involved in any economic activity and so they were dependent on their family for the
income. This could one of the reasons behind their microfinance loan default.
Table 5.39 Borrowers’ Individual Economic Activity

No. Individual Economic activ
activity Frequency Percent
1 Self employed 134 32.4
2 No activity 127 30.5
3 Private job 100 24.0
4 Labour work 55 13.2
Total 416 100.0
Figure 5.29 Borrowers’ Individual Economic Activity

Labour
work, 13.19%
Self employed,
Private 32.37% Self employed
job, 23.98%
No acitivity
Private job
No acitivity,
30.46% Labour work

b) Borrowers’ Family economic activity

It is necessary to know the economic activity of the family also as the loan amount is
generally utilized by all family member. Again as it was seen from previous table that
many of the borrowers were not doing any economic activity and therefore it is important
to analyze the economic activity of family members.
As can be seen from table 5.40 and figure 5.30, majority of the family members were either
self employed (35.3%) or working in private firm (34.8%). Followed by this were
borrowers who were doing labour work. There were 9.6% of the family members who were
not doing any economic activities and these included dependent family members like
children and female spouse in case of male borrowers.
It should be noted that self employed borrowers and borrowers that are doing labour work
do not have fixed income and is on daily basis. Therefore there is high level of uncertainty
in their income level. Government job is considered secured job and has fixed income but
only 1.6% of the borrowers were doing government job.
Table 5.40 Borrowers’ Family Economic Activity
No. Family Economic activity Frequency Percent
1 self employed 151 35.3
2 private job 149 34.8
3 labour work 80 18.7
4 no activity 41 9.6
5 government job 7 1.6
Total 428 100.0

Figure 5.30 Borrowers’ Family Economic Activity
no government
activity, 9.58% job, 1.64%
self
labour employed, 35. self employed
work, 18.69% 28%
private job
labour work
private no activity
job, 34.81%
government job
c) Borrowers’ Individual income

Most of the borrowers (48.2%) were earning a maximum of Rs. 5000 per month and
followed by this were the borrowers with no income which formed 31.4% of the total
borrowers. There were 18.9% of borrowers whose income range were between Rs. 5001 to
Rs. 15000 but among them most of borrowers earned below Rs. 10,000. Only 1.4% of the
total borrowers earned above Rs. 15000. From this it can be analyzed that borrowers are
earning very less compared to today’s costs of consumable goods. Thus the income earned
by borrowers
orrowers is spent on different expenses and there is no income left for the repayment of
loan installment.
Table 5.41 Borrowers’ Individual Income (in Rs.)
No. Individual Income (in Rs.) Frequency Percent
1 1 - 5000 201 48.2
2 no income 131 31.4
3 5001 - 15000 78 18.9
4 15001 - 25000 6 1.4
Total 416 100.0

Figure 5.31 Borrowers’ Individual Income (in Rs.)

5001 - 15000, 15001 -
18.94% 25000, 1.44%
1-
5000, 48.20% 1 - 5000
no income
no income, 5001 - 15000
31.41%
15001 - 25000
d) Borrowers’ Family income

Majority of the income of borrowers’ family members fell in the range of Rs. 5001 and Rs.
15000. This is case when there are more than one family member’s that are earning.
Borrower with a nuclear family where only spouse works, their family income came to a
maximum of Rs. 5000 and there were 19.2% who came under this category. Borrowers
Bor
staying in a joint family with about three to five earning family members had income above
Rs. 35000. Thus on an average, borrowers and their family members earns Rs. 5000 to Rs.
10000 per person.
Table 5.42 Borrowers’ Family Income (in Rs.)
No. Family Income (in Rs.) Frequency Percent
1 5001 - 15000 250 58.4
2 1 - 5000 82 19.2
3 15001 - 25000 44 10.3
4 no income 40 9.3
5 25001 - 35000 10 2.3
6 35001 - 45000 1 .2
7 above 45000 1 .2
Total 428 100.0

Figure 5.32 Borrowers’ Family Income (in Rs.)

no 25001 - 35001 - above
income, 9.35% 35000, 2.34% 45000, 0.23% 45000, 0.23%
15001 -
25000, 10.28% 5001 - 15000
1 - 5000
5001 -
1 - 5000, 19.16% 15001 - 25000
15000, 58.41%
no income
25001 - 35000
35001 - 45000
above 45000
5.6.2. Details of Microfinance Loan

This section includes analysis of microfinance loan on various parameters on which
loan was sanctioned. Questions related microfinance loan included sources of
information of microfinance loan, number of borrowing cycles, amount of loan, time
period since loan disbursed, number and amount of installments, purpose of loan and
type of borrowing. All these questions are analyzed as under:
a) Microfinance loan information source

This question was asked to know from where the borrowers came to know about
microfinance services provided by the microfinance institution. It was found that majority
of the borrowers got information through personnel of MFI either through its employee
(43.8%)
.8%) or through its agent or mediator (36.1%). 12.5% of the borrowers came to know
from relatives or friend and 4.8% got information through their group member in case of
microfinance group loan. Thus, most of the time other person either MFI or friend gave
gav
information about microfinance loan to borrowers. Borrowers
orrowers themselves did not have any
source of information.

Table 5.43: Microfinance loan information source

No. Source of information Frequency Percent
2 Agent/mediator 150 36.1
3 Relative/Friend 52 12.5
4 group member 20 4.8
5 self 12 2.9
Total 416 100.0
Figure 5.33 Microfinance loan information source

group
member, 4.8% self, 2.9%
Relative/
MFI
Friend, 12.5% MFI employee
employee,
43.8% Agent/mediator
Agent/ Relative/Friend
mediator, group member
36.1%
self
b) Number of borrowing cycle

Number of borrowing cycle refers to the number of time borrower took loan from a
particular MFI in which he has taken current loan. If the borrowers are taking loan for the
first time from MFI, then the relationship between them is new and therefore risk of
o
recovery is slightly higher. In order to overcome this risk, MFIs in general given loan with
small amount and that too in group during first cycle and later on the loan amount increases
with increase in number of borrowing cycle.
As can be seen from table
le 5.44 and figure 5.34 below, there is no much majority in
particular number of loan cycle. Highest number of borrowers (33.5%), have taken loan
second time while slightly less that is 31.3% of borrowers have taken loan for the third
time. Next majority are
re the borrowers who have taken loan for the first time from the MFI.

Thus, we can conclude that there is no particular pattern or relation can be attached with the
number of borrowing cycle and chances of loan default.
Table 5.44 Number of borrowing cycle

No. Borrowing cycle Frequency Percent
1 two 155 33.5
2 three 145 31.3
3 one 79 17.1
4 four 59 12.7
5 five 17 3.7
6 more than five 8 1.7
Total 463 100.0
Figure 5.34 Number of borrowing cycle

more than
five, 3.7% five, 1.7%
four, 12.7%
two
two, 33.5%
three
one, 17.1%
one
four
three, 31.3% five
more than five
c) Amount of disbursement
Majority of the borrowers that is 39.3% belong to loan amount ranging from Rs.10,000 to
Rs. 20,000 while next higher category of borrowers that is 22.9% belong to loan amount of
less than or equal to Rs. 10,000. This means about 62% of the borrowers belong to this
category. Generally MFI give loan amount of either Rs. 7000 or Rs. 10,000 to the first time

borrowers. Thus it can be concluded that borrowers that are defaulters are one which have
taken loan from MFI for the first time.
Once the borrowers repay first loan and understand the functioning and usage of loan,
he/she will become regular in payment except for unseen circumstances. Again as the risk
of uncertainty for the MFI increases with the increase of loan amount and therefore MFI do
not disburse more of larger amount of loan and therefore as can be seen from below table
and figure, less percentage of default is seen as the loan amount increases as overall
borrowers at higher loan amount is very less.
Table 5.45 Amount of Disbursement
No. Loan Amount (in Rs.) Frequency Percent
1 10001 -20000 182 39.3
2 less than or equal to 10000 106 22.9
3 20001 – 30000 87 18.8
4 30001 – 40000 35 7.6
5 40001 – 50000 28 6.0
6 50001 – 60000 9 1.9
7 90001 – 100000 5 1.1
8 60001 – 70000 4 .9
9 70001 - 80000 3 .6
10 More than 100000 3 .6
11 80001 - 90000 1 .2
Total 463 100.0

Figure 5.35 Amount of Disbursement ( in Rs.)

60001 - 70001 - 80000, 0.6%
90001 - 70000, 0.9%
50001 - More than
100000, 1.1%
60000, 1.9% 100000, 0.6%
10001 -20000
40001 - 80001 - 90000, 0.2% less than or equal to 10000
30001 - 50000, 6.0%
20001 - 30000
40000, 7.6%
10001 - 30001 - 40000
20000, 39.3% 40001 - 50000
20001 - 50001 - 60000
30000, 18.8%
90001 - 100000
60001 - 70000
less than or equal
70001 - 80000
to 10000, 22.9%
More than 100000
80001 - 90000
d) Time period since date of disbursement

This is to know the category of assets in which the borrowers’ loan come. As there is no
specific or unique method of classifying assets, the question has considered the date of
disbursement and tried to analyze the time pperiod
eriod that has passed since disbursement date
till December 31, 2015. This time period is divided in different class intervals in form of
years.
It can be seen from table 5.46 and figure 5.36 that majority is seen in two class intervals
that are between 1 to 2 years which forms 29.4% while between 2 to 3 years includes
25.1% of borrowers. Thus majority of the microfinance loans that are default are 1 to 3
years old. MFI in general write
write-offs maximum
aximum loans that are defaults within 3 years as
microfinance loan is given for a shorter period say 12 months. Only loans with bigger loan
amount are given for longer period but they are less in number and therefore loans that are
4 to 5 years older is least
ast in numbers and only 8.9% of microfinance loans comes in this
category.

Table 5.46 Time period since date of disbursement

Time period since loan taken (in
No. Frequency Percent
years)
1 1–2 136 29.4
2 2–3 116 25.1
3 3–4 74 16.0
4 less than 1 48 10.4
5 more than 5 48 10.4
6 4-5 41 8.9
Total 463 100.0
Figure 5.366 Time period since date of disbursement
more than 5 4 - 5, 8.9%

10.4%
less 1-2
than 1 1 - 2, 29.4%
2-3
10.4%
3-4
3 - 4, 16.0% less than 1
2 - 3, 25.1%
more than 5
4-5
e) Rate of interest
It was found during survey that microfinance institute generally apply single rate of interest
and no bifurcation is done based on loan amount or time period. Sewa Bank is having
interest rate of either 18% or 18.5%, Saath Co
Co-operative
operative is having interest rate of 24%
while PRAYAS trust is having interest rate of 26%. Thus all microfinanc
microfinancee loan have either
of the above three rates of interest based from which MFI it has been sanctioned.

Table 5.47 Rate of Interest

No. Interest rate (in %) Frequency Percent
1 0 – 20 211 45.6
2 22.01 – 24 187 40.4
3 24.01 – 26 65 14.0
Total 463 100.0
Figure 5.37 Rate of Interest

24.01 - 26
14.0%
0 - 20
45.6%
0 - 20
22.01 - 24 22.01 - 24
40.4% 24.01 - 26
f) Amount of installment
Installment amount is an important factor at the time of repayment of loan and so the
question related to installment amount was asked to borrowers. Again this amount is
predetermined most of the time based on tthe
he amount of loan. As table 5.48 and figure 5.48
represents, maximum installment amount is between Rs.500 to 1000 as maximum loan
amount of the borrowers is between Rs.10000 to Rs. 20000 (analyzed in the table of
amount of disbursement). Followed by this is the installment amount that ranges between
Rs. 1001- 1500 and Rs. 1501
1501- 2000 which includes 27.6% and 15.6% respectively in total
responses. Microfinance loan is sanctioned to poor people having less income and therefore
there are fewer loans with installment higher than Rs. 2000 per month.

Table 55.48 Amount of Installment

No. Installment amount (in Rs.) Frequency Percent
1 501 - 1000 194 41.9
2 1001 - 1500 128 27.6
3 1501 - 2000 72 15.6
4 2001 - 2500 28 6.0
6 2501 - 3000 13 2.8
7 3501 - 4000 5 1.1
Total 463 100.0
Figu
Figure 5.38 Amount of Installment
less than or 3501 - 4000

equal to 2501 - 1.1%
500, 5.0% 3000 2.8%
501 - 1000
2001 - 501 - 1001 - 1500
2500 6.0% 1501 - 2000 1000, 41.9% 1501 - 2000
15.6% 2001 - 2500
1001 - less than or equal to 500

1500, 27.6% 2501 - 3000
3501 - 4000
g) Total number of installments

Number of installments is decided based on the loan amount, rate of interest and
installment amount. Duration of installment is also important to know. Generally,
repayment period of microfinance loan could be on a weekly basis and also in some cases
on a daily basis. But in all the three microfinance institutions that have been studied,
duration between installments is of one month.

As can be seen from table 5.49 and figure 5.39 majority of the microfinance loan (33.7%)
have number of installments that ranges between 25 to 36 followed by number of
installments ranging less than or equal to 12 (19.7%) and 16 to 18 (16.6%) respectively.
Table 5.49 Total number of Installments (in months)

No. Number of installments Frequency Percent
1 25 - 36 156 33.7
3 16 - 18 77 16.6
4 13 - 15 56 12.1
5 19 - 21 47 10.2
6 49 - 60 32 6.9
7 22 - 24 4 .9
Total 463 100.0
Figure 5.39 Total number of Installments
49 - 60, 6.9% 22 - 24, 0.9%

19 - 21, 10.2%
25 - 36
25 - 36, 33.7% less than or equal to 12
13 - 15, 12.1%
16 - 18
13 - 15
16 - 18, 16.6%
19 - 21
49 - 60
22 - 24
less than or
equal to
12, 19.7%
h) Purpose of microfinance loan

Main idea behind microfinance loan is to generate income through it and this can only be
possible if microfinance loan is taken of some economic purpose. Microfinance institution
in Gujarat gives loan for economic purpose such as invest in existing or new business and

at the same time they give loan for reducing the debt or purchasing of durable things as
they are in the opinion that borrowers are benefited either by increasing assets or
decreasing liabilities. The important thing to analyze here is the purpose for which loan is
taken by borrower should be fulfilled and then only borrower will be able to repay. But if
the money is spent on some other expenses, there will be no economic gain to borrower and
in contrast burden of paying installment will increase which may lead to microfinance loan
default.
As can be seen from table 5.50 and figure 5.40, majority of microfinance loan is given
either for investing in existing business (44.3%) or starting a new business (17.1%).
Followed by this is loan given for renovation of house (11.9%) or purchasing of asset
(11.9%). This question is necessary to compare with actual utilization of loan amount in
order to check actual implementation of loan money. This is asked in question of causes of
loan default.
Table 5.50 Purpose of microfinance loan
No. Purpose of loan Frequency Percent
1 invest in existing business 205 44.3
2 starting a new business 79 17.1
3 renovation of house 55 11.9
4 purchasing asset 55 11.9
5 other consumption 45 9.7
6 repayment of previous debt 24 5.2
Total 463 100.0

Figure 5.30 Purpose of microfinance loan

other repayment of
consumption, 9.7 previous
% debt, 5.2%
purchasing invest in existing invest in existing business
asset, 11.9% business, 44.3% starting a new business
renovation of house
purchasing asset
starting a new
business, 17.1% other consumption
repayment of previous debt
renovation of
house, 11.9%
i) Type of borrowing
Table 5.51 Type of borrowing
No. Type of borrowing Frequency Percent
1 group 284 61.3
2 individual 179 38.7
Total 463 100.0
Figure 5.41 Type of Borrowing
individual,
38.7%
group, 61.3% group
individual

A group characteristics play an important role in repayment of microfinance loan and

therefore it is necessary to bifurcate between microfinance loans is taken in group or
individual basis.. As can be seen from table 5.51 and figure 5.41
5.41,, 61.3% of borrowers have
taken group loan while remaining 38.7% borrowers have taken individual loan.
j) Number of members in a group

This and next four questions were asked to the borrowers th
that
at have taken loan in group in
order to know group characteristics. Number of members in a group depends upon the
methodology used by microfinance institution. In general, Sewa Bank lends in a group of
10, Saath lends in a group of 4 to 6 while Prayas lend
lendss in a group of five. Based on this
following is the classification of borrowers who took loan in group. Two out of three lends
in group of five and so 76.1
76.1%% of total group borrowing is done in a group of 4 or five.
There is only one group which had number of members between 11 to 15.
Table 5.52 Number of members in a group

No. Number of group members Frequency Percent
1 less than or equal 5 216 76.1
2 6 - 10 67 23.6
3 11 - 15 1 .4
Total 284 100.0
Figure 5.42 Number of members in a group

11 - 15, 0.4%
6 - 10, 23.6%
less than or equal 5
less than or 6 - 10
equal 5, 76.1%
11 - 15

k) Formation of group
Liability of microfinance loan is shared jointly by all the group members and therefore it is
recommendable that the group is formed by the members itself. This helps to avoid clashes
in future. But many a times it has been found that group is formed by MFI employee or
agent and because of this group is not ready to take responsibility during repayment and
that result into loan default. As can be seen from table and figure below, majority of the
group is formed
rmed by members themselves (57.5%) but rest are formed through MFI
employee or agent and therefore this could be one of the reason of NPA in microfinance
loan.
Table 5.53 Formation of group
No. Who formed group Frequency Percent
1 group members 154 57.5
3 agent/ mediator 25 9.3
4 group leader 14 5.2
Total 268 100.0
Figure 5.43 Formation of group
agent/ group
mediator, leader, 5.2%
9.3%
group
MFI employee, group members
members,
28.0% MFI employee
57.5%
agent/ mediator
group leader

l) Homogeneity factor in group

As members of the group share liability jointly, it is required that group member should
know each other very well and therefore it is recommended to have some homogeneity
factor among group members. As iitt is represented from table 5.54 and figure 5.44,
5.44 majority
of the borrowers are neighbours (64.6%) that mea
meann they have area as their homogeneity
factor. 17.5% of borrowers have no homogeneity factor between them. Most preferred
homogeneity factor among group is of relatives (not living together) and similar
communities as borrowers have bonding in such type of groups which helps in repayment.
But in the current survey only 11.9% of the borrowers are relatives or same community.
Table 5.54 Homogeneity factor in group

No. Homogeneity factor Frequency Percent
1 neighbour 173 64.6
2 no homogeneity 47 17.5
3 relatives 32 11.9
4 friends 15 5.6
5 other 1 .4
Total 268 100.0
Figure 5.44 Homogeneity factor in group

relatives, friends, 5.6% other, 0.4%
11.9%
neighbour
no homogeinity
neighbour, relatives
64.6%
friends
other
no
homogeinity,
17.5%

m) Loan amount of group members

Two opinions are there regarding loan amount given among group members. One opinion
says that as group members shares each other’s liability, each should have equal burden
and so loan amount should be given equal to each member. While the other opinion is that
what if one person in group is in need of higher loan amount and another person is needing
lower loan amount and therefore iitt is recommendable to given loan amount as per the
customize needs of the group member though limit should be there on higher side of loan
amount. As represented in table 5.55 and figure 5.45
5.45,, majority of loan amount is distributed
unequally among group me
members
mbers and therefore if the group member with higher loan
amount does not repay, the burden to repay on other borrowers increases which results into
default of microfinance loan.
Table 5.55 Loan amount of group members

Loan amount among group
No. Frequency Percent
members
1 unequal 190 66.9
2 equal 94 33.1
Total 284 100.0
Figure 5.45 Loan amount of group members
equal, 33.1%
unequal
unequal,
equal
66.9%

n) Status of loan of group members

In group loan, repayment happens due to peer pressure. And the reverse to it is that if one
member of group do not pay, it also affects the other member and many a times group as a
whole becomes default. Thus the question was asked related to status of group loan as a
whole of borrowers whose account is default. It wa
wass found that 38.7% of total borrowers’
group is overdue or NPA while almost equal percentage that is 38% of total borrowers’
group has been fully paid. Thus no particular trend can be established regarding impact of
status of group loan and borrowers’ defa
default in microfinance loan.
Table 5.56 Status of loan of group members

No. Status of group loan Frequency Percent
1 overdue/NPA 110 38.7
2 fully paid 108 38.0
3 regular payment 57 20.1
4 irregular payment 9 3.2
Total 284 100.0
Figure 5.46 Status of loan of group members

regular irregular
payment, payment,
20.1% 3.2%
overdue/
NPA, 38.7%
overdue/NPA
fully paid
fully regular payment
paid, 38.0% irregular payment

o) Loan taken through

Some microfinance institutions keep an agent or mediator who are not an employee,
approaches the clients while some microfinance institutions do not have agents and it is the
employee who contacts the client
client.. As can be seen from table 5.57 and figure 5.47 that
54.2% of the loan has been sanctioned through employee and 45.6% of loan has been taken
through agent. Only one group has approached by themselves fo
forr the microfinance loan.
Table 5.57 Loan taken through

No. Loan taken through Frequency Percent
2 Agent 211 45.6
3 Approach MFI by own 1 .2
Total 463 100.0
Figure 5.47 Loan taken through

Approach MFI
by own, 0.2%
Agent, 45.6% MFI MFI employee

employee,
54.2% Agent
Approach MFI by own
5.6.3. Repayment of Loan

This section includes questions related to status of repayment of current microfinance
loan. Three questions were asked namely number of installment paid, time period since
payment of last installment and amount paid in last installment
installment.. The analysis of the
same is given as under:

a) Total number of installments paid

27.2% of the borrowers paid 77-9
9 monthly installments followed by 24% borrowers paid 4
to 6 installments. It is assumed that there is a high risk in getting the installment during
initial period where outstanding amount is higher. While as the number of installments paid
are higher than the number of installments remaining to pay, risk decreases due to less
outstanding loan amount and also there is less burden to borrowers
borrowers. Again
gain the borrowers
have the motivation to take new loan and so once majority of installments are paid, they
will try to complete all installments. For further analysis this question is compared with
total number of installments to analyze the pattern of re
repayment
payment in next section.
Table 5.58 Total number of installments paid

No. Total number of installment paid Frequency Percent
1 7-9 126 27.2
2 4-6 111 24.0
3 10 - 12 99 21.4
4 more than 15 48 10.4
6 13 - 15 39 8.4
Total 463 100.0
(Source: prepared from responses
responses)
Figure 5.48 Total number of installments paid

less than or
equal to 3, 13 - 15, 8.4%
8.6%
more 7-9
than 7 - 9, 27.2%
4-6
15,
10.4% 10 - 12
10 - 12, 4 - 6, 24.0% more than 15
21.4%
less than or equal to 3
13 - 15

b) Time period since payment of last installment

Again this question defines the category of NPA in which microfinance loan of borrowers
fall. This helps to understand the chances of recovery from loan in future. The higher the
NPA category, the lesser the chances to recover and there is much gap between payment of
last installment till current date that December 31, 2015.
The following table and figure represents that 12 to 24 months have been passed in
majority of cases that is 24.8%. 24.4% of total borrowers have paid their last installment in
less than
an or equal to 3 months and 18.6% of borrowers have paid their last installments
since 6 to 12 months.
Table 5.59 Time period since payment of last installments
No. Time period since payment of last installment (in months) Frequency Percent
1 12 – 24 115 24.8
3 6 – 12 86 18.6
4 3–6 83 17.9
5 24 – 36 28 6.0
6 36 – 48 26 5.6
7 more than 60 7 1.5
8 48 – 60 5 1.1
Total 463 100.0
responses)
Figure 5.49Time
Time period since payment of last installments
36 - 48, more than 60,
5.6% 1.5% 48 - 60, 1.1%
24 - 36, 12 - 24
6.0% 12 - 24, less than or equal to 3
24.8%
3 - 6, 17.9% 6 - 12
less than or 3-6
6 - 12, 18.6% equal to 3, 24 - 36
24.4%
36 - 48
more than 60
48 - 60

c) Amount paid in last installment

Installment amount is same for every installment. But in some case of irregular payments
by borrowers, representative of the MFI takes whatever amount given by borrowers at the
time of collection. Thus it can be higher when there are more overdue of amount or it could
even be less than installment amount. Although some MFIs have very strict approach and
they only collect the installment of equal to exact amount and no practice to collect lesser
or higher amount.
The below table and figure explains that majority of the borrowers have paid last
installment equal to the exact amount while 36.1% have paid more than installment and
20.1% have paid less than the installment amount.
Table 5.60 Amount paid in last installment

No. Amount of last installment Frequency Percent
1 equal to installment 203 43.8
2 more than installment 167 36.1
3 less than installment 93 20.1
Total 463 100.0
Figure 5.50 Amount paid in last installment
less than
installment,
20.1%
equal to
installment,
43.8% equal to installment
more than more than installment
installment,
less than installment
36.1%

5.6.4. Loan decision and adequacy

It has been analyzed from literature that though microfinance loan is been successful
among female client, their decisions are influenced by their family members. Therefore
three questions were asked related to three parameters of microfinance loan. Next, it
was checked whether the terms of microfinance loan were adequate to the borrowers
and so three questions were asked related to adequacy. Along with this, descriptive
analysis is also conducted on these three questions related to adequacy. The analyses of
these questions are as under:
a) Decision to take last microfinance loan
The first question related to decision was related to person who took decision to take
microfinance loan. It was found that in majority of the responses joint decision was taken
to take microfinance loan. The next major responses were that decision was taken by self to
take microfinance loan.
Table 5.61 Decision to take last microfinance loan
No. Decision to take last loan Frequency Percent
1 self & spouse 150 36.1
2 self 147 35.3
3 self & other 83 20.0
4 other 23 5.5
5 spouse 13 3.1
Total 416 100.0

Figure 5.51 Decision to take last microfinance loan
other, 5.5% spouse, 3.1%
self & self & spouse,

other, 20.0% 36.1% self & spouse
self
self & other
other
self, 35.3%
spouse
Table 5.62 analyzes the decision to take last microfinance loan in detail by elaborating the
relationship of person that comes in other category with the borrowers.
Table 5.62 Decision to take last microfinance loan (in Detail)
No. Decision to take last loan Frequency Percent
2 Self 147 35.3
3 self & son 15 3.6
4 Spouse 13 3.1
5 self & neighbour 12 2.9
6 self & group member 11 2.6
7 self & friend 8 1.9
8 self & daughter 7 1.7
9 Neighbour 6 1.4
10 self & sister in law 6 1.4
11 self & mother 5 1.2
12 self & mother in law 5 1.2
13 self & other relative 5 1.2
14 Mother 4 1.0
15 self & sister 4 1.0
16 self & father 4 1.0
17 other relative 4 1.0
18 Son 2 .5
19 sister in law 2 .5

20 Daughter 1 .2
21 Sister 1 .2
22 Brother 1 .2
23 mother in law 1 .2
24 brother in law 1 .2
25 self & brother in law 1 .2
Total 416 100.0
b) Decision to use last microfinance loan

The second question of decision was asked regarding the person who took decision to use
last microfinance loan. Almost same responses were collected as in previous question of
decision to take microfinance loan. Table 5.63 and figure 5.52 represents the analysis of the
responses of the borrowers on usage of microfinance loan and table 8.31 in depth analysis
of this question.
Table 5.63 Decision to use last microfinance loan
No. Decision to use last loan amount Frequency Percent
1 Self 155 37.3

3 Other 70 16.8
4 Spouse 44 10.6
Total 416 100.0

Figure 5.52 Decision to use last microfinance loan

self &
spouse, other, 7.2%
10.6%
self, 37.3% self

other, 16.8% self & spouse
other
self & spouse, spouse
28.1% self & other
Table 5.64 Decision to use last microfinance loan (in Detail)

No. Decision to use last loan amount Frequency Percent
1 self 155 37.3
3 spouse 44 10.6
4 neighbour 14 3.4
5 son 9 2.2
6 self & son 9 2.2
8 friend 8 1.9
9 mother 6 1.4
11 sister in law 5 1.2
14 sister 3 .7
15 father 3 .7
16 mother in law 3 .7
17 self & mother 3 .7
18 self & sister in law 3 .7
19 daughter 2 .5

21 brother 1 .2
22 self & sister 1 .2
23 self & brother 1 .2
24 self & father 1 .2
25 self & mother in law 1 .2
Total 416 100.0
c) Responsibility to pay installment of last microfinance loan

Last question related to decision was regarding person who was responsible to pay
installment of microfinance loan. Here the majority of the responses said that borrower
himself/herself was responsible to pay installment followed by joint responsibility of
spouse and self to pay installment amount.
Table 5.65 Responsibility to pay installment of last microfinance loan
No. Responsibility to pay installment amount Frequency Percent
1 self 152 36.5
3 other 70 16.8
4 spouse 62 14.9
Total 416 100.0

Figure 5.53 Responsibility to pay installment of last microfinance loan

self &
spouse, other, 7.0%
14.9%
self, 36.5% self
other, 16.8% self & spouse

other
self & spouse, spouse
24.8% self & other
Table 5.66 Responsibility to pay installment of last microfinance loan

(in Detail)
No. Responsibility to pay installment amount Frequency Percent
1 self 152 36.5
3 spouse 62 14.9
4 neighbour 14 3.4
5 son 10 2.4
7 self & son 8 1.9
8 mother 7 1.7
9 friend 7 1.7
11 sister in law 5 1.2
13 mother in law 4 1.0
15 sister 3 .7
16 self & mother 3 .7
17 self & sister in law 3 .7
18 brother 2 .5

19 father 2 .5
20 daughter 1 .2
22 self & sister 1 .2
23 self & father 1 .2
24 self & mother in law 1 .2
26 self & friend 1 .2
Total 416 100.0
All these three questions of decisions are interrelated and it is necessary to analyze whether
person involved in all the three type of decision making is same or different person are
involved. This cross check is done in next section.
d) Adequacy of last microfinance loan disbursement amount

The first question related to adequacy was asked regarding whether the loan amount was
adequate. Borrowers generally take loan of whatever amount they are getting and do not
think properly of their usage. Due to this, loan amount is either higher or less compared to
requirement in line with purpose. In case if the loan amount is higher, it results into
additional spending that do not generate any return and increases burden of payment. In
case if the loan amount is less, borrower is not able to spend money for intended purpose
and again it uses in some casual expenses that does not generate any return. Thus it is
necessary that loan amount should be in adequate with the purpose.
As can be seen from the table and figure below, majority of the borrowers strongly agree
and agree on the adequacy of borrowers. There are 29.1% of the borrowers who were
neutral regarding amount adequacy and there are 1.4% of borrowers that were unable to
answer and did not give any response.

Table 5.67 Adequacy of loan amount

No. Adequacy of loan amount Frequency Percent
1 strongly agree 93 22.4
2 agree 92 22.1
3 neutral 121 29.1
4 disagree 60 14.4
5 strongly disagree 44 10.6
6 no response 6 1.4
Total 416 100.0
Figure 5.54 Adequacy of loan amount

strongly no response,
disagree, 1.4%
disagree, 10.6%
strongly
14.4% strongly agree
agree, 22.4%
agree
agree, 22.1% neutral

neutral, disagree
29.1% strongly disagree
no response
e) Adequacy of last microfinance loan installment amount

The second question was on whether the installment amount was adequate. The purpose
behind asking the question was to check whether the borrowers were capable to pay the
amount
nt of installment every month. It was found from experience of MFI representative
that sometimes borrowers only thinks of present and takes microfinance loan but they are
unable to properly calculate whether they will be able to pay the installment amount
followed by loan. In some cases they understand future liability and also know the

additional responsibility of installment payment but they want money at present and so they
borrow even if no capacity to repay.
Table 5.68 and figure 5.55 represents the responses
sponses of borrowers on installment adequacy
and it wass found majority of them strongly agreed about adequacy of installment while
next major group of borrowers were neutral and followed by them were borrowers who
agreed on the adequacy of installment amou
amount.
Table 5.68 Adequacy of installment amount
No. Adequacy of installment amount Frequency Percent
2 agree 113 27.2
3 neutral 137 32.9
4 disagree 7 1.7
6 no response 6 1.4
Total 416 100.0
Figure 5.55 Adequacy of installment amount

disagree, no response, strongly
1.7% 1.4% disagree,
1.4%
strongly strongly agree
neutral,
agree, 35.3%
32.9% agree
neutral
disagree
agree, 27.2% strongly disagree
no response
f) Adequacy of time period of repayment last microfinance loan

The third and last question related on adequacy was whether the time period of loan was
agreeable to the borrower. As seen in previous two questions, majority of the borrowers
strongly agreed followed by agree and neutral responses on the question of adequacy of
time period of repayment of microfinance loan.
Table 5.69 Adequacy of repayment period
No. Adequacy of repayment period Frequency Percent
2 agree 122 29.3
3 neutral 129 31.0
4 disagree 5 1.2
6 no response 6 1.4
Total 416 100.0
Figure 5.56 Adequacy of repayment period

disagree, no response, strongly
1.2% 1.4% disagree,
1.0%
neutral, strongly strongly agree
31.0% agree, 36.1%
agree
neutral
disagree
agree, 29.3% strongly disagree
no response
g) Descriptive analysis of three adequacy factors

The coding given to while answering adequacy questions on a five point scale was as
under:
Strongly agree – 1, agree - 2, neutral – 3, disagree – 4, strongly disagree – 5

Based on the above coding and the analysis given below in table 8.36(a), it can be said that
the mean or average answers on loan amount adequacy is 2.53 that is it lies between 2 and
3 or between agree and neutral answers. Further the median is 2, that is 50% of the
responses are above 2 means above agree and 50% are below 2 means below agree. Further
the responses that were given highest time is 3 means ‘neutral’ response is given maximum
time.
Analyzing next question that is on adequacy of repayment period, it is found that the
average responses is almost ‘agree’, the middle point is ‘agree’ and the highest number of
responses have responded ‘strongly agree’ to this question.
The average responses of question on installment period adequate is almost ‘agree’, the
median is also ‘agree’ and maximum responses given was ‘strongly agree’.
Table 5.70 Descriptive statistics analysis of adequacy factors

Factors Mean Median Mode s.d.
Loan amount adequate 2.57 2.00 3 2.494
Repayment period adequate 1.97 2.00 1 2.33
Installment amount adequate 2.01 2.00 1 2.345
(Source: Prepared from responses)
5.6.5. Reasons/ Causes of loan default

This is the most important question of the questionnaire. As through this question,
reason or causes behind microfinance loan has been asked. There are mainly three main
causes of microfinance loan in default. First is due to there was no income or less
income was generated, second major reason was that the income was generated but
utilized in other things and lastly there were some other miscellaneous reasons. Based
on these three major causes, different categories were formed. As can be seen from
table 5.72, there were total 31 different causes found during the survey.
These 31 causes were combined and formed group based on their similarity and
converted into 10 major causes using summated scale in SPSS for better analysis which
is represented from table 5.71 and figure 5.57 below. Again, it should be noted that this

question was multiple choice question and therefore borrowers ticked more than one
causes of default in microfinance loan.
A total of 917 responses were found on causes/reason of default. The most frequent
cause found was the burden of other debt. Other debt was taken from friend, relative,
private money lenders or other microfinance institutions. Thus major cause was of
multiple lending that means different microfinance institutions lends to same borrower.
Second prominent reason was income problem that means no income or less income
was generated and therefore only daily livelihood expenses were covered. This resulted
that borrower did not have capacity to repay microfinance loan. This could be related to
the economic activity of borrower which was found irregular among majority of the
borrowers.
The third and fourth major causes of default are related to income used for expenses
other than payment of installment expenses. It was spent either in routine expenses of
household, education, medical or social expenses. Or it was used in major events of
long term sickness of self or spouse or illness and follow on rituals at the time of death
of family member.
The fifth reason is related to dissatisfaction with the microfinance institution. That is
apparently there was no problem of income and there were no additional expenses and
borrower was capable to pay installment amount. But due to some miscommunication
and misunderstanding or dissatisfaction with employee or institution, borrower did not
pay installment and his/her loan account defaulted. This cause could be easily
overcome with proper communication with borrower.
The sixth reason was ghost loan which means that though officially loan was taken on
the name of borrower, amount of loan was not utilized by the borrower. Till the time
the person who used money paid the installment, loan account was regular but due to
some situation, when the other person stopped paying installment; borrower’s loan

account became default. Many a times it could even be ghost installment that means
borrowers paid installment to other person and other person instead of paying to MFI,
used the installment amount for his/her personal use.
The next causes related to problem in business. Either the business activity was slowed
down or closed or assets/inventory sold in credit or damaged.
There were 48 borrowers who had either migrated from the place which was registered
at the time of loan disbursement or were not alive. As the borrowers belong to poor
section of the society, in many cases they live in rented house and due to this keeps on
changing on a frequent basis. Thirty five such cases were found which had migrated
and there was no source from MFI to reach them. Twelve out of above 48 borrowers
were not alive and in one case there was death of legal heir (MFI takes insurance on
loan amount and is recovered from insurance company if there is a death of either
borrower or legal heir) but their loan account was kept open. In such cases the relatives
of borrowers paid the installment whenever they had some money and therefore they
were not regular in payment and loan account was in default.
The next cause is related to borrowers’ integrity and problem which are personal. This
means though borrower has the capacity of paying the installment amount but he/she
keeps on postponing the payment for no particular reason. For example, in case of
female borrowers, there were some cases where the borrower was shifted to her
parent’s house due to problem with husband or in-laws for shorter period and came
back. This is termed as short term migration and borrower’s personal problem but then
too it is one of the causes of default in microfinance. Next there were borrowers who
had migrated from the place but they were reached through other group member or
through phone calls. But in both this situation, direct or face to face follow up was not
possible leading to default in microfinance.

The last cause of default is the problem of group loan such as misunderstanding among
group member, impact of non-payment of installment by one member on other group
members etc.
Table 5.71 Causes of Default
Responses Percent of
No. Reasons of default
N Percent cases
1 Other debt 213 23.23 46.00
2 Income Problem 137 14.94 29.59
3 Loan amount used in expenses 131 14.29 28.29
4 Illness of self, spouse or death of family member 115 12.54 24.84
5 not satisfied with MFI or MFI employee/agent 88 9.60 19.01
6 Ghost loan or installment 72 7.85 15.55
7 Business Problem 54 5.89 11.66
8 Migration or death of client/ legal heir 48 5.23 10.37
9 Borrower Problem 46 5.02 9.94
10 group problem 13 1.42 2.81
Total 917 100.00 198.06

Figure 5.57 Causes of Default (number of responses)

responses
Other debt
Migration or
death of client/ Borrower
group Income Problem
legal heir , 48 Problem, 46
problem, 13
Business Loan amount used in expenses
Problem, 54
Illness of self, spouse or death of
Other debt, 213 family member
not satisfied with MFI or MFI
employee/agent
Ghost loan or installment
Business Problem
Ghost loan or Income
installment, 72 Problem, 137
Migration or death of client/ legal
heir
Loan amount
not satisfied with used in Borrower Problem
MFI or MFI expenses, 131
Illness of group problem
employee/
self, spouse or
agent, 88
death of family
member, 115
Table 5.72 Causes of Default (in Detail)

Reasons of microfinance loan default
Responses Percent
No. Reasons of default
N Percent of Cases
1 Loan from other MFI 112 12.2% 24.2%
2 no fixed income 87 9.5% 18.8%
3 Other debt 72 7.9% 15.6%
4 Ghost loan 63 6.9% 13.6%
5 Business/job was not for short term 50 5.5% 10.8%
6 self Illness 45 4.9% 9.7%
7 Household expenses 45 4.9% 9.7%
8 spouse illness 42 4.6% 9.1%
9 Medical Expenses 42 4.6% 9.1%

10 Not satisfied OR misunderstanding with MFI 38 4.1% 8.2%

11 Social expenses 37 4.0% 8.0%
12 Migration 35 3.8% 7.6%
13 debt private money lenders 29 3.2% 6.3%
14 Death of family member 28 3.1% 6.0%
15 Not satisfied with OR misunderstanding with agent/ MFI employee 27 2.9% 5.8%
16 Business not profitable 21 2.3% 4.5%
17 Irregularity of installment collection 20 2.2% 4.3%
18 Business was closed 18 2.0% 3.9%
19 No specific reason 18 2.0% 3.9%
20 Migration but follow up via phone 16 1.7% 3.5%
21 death of borrower 12 1.3% 2.6%
22 migration (Short term) 12 1.3% 2.6%
effect of non-payment of installment by one member on another group
23 11 1.2% 2.4%
member
24 Inventory sold for credit (Money not realized yet) 10 1.1% 2.2%
Group member or other borrower took installment money and do not
25 9 1.0% 1.9%
deposit
26 Educational Expenses 7 0.8% 1.5%
27 Loss of assets 5 0.5% 1.1%
28 group overdue and not personal 2 0.2% 0.4%
29 a/c not closed by MFI 2 0.2% 0.4%
30 death of varasdar/ legal heirs 1 0.1% 0.2%
31 not satisfied with other firm of MFI 1 0.1% 0.2%
Total 917 100.0% 198.1%
5.6.6. Training and Supervision

The last section of the questionnaire was on training given to borrower before loan
disbursement and follow up supervision by MFI on the borrower. Three main and two
sub questions were asked on training and two questions were asked on supervision. The
analyses of these questions are described as following:
a) Borrower’s knowledge about training and information

The first question was asked whether the borrower had any idea or knowledge about the
training and information provided by microfinance loan on different topics such as process
and details of microfinance loan, business skill etc. As can be seen from table 5.73 and

figure 5.58,, majority of the borrowers that is 93.3% told that they do had knowledge about
the training and information.
Table 5.73 Knowledge of Training and information
No. knowledge of training Frequency Percent
1 yes 388 93.3
2 no 17 4.1
Total 416 100.0
Figure 5.58 Knowledge of training and informatioin
no, 4.1% No response,

2.6%
yes
no
yes, 93.3% No response
b) Receipt of training and information by borrower

The second question was whether the borrower received training and information from the
microfinance institution. It was found from the survey that majority of the borrowers that is
65.1% said that they had received training and information from MFI. But at the same time
there were 32% of borrowers who said that they did not receive any training from MFI.

Table 5.74 Receipt of Training and information

No. Training Received Frequency Percent
1 yes 271 65.1
2 no 133 32.0
Total 416 100.0
Figure 5.59 Receipt of training and information

No response,
2.9%
no, 32.0%
yes
yes, 65.1% no
No response
- If yes, type of training and information provided by MFI

- 65% of borrowers, who confirmed that they had received training and information,
were further asked questions on the type of training they received. Each MFI has its
own training process and therefore borrowers were asked to give response on their
agreenesss on different topics on microfinance loan on which they had received training
and information.
- As can be seen from table 5.75
5.75,, borrowers were asked to give responses on eight
different topics namely training and information provided on details about MFI,
microfinance loan process, interest rate of microfinance loan, amount and number of
installment, repayment schedule of microfinance loan and expert advice on how to
utilize loan amount economically so that positive returns could be generated through
loan.
- It was found that though borrower had agreed earlier that he/she received the training
and information but at the time of answering this question, they were unable to recall
all the information. It was also found that in many cases MFI do not provided all the
information which is compulsory at the time of loan disbursement.
Table 5.75 Type of training and information provided by MFI

strongly Neutr disagr strongly no
agree Total
agree al ee disagree response
MFI Frequency 54 76 76 40 25 12 283
detail Percent 19.1 26.9 26.9 14.1 8.8 4.2 100.0
loan Frequency 54 56 96 43 22 12 283
process Percent 19.1 19.8 33.9 15.2 7.8 4.2 100.0
interest Frequency 62 55 111 28 15 12 283
Trainin rate Percent 21.9 19.4 39.2 9.9 5.3 4.2 100.0
g and Installme Frequency 116 77 63 9 6 12 283
Informa nt Amt. Percent 41.0 27.2 22.3 3.2 2.1 4.2 100.0
tion Installme Frequency 97 82 75 11 6 12 283
Provide nt
d by Percent 34.3 29.0 26.5 3.9 2.1 4.2 100.0
number
MFIs Repayme Frequency 54 63 86 44 24 12 283
nt
Percent 19.1 22.3 30.4 15.5 8.5 4.2 100.0
schedule
Loan Frequency 34 47 87 36 67 12 283
amount
Percent 12.0 16.6 30.7 12.7 23.7 4.2 100.0
utilization
Group Frequency 50 48 36 13 11 8 166
Informati
Percent 30.1 28.9 21.7 7.8 6.6 4.8 100.0
on
- Descriptive statistics analysis of type of training and information provided by MFI

The coding of the question on type of training and information provided by MFI was as
under:
Strongly agree – 1, Agree – 2, Neutral – 3, Disagree – 4 and Strongly disagree – 5
As can be seen from the table 8.41(a), descriptive statistics analysis is done and found
the mean, median, mode and standard deviation of the responses given to question of
type of training and information provided by MFI.

Table 5.76 – Descriptive statistics of type of training and information

provided by MFI
Training and information Mean Median Mode s.d.
Detail of MFI 1.71 1.00 0 1.733
If GL, group formation and its working .88 0.00 0 1.453
Loan process 1.75 1.00 0 1.742
Rate of interest 1.65 1.00 0 1.661
Amount of installment 1.29 1.00 0 1.432
Total no. of installments 1.37 1.00 0 1.468
Repayment schedule 1.74 1.00 0 1.749
Loan amount utilization 2.03 2.00 0 1.963
- If no, reason behind non receipt of training and information

32% who said that they did not receive training and information from MFI, they were
asked the reasons for not getting of training and information. Many of the borrowers
were old clients of MFI and have taken loan for more than one borrowing cycle and
therefore MFI had not given any information during follow up loan disbursement as
they were already informed. Another major reason was told that they did not receive
from MFI at any time.
There were few borrowers that on behalf of them, training and information were taken
by their friend or relatives and just loan was taken on his/her name.
Table 5.77 Reasons of non receipt of training and information

No. Reasons of not getting training Frequency Percent
1 not provides by MFI 47 32.4
2 timings not suitable 1 .7
3 already informed 71 49.0
4 attended by other 14 9.7
Total 145 100.0

c) Number of meeting conducted by MFI employee/ agent/ group before receiving loan
amount
Question was asked related to number of meeting conducted by MFI or in group before
loan amount was received. It is necessary that while taking loan in group, each borrower
should know the process and working of group members and also they should know group
member properly and this happens only if the group has met few times before loan
disbursement. In case of individual loan, it is recommended that both individual borrower
and MFI should know each other and again this is possible through meetings.
As can be seen from table 5.78 and figure 5.60 below, majority of the borrowers said that
they met only twice or once before loan was disbursed which is very less. Moreover, there
were 10.9% of borrowers who said that they did not meet any time before loan
disbursement. This needs to addressed by MFI in order ensure regularity of repayment of
installment. There were only about 9.5% of the borrowers who meet for three or more than
three time before loan disbursement.
Table 5.78 Number of meeting held
No. Number of meeting held Frequency Percent
1 two 194 46.9
2 one 136 32.9
3 no meeting 47 10.9
4 three 36 8.7
5 four 2 .5
6 more than 4 1 .2
Total 416 100.0

Figure 5.60 Number of meeting held

four, 0.5% more
three, 8.7% than 4,
no meeting, 0.2%
10.9%
two
two, 46.9% one
no meeting
one, 32.9%
three
four
more than 4
d) Frequency of visit of MFI employee/ agent after loan disbursement

This question was asked to check the supervision done by the MFI representative on
borrower. It was found from table 5.79 and figure 5.61 majority of the representative of
MFI visit just once in a month and visits in a gap of more than one month which means
there is no much communication with borrower and the MFI. Only 22.8% of the borrowers
said that MFI representative visit once in every fifteen days and 7.7% of the borrowers said
that MFI person visited once in a week.
Table 5.79 Visit frequency of MFI staff

No. Visit frequency Frequency Percent
1 monthly 169 40.6
2 more than a month gap 120 28.8
3 fortnightly 95 22.8
4 weekly 32 7.7
Total 416 100.0

Figure 5.61 Visit Frequency of MFI staff
weekly, 7.7%
fortnightly,
22.8%
monthly, 40. monthly

6% more than a month gap
fortnightly
weekly
more than a
month
gap, 28.8%
e) Purpose of visit of MFI employee/ agent after loan disbursement

The follow up question related to supervision was asked the purpose of visit of MFI
representative after loan disbursement. One of feature of microfinance loan that
differentiates it from formal lending is that MFI and its client remains in touch on a regular
basis and it is the MFI who visits the place of client instead of client coming to MFI. And
through the regular contact, bonding is developed between borrower and MFI person and it
helps in regular payment from borrower and at the same time borrower at regular interval
gets information and guidance from employee on financial assistanc
assistancee and other services.
Table 5.80 Purpose of visit of MFI staff
Purpose of Visit
Collect installment Loan utilization Casual
No.
Frequency Percent Frequency Percent Frequency Percent
1 strongly agree 205 49.3 21 5.0 17 4.1

2 agree 119 28.6 72 17.3 37 8.9
3 neutral 22 5.3 69 16.6 57 13.7
4 disagree 16 3.8 96 23.1 87 20.9
5 strongly disagree 54 13.0 158 38.0 218 52.4
Total 416 100.0 416 100.0 416 100.0
responses)

But it was found from the above table 5.80, that most of the time employee/agent visited
borrowers’ place just to collect installment and there were no other informal talk. MFI
employee did not visit frequently to borrowers place to check loan utilization or casually.
f) Descriptive statistics on purpose of visit of MFI employee/agent

The following code was given to five point scale taken to know the purpose of visit:
Strongly agree – 1, Agree – 2, Neutral – 3, Disagree – 4, Strongly disagree – 5
As can be seen from the below table 5.81, mean, median. Mode and standard deviation
have been analyzed for different purpose of visit of MFI employee/agent.
For data collection purpose, the average responses is between strongly agree and agree,
median is strongly agree while mode is also ‘strongly agree’.
For purpose to check loan amount utilization and casual purpose, mean is between neutral
and disagree, median is ‘disagree’ while mode is ‘strongly disagree’.
Table 5.81 Descriptive statistics on purpose of visit of MFI staff

Purpose of visit Mean Median Mode s.d.
Collect installment 1.82 1.00 1 1.434
Check loan amount utilization 3.34 4.00 5 1.647
Casual purpose 3.67 4.00 5 1.663
5.7 Factors affecting microfinance loan default (Cross Tabulation Analysis)

There are various individual factors whose certain pattern may lead to the causes of default in
microfinance loan. The analyses of all individual factors and understanding their pattern was
done in sub section 1 of this section. There are certain variable whose value impact the value of
other factors and these both together follow certain pattern. These patterns and their impact on
microfinance loan default have been studied under these section.

5.7.1. Cross tabulation analysis taking two factors

Two factors are compared at a time and their pattern is analyzed using cross tabulation
and is represented through graph. Eight such cross tabulation analyses is done and their
impact on microfinance loan default is studied as under:
a) Age of the borrowers and installment amount of microfinance loan

Age of the borrowers which is a demographic factor and independent factor is compared
with installment of microfinance loan which is a dependent factor. Age of the borrowers in
general defines the earning capacity of the borrower and therefore while deciding an
installment amount, MFI should consider the age of borrower along with other factors.
As can be seen from table 8.82 and figure 8.62, in age group between 21-30 years the
maximum installment amount is between Rs. 501 to 1000 and less number of responses in
higher installment amount. This is because initially, when the borrower borrows for the
first time, loan amount is less and therefore installment amount is less. In age group
between 31-40 years and 41-50 years again the majority of the responses have installment
amount between Rs. 500-1000. From this, it can be concluded that there is no impact of age
while deciding the installment amount of microfinance loan.
Table 8.82 Age of borrowers and installment amount

Installment amount (in Age of the borrowers (in years)
Rs.) 0-20 21-30 31-40 41-50 51-60 Above 60
Less than or equal to 500 0 8 7 7 0 0
501 – 1000 1 56 73 43 10 4
1001 – 1500 1 29 53 34 7 1
1501 – 2000 1 19 29 19 3 0
2001 – 2500 0 4 11 12 1 0
2501 – 3000 0 3 6 3 1 0
3001 – 3500 0 0 0 0 0 0
3501 – 4000 0 0 2 3 0 0

Figure 8.62 Age of borrowers and installment amount
200
4
180 10
160
43
140 Age of the borrowers (in
1 years) Above 60
120 7
Age of the borrowers (in
100 34 years) 51-60
73
Age of the borrowers (in
80
0
3 years) 41-50
60 53 19 Age of the borrowers (in
years) 31-40
40 29
56 0
20 0
7 12
29 0
1 years) 21-30
7 19 11 3
8 4 6
3 0
3
0 0 1 1 1 0 0 0 2
years) 0-20
Less 501 - 1001 1501 2001 2501 3001 3501
than 1000 - - - - - -
or 1500 2000 2500 3000 3500 4000
equal
to
500
b) Time period since payment of last installment (NPA Category) and number of borrowing
cycle
Borrowers generally pay first time or second time borrowed money regularly. This is
because the during the first few cycle the loan amount is less and so installment amount is
less and at thee same time borrowers’ have greed to take higher loan amount which is
possible in the later on cycle and so they complete initial borrowing cycle regularly.

Table 5.83 Time period since last installment & no. of borrowing cycle
Time period
d since date of last No. of borrowing cycles
installment paid (in Months) one two three four five more than five
less than or equal to 3 17 33 34 16 9 4
3–6 10 35 23 12 2 1
6 – 12 9 29 33 13 0 2
12 – 24 21 36 36 15 6 1
24 – 36 11 10 6 1 0 0
36 – 48 9 10 6 1 0 0
48 – 60 1 0 3 1 0 0
more than 60 1 2 4 0 0 0
responses)
Figure 5.63 Time period since last installment & no. of borrowing cycle
120 1
4 6
9 15
100 No. of borrowing cycles
16 more than five
1
2 2
0
80 12 13 36 No. of borrowing cycles five
34
60 23 33
No. of borrowing cycles four
40 36
33
35 29 0
1
6 0
1
20 6
10 10 No. of borrowing cycles
17 21 0
10 9 11 9 0
1
3 4
2 three
0 0
1 1
No. of borrowing cycles two
No. of borrowing cycles one
In addition to this, through referring to NPA category, chances of recovery can be

calculated and this is compared with number of borrowing cycle.
Table 5.83 and figure 5.63 represents the combination of these two factors. Borrowers’
with third and fourth borrowing cycle, have maximum time range of 12 to 24 months since
payment of last installment. When the time duration of last paid amount increases, it is
difficult for the MFI to recover the remaining loan money and with the increase

c) Receipt of training and information and number of borrowing cycle

As borrowers of the microfinance loan belong to the poor class, they are not much educated
and therefore they are not aware of the financial terms of borrowing and also other skill
such as its proper utilization.
tilization. Hence it is recommended that before loan amount is
disbursed; all the required information and training should be given to borrowers. And as
the borrower do not have much understanding on financial terms, they forget things and
therefore every time before loan amount is sanctioned, information should be given though
borrowers have received in past.
In order to check this, number of borrowing cycle is compared with the receipt of training
and information. As can be sseen from below table and figure majority of the people who
are having more than one borrowing cycle
cycle, have not received training. Thus lack of proper
training and information at regular intervals may also lead to default in microfinance loan.
Table 5.84 Receipt of training and no. of b

borrowing
orrowing cycle
Did borrower get No. of borrowing cycles
training? one two three four five more than five
yes 62 108 61 25 10 4
no 7 26 60 29 7 3
no response 2 4 4 3 0 0
Figure 5.64 Receipt of training and no. of borrowing cycle
140 4
120 26 4
100 60
80 2
7
60 108 3
no response
40 29
62 61
20 0 no
25 7 0
10 3
4
0 yes
one two three four five more
than
five
No. of borrowing cycles

d) Number of meetings held and number of borrowing cycle

Similar to training, it is also necessary to held meeting few times before loan is sanctioned.
Again the same trend was found with the number of meetings held during the survey. Once
the number of borrowing cycle increases, meetings are not held as borrowers gets used to
with the system and they are only interest in the loan amount.
Table 5.85 and figure 5.65 shows the number of meeting held compared to the number of
borrowing cycle. It can be analyzed that with the increase in the number of borrowing cycle
there are few responses in the meetings conducted and that too maximum of two meetings
are held. It should be noted that number of meetings should be increased especially in case
of group borrowing.
Table 5.85 No. of meeting held and no. of borrowing cycle

Number of meetings held
one two three four five more than five
no meeting 2 9 17 13 4 2
One 9 48 51 18 6 4
Two 48 67 48 23 6 1
Three 10 13 9 3 1 0
Four 2 0 0 0 0 0
more than 4 0 1 0 0 0 0

Figure 5.65 No. of meeting held and no. of borrowing cycle
140 1
0
13
0
120 9
100
67 48
80 more than 4
0
2
10 four
60 0
3 three
51 23 two
40 48 48
one
18
20 0
1 no meeting
6
9 17 13 6 0
1
9 4 4
0 2 2
than
five
e) Time period since payment of last installment (NPA Category) and frequency of staff
visit
In microfinance, MFI provides services at borrowers’ door. Thus at the time of collection
of savings, installment collection or for any other purpose it is the MFI w
who
ho contacts
borrowers. Therefore frequency of visit of MFI staff plays is important to analyze and it
should be increased in case of microfinance loan in default.
As can be seen from table 5.86 and figure 5.66
5.66,, in time period since loan sanctioned is 4 to
5 years or above five years, the frequency of visit of staff is in majority once in a month or
even more than one month gap
gap.. Practically, when the loan is older, there should be more
visits by staff so that faster recovery could be done but it is opposite. Once the loan
becomes older, MFI staff too assumes that loan will not be recovered and therefore his/her
visit frequency is also reduced.

Table 5.86 Time period since last installment paid and visit frequency
Timee period since date of disbursement (in years)
Visit frequency of staff
of MFIs Less than or more
equal to 1 1-2 2-3 3-4 4-5 than 5
Weekly 3 6 11 9 3 0
fortnightly 8 31 29 11 8 8
monthly 25 43 37 31 16 17
more than a month gap 9 43 31 15 8 14
Figure 5.66 Time period since last installment paid and visit frequency
140
120
100 43
31
80
60 43 37 15
40 9 31 more than a month gap
29 8 14
20 25 31 16 17 monthly
11
8
3 6 11 9 8
3 8
0
0 fornightly
Less 1-2 2-3 3-4 4-5 more
weekly
than or than 5
equal
to 1
Time period since date of disbursement (in

years)
f) Person who decided to take microfinance loan and person responsible to pay installment
As seen during the frequency analysis, decision of the borrowers is influenced by other
person. Again, it was found during survey, that different persons were involved with
different loan decisions. In order to analyze that, person who took decision to take loan is
compared with person that was responsible to pay installment. Ideally, both persons should
be same as one who pays installment is the one has taken loan.
Table 5.87 and figure 5.67 represents that in most of the cases, the similarity is found
between person who took the decision to take microfinance loan and person who was
responsible to pay microfinance loan installment and this is acceptable situation.

Table 5.87 person who decided to take loan aand

nd person responsible to pay
Person who decided to take loan
Person who used loan
amount
self Spouse other self & spouse self & other
self 143 0 0 4 8
spouse 1 13 0 30 0
other 0 0 23 0 47
self & spouse 1 0 0 115 1
self & other 2 0 0 1 27
Figure 5.67 person who decided to take loan and person responsible to pay
160
2
1
0 1
140
120
100 115 self & other
80 143 27 self & spouse
60 1
other
40 0 47
0 30 spouse
20 0 23
13 4 0
8 self
0 0 0
self spouse other self & self &
spouse other
g) Person who decided to take microfinance loan and person who used microfinance loan
amount
As explained in previous cross tabulation, similar theory applies here too. Theoretically,
person who decided to take microfinance loan and person who used microfinance
microfinan loan
amount should be same. As can be analyzed from the table below table and figure, in
majority of the cases, both the person are one and the same. Though there are few
exceptions where though decision is taken by borrowers individual or jointly with spouse,

it is the spouse’s decision to where the loan amount should be utilized. This was found
particularly in case of female borrowers where her decision is influenced or rather totally
taken by husband.
Table 5.88 Person who decided to take loan and pe

person
rson who used loan
Person responsible to
pay installment amount
self spouse other self & spouse self & other
self 138 0 0 4 10
spouse 4 13 0 43 2
other 1 0 23 1 45
self & other 1 0 0 2 26
Figure 5.68 Person who decided to take loan and person who used loan
160 2
1
3
1
4
140
120
100 100 self & other
80 138 26 self & spouse
60 0
1 other
40 45
0 43
20 0 23 spouse
13 2
10
0 0 0 4
self
spouse other
h) Person
erson who used microfinance loan amount and person responsible to pay installment
Comparison is done between person who used microfinance loan and person who was
responsible to pay installment. The best situation is where in both the above cases person is
similar as it is easy to collect installment amount from the person who has used the
t loan
amount. This was studied through following analysis and the result was represented in form

of table and stacked column chart. Here to both the person are same but it should be noted
that in some cases both person is ‘other’ which indicates though bborrower
orrower has taken loan on
his/her name but it was some ‘other’ person who used and was paying installment. And this
could be one of the reasons behind microfinance loan default.
Table 5.89 person who used loan and person responsible to pay installment
Person who used loan amount

Person responsible to pay
instalment amount self & self &
self spouse other spouse other
self 147 0 2 3 0
spouse 5 40 1 16 0
other 0 1 65 0 4
self & other 0 0 2 1 26
Figure 5.69 person who used loan and person responsible to pay installment
160 0
3
0
5
140
120 1
100 self & other
80 147 2
0 97 self & spouse
60
0
3
1 other
40 65
20 40 0 26 spouse
16 0
0 0 1
2 3 4
0
self
spouse other

5.7.2. Cross tabulation analysis taking three factors

In order to understand the relationship between three factors at a time and their impact
of microfinance loan default, cross tabulation analysis is conducted taking three factors
at a time. Total of 24 factors with taking 3 factors at a time has been studied and
presented in eight cross tabulation tables as under:
a) Number of family members, number of earning members and installment amount

By comparing number of family members and number of earning members, the proportion
of earning members was analyzed. Later on this proportion of earning member has been
compared to installment amount. The purpose is to check whether proportion of earning
members is considered while deciding the installment amount of microfinance loan.
Here, number of family member and number of earning members are independent variable
and installment amount is dependent variable. It can be analyzed from the below table 5.90
and figure 5.70 that proportion of earning members are very less compared to total family
members of borrowers. When total family members are 0-4, the earning members are
between 0-2 which is acceptable. But when total family members are 5-7, majority of the
cases have earning members between 0-2 which meant there are more dependent members
in the family of borrowers. Again in number of family members of 8-10, the earning
members are either 3 or 4. As average earning per person is very less in poor people,
therefore in order to fulfill their daily needs, it is required that all the family members
work.
Next, it can be seen that microfinance loan is majorly distributed to borrowers in which
family members are between 0-4 and 5-7 but the earning members are only 0-2. Again if
we compare installment amount between Rs. 1001 to 1500 and Rs. 1501-2000, there too
the majority is in earning member between 0-2 while family members are 0-4 and 5-7. The
critical situation is where installment amount and family members are higher where as
earning members is less and in such situation it is difficult to recover loan money. From the
analysis it can be concluded that while deciding the installment amount, number of family
members or earning members is not taken into consideration.

Table 5.90 No. of family members, earning members & installment amount
Number of family members
Installment 0-4 5-7 8 - 10 More than 10
amount (in no. of earning no. of earning no. of earning no. of earning
Rs.) members members members members
0-2 3 4 0-2 3 4 5 =< 0 - 2 3 4 5 =< 4
less than or 12 1 1 4 1 1 0 0 0 1 0 0
equal to 500
501 - 1000 89 7 2 58 13 3 1 1 2 3 0 0
1001 - 1500 55 12 1 32 9 4 0 0 1 1 1 0
1501 - 2000 27 2 2 24 7 2 0 1 2 0 0 1
2001 - 2500 11 2 0 7 3 2 0 1 1 1 0 0
2501 - 3000 6 0 0 4 1 0 0 0 0 0 0 0
3001 - 3500 0 0 0 0 0 0 0 0 0 0 0 0
3501 - 4000 1 0 0 2 1 1 0 0 0 0 0 0
responses)
Figure 5.70 No. of family members, earning members & installment amount
250
200 6
11
150 3501 - 4000

55 4
7 3001 - 3500
100 2501 - 3000
32 2001 - 2500
89
50 1501 - 2000
58 1
3
0
2 9 1001 - 1500
12 13 0
2
12 7
1 0
1
2
1 4 1 4
3
1 0
1 1
0 0
1
1
2
0 0
1
3
1 0
1 0 501 - 1000
0
0-2 3 4 0-2 3 4 5 =< 0 - 2 3 4 5 =< 4 less than or equal to 500
no. of earnig members

no. of earnig members
no. of earnig no.
members
of earnig members
0-4 5-7 8 - 10 More than 10
Number of family members

b) Individual income, individual economic activity and installment amount

Whenever the installment amount is decided by the microfinance institution, it is very
necessary to compare the repayment capability of the borrower. The recover capability can
be found by the income of the borrower and also the regularity and security of that income
in future too. Therefore in order to analyze the repayment capacity of borrower, his/her
income level and economic activity is compared. While in order to check whether these
two factors are considered while deciding installment amount, these two factors are
compared with installment amount.
Here, income and economic activity of the borrower are independent variables and
installment amount is dependent variable. As can be analyzed from table 5.91 and figure
5.71 represented as under, in majority of the cases the individual income of borrower is
maximum of Rs. 5000 per month inspite of whatever different types of economic activity
borrower is involved. There is no differentiation of income based on the economic activity
of borrower.
Additionally, though borrower is having same income, the installment amount ranges from
Rs. 500 to Rs 2500, in the income level which is maximum Rs. 5000. Thus there are cases
where 50% of their income level is installment amount which is next to impossible for the
borrower to repay. Again there are cases where borrower is not doing any economic
activity and therefore no income level but then too installment amount majorly ranges
between Rs.500 to 1500. These were the situation where the installment is paid from the
income of other family member.
Ideally in order to ensure regular repayment of loan amount, MFI should consider the
earning capacity of borrower individually and not of other family member. But it is not
considered here and therefore these could be one of the factors which lead to the NPA in
microfinance institutions.

Table 5.91 Individual income and economic activity, installment amount

Individual economic activity
Labour
Self employed No activity Private job
work
Installment Individual Individual
amount (in Individual income
income (in income (in
Rs.) (in Rs.)
Individual income (in Rs.) Rs.) Rs.)
no 15001 5001 15001 5001
inco 1- 5001 - - 1- - - 1- - no 1-
me 5000 15000 25000 5000 15000 25000 5000 15000 income 5000
less than or 0 8 1 0 4 1 1 1 0 4 0
equal to 500
501 - 1000 2 32 9 0 31 14 0 22 5 58 0
1001 - 1500 1 31 11 3 11 8 0 11 3 32 2
1501 - 2000 0 11 10 1 13 4 0 8 1 19 0
2001 - 2500 1 5 5 0 4 3 0 3 0 7 0
2501 - 3000 0 0 1 0 2 3 0 1 0 4 0
3001 - 3500 0 0 0 0 0 0 0 0 0 0 0
3501 - 4000 0 2 0 1 1 0 0 0 0 1 0
responses)
Figure 5.71 Individual income and economic activity, installment amount
140
120 1
0
4
7
100 19
2
0
5
80 11 32
1
0
2
4
60 31 13
11 0
1
3 3501 - 4000
40 0
1
5 0
3 8 58
32 10 4 11
20 11 31 8 3001 - 3500
9 14 22 0
1
3
0 0
1
2
0 8 1 1
0
3
0 4 1 0
1 1 5
0 4 0
2
2501 - 3000
no income
no income
5001 - 15000
15001 - 25000
5001 - 15000
15001 - 25000
5001 - 15000
1 - 5000
1 - 5000
1 - 5000
1 - 5000
2001 - 2500
1501 - 2000
1001 - 1500
501 - 1000
individual incomeindividual
individual income
individual individual
income income less than or equal to 500
Self employed Private job Labour No

work acitivity
individual economic activity

c) Family income, family economic activity and installment amount

From the previous analysis of cross tabulation, it was analyzed that there was no
association of earning capacity of borrower with the installment amount and loan was given
to borrower where there was no income. This is because borrower lived in a joint family
and therefore it is important to consider the economic activity and earning level of the
family. Thus in this cross tab, income level and economic activity of family members of
borrower is compared with the installment amount.
Here again, income level and economic activity of borrower are two independent variable
while installment amount is dependent variable. As can be seen from below presented table
5.92 and figure 5.72 majority of the family members that were self employed or doing job
in private institute, had a monthly income ranging from Rs. 5001 to Rs. 15000. There were
only few family members who were employed in government organization, which is
considered secured and has fixed income. The family members doing labour work has in
majority income level to a maximum of Rs.5000. Labour work is on daily basis and
therefore a person earns only whenever he goes for work and at the same time it is not
necessary that a person finds work regularly.
Next when economic activity and installment amount is compared, it can be seen that there
is no pattern in installment with economic activity. This means that installment amount is
not dependent on the type of economic activity of the borrower’s family members.
While analyzing the spread of installment amount among income level, it was found that in
installment amount ranging from Rs.500 till Rs. 2500, the income level of family is in
majority same that is it is between Rs. 5001 to Rs, 15000. Thus, again there is no
consideration of family income level while deciding the installment amount.
There are few cases where family is engaged in labour work where uncertainty of income is
highest and at the same time their income is maximum Rs. 5000 but their installment
amount is as high as Rs. 2500. Thus as was concluded in previous analysis, family income
and economic activity should be considered before microfinance loan is disbursed and
installment amount is decided.

Table 5.92 Family income and economic activity, installment amount
Economic activity of family
Install self employed private job government job labour work no activity
ment
amou Family
nt (in Family income (in Rs.) Family income (in Rs.) Family income (in Rs.) Family income (in Rs.) income (in
Rs.) Rs.)
5001 15001 25001 5001 15001 25001 5001 15001 25001 35001 5001 15001 25001 no
1- - - - 1- - - - - - - - above 1- - - - incom 1-
5000 15000 25000 35000 5000 15000 25000 35000 15000 25000 35000 45000 45000 5000 15000 25000 35000 e 5000
less 4 7 0 0 0 3 0 0 0 0 0 0 1 2 2 0 0 2 0
than
or
equal
to 500
501 - 10 33 10 0 16 49 8 3 0 1 0 0 0 13 21 1 0 12 2
1000
1001 - 9 28 7 0 8 22 6 0 0 1 1 0 0 5 17 1 1 10 0
1500
1501 - 5 18 2 2 2 13 2 1 1 0 0 0 0 3 5 2 0 12 0
2000
2001 - 0 10 0 0 0 10 1 0 0 0 0 0 0 2 2 0 0 3 0
2500
2501 - 1 1 0 0 1 2 0 1 1 0 0 1 0 1 1 1 0 0 0
3000
3001 - 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
3500
3501 - 0 2 1 1 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0
4000

Figure 5.72 Family income and economic activity, installment amount
100
90
80
70
60
50
3501 - 4000
40
3001 - 3500
30
2501 - 3000
20
2001 - 2500
10
1501 - 2000
0
1001 - 1500
1 - 5000
1 - 5000
1 - 5000
1 - 5000
no income
above 45000
5001 - 15000
15001 - 25000
25001 - 35000
5001 - 15000
15001 - 25000
25001 - 35000
5001 - 15000
15001 - 25000
25001 - 35000
35001 - 45000
5001 - 15000
15001 - 25000
25001 - 35000
501 - 1000
Family income Family income Family income Family income

Family income
self employed private job government job labour workno activity
Economic activity of family
d) Number of borrowing cycle, type of borrowing and installment amount

In this cross tab analysis, number of borrowing cycle, type of borrowing and installment
amount is compared. As can be seen from below table and figure, initially when borrowers
are new clients
ients to the MFI, that is during first two borrowing cycle, the MFI has disbursed
loan in group. Individual borrowing is seen more in case of three and more borrowing cycle
in majority of the cases as by that time borrower have become familiar with MFI. Some
So
MFI only lends only in group and therefore borrowing cycle is not relevant as whatever be
the borrowing cycle, lending is done only in group as this can be seen in the section of the
table showing group lending and borrowing cycle.
While comparing installment
llment amount and borrowing cycle, it is found that higher
installment amount is charged in the higher number of borrowing cycle. That is the in

installment amount till Rs. 1000, borrowing cycle in first in majority of the cases. While
when the installment amount increases, number of borrowing cycle also increases. This is
because, with increase in borrowing cycle, loan amount also increases and because of this
installment amount comes higher.
Next if installment amount is compared with type of borrowing, it can be seen that in
higher range of installment that is from Rs. 2501 to Rs.4000, majority of the lending is
done to individual borrower. Thus there is no bifurcation in type of borrowing when
installment amount is less but when the installment amount is higher; borrowing is done
majorly at individual level.
Hence it can be concluded that the borrowing cycle of borrower do impact installment
amount while there is partial impact of type of borrowing on installment amount.
Table 5.93 No. of borrowing cycle, type of borrowing and installment amount
Type of borrowing
Group Borrowing Individual Borrowing
Installment
Number of borrowing cycles Number of borrowing cycles
amount (in
Rs.) more more
one two three four five than one two three four five than
five five
less than or
equal to 7 0 0 0 0 0 15 1 0 0 0 0
500
501 - 1000 47 39 14 1 1 0 4 71 15 2 0 0
1001 - 1500 5 28 42 14 1 0 1 4 26 3 2 2
1501 - 2000 0 11 30 17 4 0 0 1 5 4 0 0
2001 - 2500 0 0 4 12 3 0 0 0 4 3 1 1
2501 - 3000 0 0 2 1 0 1 0 0 1 2 4 2
3001 - 3500 0 0 0 0 0 0 0 0 0 0 0 0
3501 - 4000 0 0 0 0 0 0 0 0 2 0 1 2

Figure 5.73 No. of borrowing cycle, type of borrowing and installment amount
100
90
80
70
60
50
3501 - 4000
40
30 3001 - 3500
20 2501 - 3000
10
2001 - 2500
0
1501 - 2000
one
one
four
four
five
five
three
three
two
two
more than five
more than five

1001 - 1500
501 - 1000
no. of borrowing cycles no. of borrowing cycles
group individual
type of borrowing
e) Number of installment paid, total number of installment and installment amount

Installment amount, number of installment and number of installment paid are
interconnected with each other and therefore all the three are compared at a time.
Installment amount and number of installment are independent variables and number
nu of
installment paid is dependent variable.
First comparison is done between number of installments and installment amount. As can
be seen from the following table and figure, in the lower range of installment amount, they
are spread among all range ooff number of installment. That means that installment amount
with Rs. 501 to 1000 has total number of installment less than or equal to twelve and also
number ranging between 49 and 60. But in the last two higher range of installment amount,
the numbers of installment are also higher.

Table 5.94 No. of installment paid, total no. of installment and installment amount
Total number of installments
less than or equal
13 - 15 16 - 18 19 - 21 22 - 24 25 - 36 49 - 60
to 12
Inst No. of
all Number of Number of Number of Number of installment Number of installment Number of installment
installment
me installment paid installment paid installment paid paid paid paid
paid
nt
am
oun < < < < < <
t (in 10 4 7 10 13 4 10 13 4 7 10 13 7 10 13 10 13 4 7 10 13
/ 4- 7- - / – – - - / -
7-
- - / - - - – > - - - / 4- 7- - - > / - - - - >
Rs.)
= 6 9 12 = 6 9 12 15 = 6
9
12 15 = 6 9 12 15 15 9 12 15 = 6 9 12 15 15 = 6 9 12 15 15
3 3 3 3 3 3
less
than
or 0 1 1 0 0 1 0 1 0 1 0 2 0 0 0 0 0 0 0 0 0 0 0 4 3 1 2 1 1 0 1 1 0 1 1
equal
to 500
501 -
2 18 15 10 3 4 18 7 0 1 5 10 4 1 0 1 3 3 0 0 0 0 0 6 13 20 17 9 11 1 2 2 0 0 8
1000
1001 -
0 4 10 11 1 4 11 3 1 2 9 4 9 4 0 5 1 3 5 1 1 0 1 3 9 2 5 5 6 0 2 0 3 0 3
1500
1501 -
3 5 7 1 0 1 0 1 0 4 4 2 7 0 1 7 2 3 0 1 0 1 0 3 1 4 1 4 7 0 0 0 0 0 2
2000
2001 -
0 2 1 0 0 0 0 0 0 1 0 4 2 0 0 3 1 2 2 0 0 0 1 1 2 0 2 1 1 1 0 0 0 0 1
2500
2501 -
0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 2 1 0 0 0 0 0 0 0 0 1 2 2 1 1 1 0 0 0 1
3000
3001 -
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
3500
3501 -
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 0 0 3 0 0 0 0 0 0
4000

Figure 5.74 No. of installment paid, total no. of installment and installment
amount
35
30
25
20
15
10
5
3501 - 4000
0
3001 - 3500
13 - 15
10 - 12
13 - 15
13 - 15
10 - 12
10 - 12

7-9
7-9
4-6
7-9
7-9
4-6
more than 15
4-6
more than 15
2501 - 3000
2001 - 2500
1501 - 2000
1001 - 1500
501 - 1000
No. of No. of No. of No. of inst. No. No. of inst. No. of inst.
inst. inst. Paid inst. Paid Paid of Paid Paid
paid inst.
Paid
less 13 - 15 16 - 18 19 - 21 22 - 25 - 36 49 - 60
than or 24
equal
to 12
Total number of installments
Next when all the three factors are analyzed together, it was found that irrespective of the
installment amount, at least 50% of the total number of installment has been paid by
majority of the borrowers. Even there are cases when 80
80-90%
90% of the total number of
installment has been paid. Thus it can be concluded tthat
hat less number of installments are
outstanding compared to total number of installment.

f) Formation of group, loan amount among group members and status of group loan
Three factors explaining the characteristics of group lending has been compared. These
three factors are person who formed group, loan amount sanctioned among group members
and status of group loan.
Table 5.95 and figure 5.75 group loan status of overdue/NPA is seen majorly in case where
group is formed by group members and in both equal and unequal loan amount. MFI
employee have formed group only where loan amount among group is unequal and
majority of them are having status of either regular payment or has been fully paid. Thus it
can be concluded that though group was formed by MFI employee, it does not affect the
overall functioning of the group. Similar trend was found in case when group was formed
by agent/mediator.
Where group is formed by group leader, overall there is no much difference in performance
of group that is half of them are regular or fully paid while other half are irregular or
overdue.
Thus it can be concluded that though when the group is formed by other person, there is no
much problem with overall status of group loan. When the group is formed by group
members only but inspite of this, overall status of group is not found good.
Table 5.95 Formation of group, loan amount among group and status of
group loan
loan amount among group members
equal amount unequal amount
status of Person who formed group Person who formed group
group loan
group group agent/ group group agent/ MFI
leader members mediator leader members mediator employee
regular
1 3 2 0 23 1 24
payment
irregular
0 1 2 1 3 0 2
payment
fully paid 4 18 12 1 30 0 35
overdue/NPA 7 31 7 0 45 1 14

Figure 5.75 Formation of group, loan amount among group and status of
group loan
120
100
80
60
40
20
0 overdue/NPA
group leader
group leader
MFI employee
agent/ mediator
agent/ mediator
group members
group members
fully paid
irregular payment
regular payment
Person who fromed Person who fromed group

group
equal amount unequal amount
loan amount among group members
g) Time period since payment of last installment (NPA Category), time period since
disbursement and number of installments paid
Here the time period since the loan amount sanctioned, number of installments paid and
time period since payment of last installment are compared. The purpose is to analyze the
status of microfinance loan
loan. When time period since disbursement and last payment is
i
compared, it was found that loan disbursed with a year, has been paid last in less than or
equal to 3 months in majority of the cases. Moreover, numbers of installment paid are
almost between 4-9
9 numbers. Thus recent sanctioned loans are comparatively does not
have higher NPA category.
y.
Loan disbursed that are 1-22 years old, have been paid 77-12
12 installments in majority of the
cases, while their NPA level is in all category. Thus as the loan is older the number of
installments paid on it is also higher.

Table 5.96 Time period since date of disbursement, time period since last installment paid and no. of
installment paid
Time period since date of disbursement (in years)

less than or
equal to one
year 1 – 2 years 2 – 3 years 3 – 4 years 4 – 5 years more than 5 years
Fig. in
months* Fig. in months* Fig. in months* Fig. in month* Fig. in months* Fig. in months*
Number of 3 6 3 6 12 3 6 12 24 3 6 12 24 36 3 6 12 24 36 </ 3 6 12 24 36 48
instalments </= to to </= to to to </= to to to to </= to to to to to </= to to to to to = to to to to to to
paid 3 6 12 3 6 12 24 3 6 12 24 36 3 6 12 24 36 48 3 6 12 24 36 48 3 6 12 24 36 48 60 > 60
</= 3 3 2 3 0 4 3 2 0 0 1 3 0 0 0 1 2 2 0 0 0 0 0 1 3 0 0 0 0 0 7 0 3
4–6 12 4 2 4 5 8 10 0 3 5 17 2 0 2 3 6 3 2 0 3 0 2 3 4 0 0 2 2 0 3 1 3
7–9 19 0 0 13 9 12 13 3 5 5 19 1 4 1 1 5 4 0 1 2 3 1 1 0 0 0 1 0 1 2 0 0
10 – 12 1 0 2 16 11 9 0 8 5 6 12 0 1 4 1 3 4 0 1 3 2 0 1 0 1 1 1 1 1 2 1 1
13 – 15 0 0 0 5 4 3 0 5 0 0 6 0 0 3 2 1 0 0 1 1 2 2 0 0 1 0 0 1 0 1 1 0
> 15 0 0 0 3 2 0 0 3 4 2 1 0 6 4 5 4 0 0 1 0 1 2 0 0 1 1 1 0 3 2 2 0
*Time period since payment of last installment

Figure 5.76 Time period since date of disbursement, time period since last
60
50
40
30
20
10 > 15
13 – 15
0
</= 6 to </= 6 to </= 6 to 24 3 to 12 36 3 to 12 36 3 to 12 36 > 60 10 – 12
3 12 3 12 3 12 to 6 to to 6 to to 6 to to 7–9
36 24 48 24 48 24 48
4–6
Fig. in </= 3
months*
less than 1–2 2 – 3 years 3 – 4 years 4 – 5 years more than 5 years

or equal years
to one
year
Loan sanctioned since 2-33 years and 33-4

4 years has been paid last since 12-24
12 months but
the number of installments paid in majority of the cases is same as previous category that is
7-12
12 numbers of installments has paid.
Loan older than 4- 5 years and more than 5 years has been last paid 36-48
36 months ago.
Thus older the loan, higher the NPA level in terms of time.
h) Installment amount, number of borrowing cycle and loan amount

Installment amount was not dependent on any ffactors
actors that have been analyzed in previous
cross tab except with number of borrowing cycle. As can be seen from table 5.97 and figure
5.77 below, all the three factors move in same direction. That means with the increase in
number of borrowing cycle, loan amount also increases and as the loan amount increases,
installment amount on it also increases in majority of the cases. Thus all three factors are

directly related with each other. Generally, with the increase in loan amount, either the
installment amount or the number of installments increases. But from the cross table it is
clear that it has relation with installment amount. With the increase in installment amount,
responsibility of the borrowers also increases and therefore if installment amount is
increased, other demography and economic factors of the borrowers should also be
considered by the MFI in order to ensure timely repayment of loan amount. But this is not
found in most of the cases and these could be one of the factors which lead to microfinance
loan into default.
Table 5.97 Installment amount, no. of borrowing cycle and loan amount
Number of borrowing cycles
one two three
Loan Installment Installment amount (in
Amount Installment amount (in Rs)
amount (in Rs) Rs)
(in Rs.) 501 1001 501 1001 1501 501 1001 1501 2001 2501 3501
</= </=
- - - - - - - - - - –
500 500
1000 1500 1000 1500 2000 1000 1500 2000 2500 3000 4000
Less than
or equal to 22 47 0 1 26 0 0 9 0 0 0 0 0
10000
10001 -
0 4 2 0 67 27 1 10 42 17 0 0 0
20000
20001 -
0 0 4 0 17 2 0 7 8 12 4 0 0
30000
30001 -
0 0 0 0 0 3 0 3 15 0 0 0 0
40000
40001 -
0 0 0 0 0 0 11 0 3 6 0 2 0
50000
50001 -
0 0 0 0 0 0 0 0 0 0 4 0 0
60000
60001 -
0 0 0 0 0 0 0 0 0 0 0 1 0
70000
70001 -
0 0 0 0 0 0 0 0 0 0 0 0 0
80000
80001 -
0 0 0 0 0 0 0 0 0 0 0 0 0
90000
90001 -
0 0 0 0 0 0 0 0 0 0 0 0 2
100000
More than
0 0 0 0 0 0 0 0 0 0 0 0 0
100000

Table 8.60 contd.

Number of borrowing cycle
four five more than five
Loan Installment
Installment amount (in Rs) Installment amount (in Rs)
Amount amount (in Rs)
(in Rs.) 501 1001 1501 2001 2501 501 1001 1501 2001 2501 3501 1001 2001 2501
- - - - - - - - - - - - - –
1000 1500 2000 2500 3000 1000 1500 2000 2500 3000 4000 1500 2500 3000
Less
than or
0 0 0 0 0 1 0 0 0 0 0 0 0 0
equal to
10000
10001 -
1 10 1 0 0 0 0 0 0 0 0 0 0 0
20000
20001 -
1 4 15 7 0 0 2 4 0 0 0 0 0 0
30000
30001 -
1 1 0 5 1 0 1 0 3 0 0 2 0 0
40000
40001 -
0 2 3 0 0 0 0 0 0 0 0 0 0 1
50000
50001 -
0 0 1 3 1 0 0 0 0 0 0 0 0 0
60000
60001 -
0 0 1 0 0 0 0 0 0 2 0 0 0 0
70000
70001 -
0 0 0 0 0 0 0 0 0 2 0 0 1 0
80000
80001 -
0 0 0 0 0 0 0 0 1 0 0 0 0 0
90000
90001 -
0 0 0 0 1 0 0 0 0 0 0 0 0 2
100000
More
than 0 0 0 0 0 0 0 0 0 0 1 0 0 0
100000

Figure 5.97 Installment amount, no. of borrowing cycle and loan amount
120
100
80
60
More than 100000
40
90001 - 100000
20
80001 - 90000
0 70001 - 80000
1001 - 1500
501 - 1000
1501 - 2000
1001 - 1500
2001 - 2500
3501 - 4000
1001 - 1500
2001 - 2500
501 - 1000
1501 - 2000
2501 - 3000
1001 - 1500
2501 - 3000
</= 500
60001 - 70000
50001 - 60000
40001 - 50000
Inst. 30001 - 40000

amt. 20001 - 30000
(in
Rs) 10001 -20000
20000
Less than or equal to 10000
than
five
5.8 Analysis of association of causes of microfinance loan default with other

factors (Testing of Hypothesis by Chi Square Test)
In order to analysis association of causes/reasons of microfinance loan default with other different
factors, hypothesis has been framed and has been tested using chi square test. Twenty seven
different factors under seven categories have been indentified and
d their association with causes/
reasons of loan default. Thus, total 27 hypotheses have been tested and their analyses have been
shown in this section. Only the null hypotheses have been represented here. The summary of the
result of hypotheses test is shown in the following table:

Table 5.98 Summary of Result of Testing of Hypothesis (Chi Square Test)

Hypo Variable Variable p Value Decision of Null
thesis Hypothesis
Socio-Demographic Factors
1. Causes of Default Age .304 Not Rejected
2. Causes of Default Education .654 Not Rejected
3. Causes of Default Marital Status .007 Rejected
Economic Factors
4. Causes of Default No. of earning family members .493 Not Rejected
5. Causes of Default Individual economic activity .145 Not Rejected
6. Causes of Default Family economic activity .691 Not Rejected
7. Causes of Default Individual income .095 Not Rejected
8. Causes of Default Family income .435 Not Rejected
Microfinance Loan related Factors
9. Causes of Default Number of borrowing cycle .163 Not Rejected
10. Causes of Default Loan amount .253 Not Rejected
11. Causes of Default Time period since loan taken .004 Rejected
12. Causes of Default Installment Amount .042 Rejected
13. Causes of Default No. of installments .000 Rejected
14. Causes of Default Purpose of loan .018 Rejected
15. Causes of Default Type of borrowing .008 Rejected
Factors related to microfinance group loan
16. Causes of Default Group formation .000 Rejected
17. Causes of Default Homogeneity factor .000 Rejected
18. Causes of Default Status of group loan .000 Rejected
Factors related to repayment of microfinance loan
19. Causes of Default No. of installment paid .000 Rejected
20. Causes of Default Time period since payment of last .001 Rejected
installment
21. Causes of Default Amount of last installment .020 Rejected

Factors related to decision regarding microfinance loan

22. Causes of Default Person who took last loan .000 Rejected
23. Causes of Default Person who used last loan .000 Rejected
24. Causes of Default Person responsible to pay .000 Rejected
installment
Factors related to training and supervision of borrowers
25. Causes of Default Receipt of training and .105 Not Rejected
information
26. Causes of Default No. of meetings conducted .269 Not Rejected
27. Causes of Default Frequency of staff visit .000 Rejected
5.8.1 Socio Demographic factors

The first category is of socio-demographic factors and therefore three socio-demographic
factors of borrowers namely age, education and marital status has been compared with
causes of loan default and their association has been studied as under:
Ho1 There is no significant association between borrower’s age and causes of microfinance
loan default of MFIs in Gujarat
Ha1 There is significant association between borrowers’ age and causes of microfinance
loan default of MFIs in Gujarat
Theoretically, certain age group of borrowers leads to certain specific situation which leads
to certain type of causes. For example, elderly people have health issues and therefore
expenses are spent in medical treatment and medicines which may affect the payment of
loan installment. Thus age of borrowers is compared with causes of loan default.
P value is .304 which is higher than .05 therefore null hypotheses is Not Rejected. No
significant association is found between borrowers’ age and causes of microfinance loan
default. This means that there is no relationship or pattern is seen between age of borrowers
and causes of loan default.

Table 5.99 Age of borrowers and causes of default

Age of Borrowers (in years)
Causes of Default Above
0-20 21-30 31-40 41-50 51-60
60
Problem in borrower's business 1 25 37 15 3 1
Borrower used loan amount used in other
1 28 38 39 6 0
expenses
Borrower's Income Problem 0 30 30 29 9 0
Illness or Death in borrower's family 1 19 39 32 12 2
Other Debt than microfinance loan 1 37 66 49 7 1
Ghost loan or installment 1 24 28 15 3 1
Borrower not satisfied with MFI or its
0 18 35 17 3 1
employees
Migration or Death of borrower or legal
0 10 13 11 1 1
heir (as mentioned in loan papers)
Problem among group members (in
0 3 6 4 0 0
group loan)
No intention of borrower to pay (No
0 11 22 9 3 0
specific reason given by borrower)
Table 5.99(a) Chi square test - age of borrowers and causes of default
Pearson Chi Square Test
Cause of Default Age
Chi-square 54.614
Df 50
Sig. .304
Ho2 There is no significant association between borrowers’ education and causes of

microfinance loan default of MFIs in Gujarat
Ha2 There is significant association between borrowers’ education and causes of
As can be seen from below two tables, the p value is .654 which is higher than .05 and
therefore null hypotheses is Not Rejected and there is no significant association between

borrowers’ education and causes of microfinance loan default. This means there is no
impact of borrowers’ education on causes of default in microfinance loan
.
Table 5.100 Education of borrower and causes of default
Education of Borrower
Causes of Default High graduate
Primary Secondary Technical Ph.D.
Uneducated school 1-4
1-7 8-10 Training (Pursuing)
11-12 years
Problem in
22 40 20 0 0 0 0
borrower's business
Borrower used loan
amount used in 32 59 17 2 2 1 0
other expenses
Borrower's Income
34 45 19 1 0 1 0
Problem
Illness or Death in
37 48 20 1 1 0 0
borrower's family
Other Debt than
50 78 29 3 2 0 0
microfinance loan
Ghost loan or
29 25 15 2 1 0 0
installment
Borrower not
satisfied with MFI 23 32 17 2 0 0 0
or its employees
Migration or Death
of borrower or
legal heir (as 21 18 9 0 0 0 0
mentioned in loan
papers)
Problem among
group members (in 4 6 2 1 0 0 0
group loan)
No intention of
borrower to pay
11 23 10 0 0 0 1
(No specific reason
given by borrower)

Table 5.100(a) Chi square test – Education of borrowers and causes of default
Pearson Chi-Square Tests
Causes of Default Education
Chi-square 55.121
Df 60
Sig. .654
Ho3 There is no significant association between borrower’s marital status and causes of
Ha3 There is significant association between borrowers’ marital status and causes of
Marital status of the borrowers leads to certain causes of loan default. If the borrower is
married, he/she has the responsibility of the family and therefore more amount is spent on
household and education compared to unmarried or single borrowers. At the same time if
the borrower is single or unmarried, it is assumed that there is no financial support of
spouse which married borrowers have. Thus in order to check the relationship between
marital status of borrowers and causes of microfinance loan default, hypothesis is tested.
P value of the test is .007 which is lower than .05 and so null hypothesis is rejected and
alternate hypothesis is Not Rejected. Therefore there is significant association between
borrowers’ marital status and causes of microfinance loan default. As can be seen from the
below table, majority of all the causes of defaults are related to married borrower. This is
because borrowers’ surveyed are married in most of the cases.
Table 5.101 Marital status of borrower and causes of default

Marital status of borrower
Causes of Default
Unmarried Married Divorced Deserted Widow
Problem in borrower's business 1 74 0 3 4
Borrower used loan amount used
3 90 1 4 14
in other expenses
Borrower's Income Problem 3 64 2 8 19
Illness or Death in borrower's
2 83 0 0 20
family
Other Debt than microfinance loan 2 128 1 7 15

Ghost loan or installment 2 64 0 0 6

Borrower not satisfied with MFI
2 64 1 1 6
or its employees
Migration or Death of borrower or
legal heir (as mentioned in loan 0 0 0 0 1
papers)
Problem among group members
0 9 0 1 3
(in group loan)
No intention of borrower to pay
(No specific reason given by 2 38 0 1 4
borrower)
Table 5.101 (a) Chi square test – marital status of borrower and causes of default
Causes of Default marital status
Chi-square 65.316
Df 40
Sig. .007
5.8.2 Economic factors

Five economic factors of the borrowers’ namely number of earning members, economic
activity of borrower and family members and individual income of borrower and family
members are compared with causes of microfinance loan default through following
hypotheses test:
Ho4 There is no significant association between borrower’s number of earning family
members and causes of microfinance loan default of MFIs in Gujarat
Ha4 There is significant association between borrowers’ number of earning family
members and causes of microfinance loan default of MFIs in Gujarat
Number of earning members is related to the income level of borrowers’ family. Higher the
number of earning members, higher the income level and therefore the causes of
microfinance loan default will not be related to no income or less income.
As can be seen from following tables, p value of the chi-square test is .493 which is higher
than .05 and therefore null hypothesis is Not Rejected. Hence there is no significant
association between number of earning members and causes of loan default.

Table 5.102 No. of earning members and causes of default

No. of earning members in borrower's family
Causes of Default
0-2 3 4 5 =<
Problem in borrower's business 62 14 5 1
Borrower used loan amount used in

83 24 6 0
other expenses
Borrower's Income Problem 81 14 3 0
Illness or Death in borrower's family 87 15 4 1
Other Debt than microfinance loan 111 29 12 2
Ghost loan or installment 57 10 4 1

57 12 4 1
employees
legal heir (as mentioned in loan 12 1 0 0
papers)
12 1 0 0
group loan)

38 3 4 0
Table 102(a) Chi square test – no. of earning members and causes of default
Causes of Default no. of earning members
Chi-square 29.473
Df 30
Sig. 0.493
Ho5 There is no significant association between borrowers’ economic activity and causes
of microfinance loan default of MFIs in Gujarat
Ha5 There is significant association between borrowers’ economic activity and causes of
As discussed earlier, type of economic activity helps to understand the security and
regularity of the income. Thus if the borrowers’ is involved in economic activity which is
irregular and with no fixed return, this increase the uncertainty in income which leads to
the causes of default related to no income or less income.
As the p value is .145 which is higher than .05, null hypothesis is Not Rejected and
therefore there is no significant association between borrowers’ economic activity and
causes of loan default.
Table 103 borrowers’ economic activity and causes of default
Borrower's economic activity
Causes of Default Self Private Government Labour No
employed job job work activity

33 29 0 23 28
in other expenses
31 23 0 9 43
family
Other Debt than microfinance
55 45 0 18 35
loan
27 13 0 9 25
or its employees
Migration or Death of borrower
or legal heir (as mentioned in loan 1 0 0 0 1
papers)
4 2 0 1 6
(in group loan)
borrower)
Table 103(a) Chi square test - Borrowers’ economic activity and causes of default
Causes of Default Individual economic activity
Chi-square 38.170
Df 30
Sig. 0.145

Ho6 There is no significant association between borrower’s family economic activity and
causes of microfinance loan default of MFIs in Gujarat
Ha6 There is significant association between borrowers’ family economic activity and
The p value is .691 which is higher than .05 and therefore null hypothesis is Not Rejected.
And as was in previous test with economic activity of borrower, here too there is no
association between borrowers’ family economic activity and causes of loan default.
Table 104 Family economic activity and causes of default
Economic activity of borrower's family
Causes of Default self private government labour no
employed job job work activity
Borrower used loan amount used 36 43 2 19 13
in other expenses
Illness or Death in borrower's 37 35 2 24 9
family
Borrower not satisfied with MFI or 26 27 1 12 8
its employees
Migration or Death of borrower or 5 3 1 4 0
legal heir (as mentioned in loan
papers)
Problem among group members 3 4 0 5 1
(in group loan)
No intention of borrower to pay 17 12 2 11 3
(No specific reason given by
borrower)
Table 104(a) Chi square test – Family economic activity and causes of default
Causes of default Economic activity of family
Chi-square 35.094
Df 40
Sig. .691

Ho7 There is no significant association between borrowers’ income and causes of

Ha7 There is significant association between borrowers’ income and causes of
It was found from survey that few of the reasons related to default in microfinance loan
were due to no income or less income. Therefore here, the association between borrowers’
income and causes of microfinance loan default has been studied.
The p value of the test is .095 which is higher than .05, which indicates that null hypothesis
is Not Rejected and there is no significant association between the two factors.
Table 105 Borrowers’ income and causes of default
Borrower's income (in Rs.)
Causes of Default no 1- 5001 - 15001 - 25001 - 35001 - above
income 5000 15000 25000 35000 45000 45000
Problem in borrower's
25 36 19 2 0 0 0
business
Borrower used loan

amount used in other 26 65 19 3 0 0 0
expenses
Borrower's Income
33 46 16 1 0 0 0
Problem
Illness or Death in
43 52 10 1 0 0 0
borrower's family
Other Debt than
39 85 28 1 0 0 0
microfinance loan
Ghost loan or installment 21 36 15 0 0 0 0
Borrower not satisfied
25 28 19 2 0 0 0
with MFI or its employees
Migration or Death of
borrower or legal heir (as 1 0 1 0 0 0 0
mentioned in loan papers)
Problem among group
6 5 2 0 0 0 0
members (in group loan)
No intention of borrower
to pay (No specific reason 16 20 8 1 0 0 0
given by borrower)

Table 105 (a) Chi square test – Individual income and causes of default
Causes of default individual income
Chi-square 40.524
df 30
Sig. 0.095
Ho8 There is no significant association between borrowers’ family income and causes of
Ha8 There is significant association between borrowers’ family income and causes of
As can be seen from below two tables, the p value of the hypothesis test is .435 which is
higher than .05 and so again null hypothesis is Not Rejected. Thus, there is no significant
association between borrowers’ family income and causes of default in loan.
Table 106 Borrowers’ family income and causes of default
Borrower's family income (in Rs.)
Causes of Default no 1- 5001 - 15001 - 25001 - 35001 - above
income 5000 15000 25000 35000 45000 45000
7 12 50 9 4 0 0
business
Borrower used loan amount
14 26 60 10 3 0 0
used in other expenses
Borrower's Income Problem 17 22 50 8 1 0 0
10 19 63 12 3 0 0
family
10 28 96 17 2 1 0
loan
Borrower not satisfied with
7 9 45 10 3 0 0
MFI or its employees
borrower or legal heir (as 0 5 7 1 0 0 0
Problem among group
1 1 10 1 0 0 0

No intention of borrower to
pay (No specific reason given 3 9 23 6 2 1 1
by borrower)
Table 106(a) Chi square test – Borrowers’ family income and causes of default
Cause of Default family income

Chi-square 61.147
Df 60
Sig. 0.435
5.8.3 Microfinance loan related factors

Microfinance loan related factors include terms and other information of loan. Seven
factors such as number of borrowing cycle, loan amount, time period since date of
disbursement, number and amount of installment, purpose of loan and type of borrowing
are compared with causes of default in loan as under:
Ho9 There is no significant association between borrower’s number of borrowing cycle

and causes of microfinance loan default of MFIs in Gujarat
Ha9 There is significant association between borrowers’ number of borrowing cycle and
The p value is .163 which is higher than .05 and therefore null hypothesis is Not Rejected
and there is no significant association found between borrowers’ number of borrowing
cycle and causes of microfinance loan default.
Table 5.107 No. of borrowing cycle and causes of default
Causes of Default more than
one two three Four five
five
Problem in borrower's business 13 28 20 15 4 2
16 48 33 12 2 2
other expenses
15 33 33 19 3 4
family

Other Debt than microfinance loan 25 55 48 24 6 4

Borrower not satisfied with MFI or
12 16 26 14 5 1
its employees
legal heir (as mentioned in loan 8 17 19 2 1 1
papers)
2 4 6 0 1 0
group loan)
(No specific reason given by 14 14 13 3 0 1
borrower)
Table 5.107(a) Chi square test – No. of borrowing cycle and cause of default
Causes of default no. of borrowing cycles
Chi-square 59.711
Df 50
Sig. 0.163
Ho10 There is no significant association between borrower’s microfinance loan amount

Ha10 There is significant association between borrowers’ microfinance loan and causes of
Here the p value is .253 which is higher than .05 and so null hypothesis is Not Rejected.
Thus there is no significant association between borrowers’ microfinance loan amount and
causes of default in microfinance loan.
Table 5.108 Loan amount and causes of default
Loan Amount (in Rs.)
Causes of 10001 20001 30001 40001 50001 60001 70001 80001 90001
Default </= >
- - - - - - - - -
10000 100000
20000 30000 40000 50000 60000 70000 80000 90000 100000
Problem in
borrower's 13 30 20 7 5 2 2 0 0 2 1
business

Borrower
used loan
amount used 18 51 20 9 11 1 1 1 0 1 0
in other
expenses
Borrower's
Income 30 38 16 6 5 1 1 1 0 1 1
Problem
Illness or
Death in
16 42 23 8 8 3 2 1 0 3 1
borrower's
family
Other Debt
than
30 60 35 14 13 1 1 3 0 4 1
microfinance
loan
Ghost loan
or 11 37 14 5 3 1 0 0 0 0 1
installment
Borrower
not satisfied
with MFI or 18 26 17 6 3 2 0 0 1 0 1
its
employees
Migration or
Death of
borrower or
10 21 8 3 6 0 0 0 0 0 0
legal heir (as
mentioned in
loan papers)
Problem
among
group 7 5 0 1 0 0 0 0 0 0 0
members (in
group loan)
No intention
of borrower
to pay (No
16 19 4 2 0 3 0 0 0 1 0
specific
reason given
by borrower)

Table 5.108(a) Loan amount and causes of default

Causes of default Loan Amount
Chi-square 109.021
Df 100
Sig. 0.253
Ho11 There is no significant association between time period since borrowers’

microfinance loan taken and causes of microfinance loan default of MFIs in Gujarat
Ha11 There is significant association between time period since borrowers’ microfinance
loan taken and causes of microfinance loan default of MFIs in Gujarat
As can be seen from below table 5.109 and 5.109(a), p value .004 which is less than .05
and therefore null hypothesis is rejected. This means that there is significant association
between time period since borrowers’ microfinance loan taken and causes of microfinance
loan default. Thus it was found that certain range of time period have certain types of
causes of loan default. As represented below, loan sanctioned in recent time that is loan
that is sanctioned in less than one year, do not have migration or dissatisfaction with MFI
related problems and they have more of business and income related problem.
Table 5.109 Time period since date of disbursement and causes of default
Causes of Default
</= 1 1-2 2-3 3–4 4-5 >5
11 23 22 15 8 3
business
14 27 30 22 15 5
Illness or Death in
12 30 27 17 14 7
borrower's family
Other Debt than
13 52 41 24 16 16
microfinance loan
3 23 34 6 2 6

borrower or legal heir (as 3 14 8 8 6 9
Problem among group
4 2 3 2 2 0
pay (No specific reason 8 14 8 4 2 9
given by borrower)
Table 5.109(a) Chi square test – Time period since date of disbursement and causes of default
Causes of Default date of disbursement
Chi-square 80.957
df 50
Sig. 0.004
Ho12 There is no significant association between borrowers’ microfinance loan’s

installment amount and causes of microfinance loan default of MFIs in Gujarat
Ha12 There is significant association between borrowers’ microfinance loan’s installment
amount and causes of microfinance loan default of MFIs in Gujarat
The p value of the chi square is .042 which is less than .05 and so null hypothesis is
rejected. Thus it can be said that there is significant association between borrowers’
microfinance loan’s installment amount and causes of microfinance loan default.
Installment amount of less than or equal to Rs. 500 do not have group related problem or
ghost loan. This is because generally less installment amount means less loan amount and
loan amount is lower during the initial cycle of borrowing and therefore in the initial stage,
group tries to know each other gradually and no group problems are found. Moreover,
initially when borrowers connect with MFI, he/she does not use any tactics such as giving
loan to other thus there is no ghost loan at this stage.

Table 5.110 Installment amount and causes of default

Installment amount (in Rs.)
Causes of Default </= 501 – 1001 - 1501 - 2001 - 2501 - 3001 – 3501 -
500 1000 1500 2000 2500 3000 3500 4000
2 34 23 14 5 2 0 2
business
4 42 42 18 5 1 0 1
Borrower's Income Problem 6 50 24 12 5 2 0 1
Illness or Death in
4 42 29 19 7 3 0 3
borrower's family
Other Debt than
7 64 50 23 9 7 0 2
microfinance loan
Ghost loan or installment 0 30 17 21 2 1 0 1
5 20 27 14 7 0 0 1
borrower or legal heir (as 3 22 15 5 1 2 0 0
Problem among group
0 9 3 0 1 0 0 0
pay (No specific reason 7 21 10 3 2 2 0 0
given by borrower)
Table 5.110(a) Chi square test – Installment amount and causes of default
Causes of Default installment amount
Chi-square 80.238
Df 60
Sig. 0.042

Ho13 There is no significant association between borrower’s microfinance loan’s number

of installment and causes of microfinance loan default of MFIs in Gujarat
Ha13 There is significant association between borrowers’ microfinance loan’s number of
installment and causes of microfinance loan default of MFIs in Gujarat
Here the p value is .00 which is less than the .05 and therefore null hypothesis is rejected.
And so significant association is found between borrowers’ microfinance loan’s number of
installment and cause of loan default.
As can be seen from the below table, it can be analyzed that long term loan with higher
number of installments do not have group related problems as long term loan is generally
having higher loan amount and as it was seen previously, higher loan amount is sanctioned
majorly in individual lending. Again in loan with less number of installments, do not have
business related problems or dissatisfaction issues with MFI as these loans are for short
term while business issues are for longer term.
Table 5.111 Number of installments and causes of default

Number of installments
Causes of Default
</= 12 13 - 15 16 – 18 19 - 21 22 - 24 25 - 36 37 - 48 49 - 60
3 11 19 6 3 33 0 7
business
12 17 20 10 2 44 0 8
Illness or Death in
8 9 22 11 1 45 0 11
borrower's family
Other Debt than
23 16 29 16 2 61 0 15
microfinance loan
9 10 20 14 1 16 0 4
Problem among group
10 0 0 1 0 2 0 0

given by borrower)
Table 5.111 (a) Chi square test – No. of installment and causes of default
Causes of Default no of installments
Chi-square 170.905
df 60
Sig. 0
Ho14 There is no significant association between borrowers’ purpose of microfinance loan

Ha14 There is significant association between borrowers’ purpose of microfinance loan and
Null hypothesis is rejected as the p value is .018 which is less than .05. Thus it can be said
that there is significant association between borrowers’ purpose of microfinance loan and
causes of microfinance loan default. It means that some specific type of loan purpose has
been resulted into specific types of causes of loan default.
As mentioned below, though the borrowers’ have take loan in order to repay previous
debt, the causes for loan default is other debt in majority of the cases. From this it can be
analyzed that either the loan amount is less to repay entire debt or the loan amount was
utilized for purposes other than repayment of debt.
Table 5.112 Purpose of loan and causes of default

Purpose of loan
Causes of Default invest in starting repayment purchas other

renovation
existing a new of previous ing consumpt
of house
business business debt asset ion
44 15 3 9 8 3
business

Borrower used loan

amount used in other 53 19 6 12 16 7
expenses
Borrower's Income
46 11 4 13 18 8
Problem
Illness or Death in
55 15 5 18 8 6
borrower's family
Other Debt than
69 28 15 20 19 11
microfinance loan
Borrower not satisfied
37 6 2 7 15 7
with MFI or its employees
Problem among group
6 6 1 0 0 0
No intention of borrower
to pay (No specific reason 22 5 3 6 6 3
given by borrower)
Table 5.112(a) Chi square test – Purpose of loan and causes of default
Causes of default purpose of loan
Chi-square 73.307
df 50
Sig. 0.018
Ho15 There is no significant association between type of borrowing of borrower’s

microfinance loan and causes of microfinance loan default of MFIs in Gujarat
Ha15 There is significant association between type of borrowers’ microfinance loan and
As the p value which is .008 which is less than .05, null hypothesis is rejected. This means
there is significant association between type of borrowers’ microfinance loan and causes of
microfinance loan default.
Table 5.113 represented below shows that in group borrowing more prominent causes of
default compared to individual borrowing are ghost loan, dissatisfaction issues and group

problem. Thus is group lending there are causes related more of disciplinary and
interpersonal problem rather than income or expense related person as entire group is
involved as compared to individual lending where only one person is concerned.
Table 5.113 Type of borrowing and causes of default

Type of borrowing
Causes of Default
Group individual
Problem in borrower's business 45 37
Borrower used loan amount used in other expenses 64 49
Borrower's Income Problem 67 33
Illness or Death in borrower's family 56 51
Other Debt than microfinance loan 92 70
Ghost loan or installment 47 25
Borrower not satisfied with MFI or its employees 56 18
Migration or Death of borrower or legal heir (as mentioned
27 21
in loan papers)
Problem among group members (in group loan) 11 2
No intention of borrower to pay (No specific reason given
27 18
by borrower)
Table 5.113(a) Chi square test – Type of borrowing and causes of default
Causes of default type of borrowing
Chi-square 23.854
Df 10
Sig. 0.008
5.8.4 Factors related to microfinance group loan

Three factors related to group characteristics mainly person who formed group,
homogeneity factor and status of group loan is compared with causes of loan default by
forming hypotheses and testing using chi-square test. The analysis of the same is shown as
under:

Ho16 There is no significant association between borrowers’ group formation and causes
Ha16 There is significant association between borrowers’ group formation and causes of
As can be seen from the below table 5.114, p value is .000 which is less than .05, which
means null hypothesis is rejected. Therefore it can be said that there is significant
association between borrowers’ group formation and causes of microfinance loan default.
This means that in certain type of group formation, certain causes of defaults are seen.
When the group is formed by group leader, then in majority of the cases it has been found
that the loan is ghost loan. Thus when all the members in group are not involved in group
formation and only one member is involved, he/she may attempt for practices such as
giving loan taken on one person’s name to other. Again when the group is formed by MFI
employee, then one of the major causes of default is related to dissatisfaction with MFI or
its employee. As group was formed by MFI employee, rather than members themselves, it
may possible that they are not happy with formation of group and this leads gradually to
dissatisfaction among members and lastly with MFI employee.
Table 5.114 Person who formed group and causes of default

Person who formed group
Causes of Default group group agent/ MFI
leader members mediator employee
0 35 9 20
other expenses
1 30 2 23
its employees
legal heir (as mentioned in loan 0 3 2 6
papers)
Problem among group members (in 1 9 0 1

group loan)
0 14 1 12
Table 114(a) Chi square test – Person who formed group and causes of default
Causes of Default who formed group
Chi-square 89.836
df 30
Sig. 0
Ho17 There is no significant association between borrower’s group’s homogeneity factor

Ha17 There is significant association between borrowers’ group’s homogeneity factor and
The p value is .000 which is less than .05 indicating that null hypothesis is rejected. And
so there is significant association between borrowers’ group’s homogeneity factor and
causes of microfinance loan default.
As can be analyzed from the below table, when the homogeneity factor is of friends that
means that the group members are friends, then in majority of the cases the cause of
default is ghost loan. Migration and group problems have been found more in case when
the homogeneity factor is neighbour.
Table 5.115 Homogeneity factor and causes of default

Homogeneity factor among group
Causes of Default no
neighbor relatives friends other
homogeneity

45 3 1 15 0
other expenses
40 1 1 14 0
family


40 2 0 14 0
its employees
papers)
9 0 1 1 0
group loan)
borrower)
Table 5.115 (a) Chi square test – Homogeneity factor and causes of default
Causes of Default homogeneity factor
Chi-square 103.801
Df 40
Sig. 0
Ho18 There is no significant association between status of borrower’s group loan and
Ha18 There is significant association between status of borrowers’ group loan and causes
Here the null hypothesis is rejected, as the p value is .000 which is less than .05. Thus
there is significant association between status of borrowers’ group loan and causes of
As can be seen from the below table, when all the other members of the group are regular
in paying their installments, the major causes of default is borrower’s integrity no problem
related to group integrity. That means only the individual borrowers has no intention to
pay. When the status of overall group is also overdue/ NPA, causes of defaults are mainly
related to income problem, ghost loan, other debt etc.

Table 5.116 Status of group loan and causes of default

Status of group loan
Causes of Default regular irregular fully overdue
payment payment paid /NPA

16 4 28 16
expenses
6 1 25 24
employees
Migration or Death of borrower or legal heir
3 0 6 2
(as mentioned in loan papers)
Problem among group members (in group
0 1 2 8
loan)
10 2 9 6
Table 5.116(a) Chi square test – Status of group loan and causes of default
Causes of Default status of group loan
Chi-square 66.038
Df 30
Sig. 0
5.8.5 Factors related to repayment of microfinance loan

Repayment pattern of microfinance loan is an important factor to be studied while
analyzing the causes of microfinance loan default. Thus under this section three factors
like number of installments paid, time period since payment of last installment and
amount paid in last installment are compared with causes of loan default as under:

Ho19 There is no significant association between number of installment paid of borrowers’

Ha19 There is significant association between number of installment paid of borrowers’
The acceptable value .05 is higher than the p value .000 and therefore null hypothesis is
rejected. This means that there is significant association between number of installments
paid and causes of default in microfinance loan.
As can be seen from below table 5.117, migration problem is found where the numbers of
installments paid are less in numbers in majority of the cases. Thus it can be concluded
that in the initial stage of repayment, there are much chances of migration by borrowers
compared to when more number of installments are paid because once when outstanding
amount decreases, borrowers’ will try to repay it in order to get future loan. Whereas other
debt problem or illness problem has no much relation with number of installments paid as
in each category of installments paid, these causes are seen.
Table 5.117 No. of installments paid and causes of default

Number of installments paid
Causes of Default
</= 3 4-6 7-9 10 - 12 13 - 15 > 15
7 22 16 13 10 14
business
6 29 23 23 16 16
Illness or Death in
5 23 22 25 15 17
borrower's family
Other Debt than
16 32 40 40 15 19
microfinance loan
4 20 13 25 3 9
Problem among group
0 3 9 1 0 0

pay (No specific reason 5 8 12 12 4 4
given by borrower)
Table 117(a) Chi square test- No. of installment paid and causes of default
Causes of default total installment paid
Chi-square 96.864
df 50
Sig. 0
Ho20 There is no significant association between time period since last installment paid of
borrowers’ microfinance loan and causes of microfinance loan default of MFIs in
Gujarat
Ha20 There is significant association between time period since last installment paid of
Gujarat
Result of above hypothesis shows that p value is .001 which is less than .05 and so null
hypothesis is rejected. Therefore it can be said that significant association is found
between time period since last installment paid and causes of default in microfinance loan.
As it is represented in the below table, majority of the microfinance loan come in the
category with overdue up to 24 months and loan with overdue more than 24 months are
very less. The reason behind this is that as microfinance loan is given for shorter period,
MFI generally write off overdue loan within 2 years.

Table 5.118 Time period since last installment paid and causes of default
Time period since date of last installment paid (in months)
Causes of Default
</= 3 3-6 6 - 12 12 - 24 24 - 36 36 - 48 48 - 60 > 60
23 18 19 18 2 0 1 1
business
34 27 22 18 9 3 0 0
Illness or Death in
37 19 21 23 5 1 1 0
borrower's family
Other Debt than
43 37 39 32 5 6 0 0
microfinance loan
17 14 13 22 3 4 1 0
Problem among group
3 1 3 5 0 1 0 0
given by borrower)
Table 5.118(a) Chi square tests – Time period since payment of last installment and causes of
default
Causes of default date of last installment
Chi-square 111.610
df 70
Sig. 0.001
Ho21 There is no significant association between amount of last installment paid of

Gujarat
Ha21 There is significant association between amount of last installment paid of borrowers’

The p value of the hypothesis is .02 which is less than the .05 and so null hypothesis is
rejected. Thus there is significant association between amount of last installment paid of
borrowers’ microfinance loan and causes of microfinance loan default.
The table mentioned below clearly states that in case where the amount paid in last
installment is less than the actual installment amount, the problem is related to other debt.
Thus in order to pay installments of debt taken from other MFI or private money lenders,
borrowers of this MFI did not pay full installment amount.
Table 5.119 Amount paid in last installment and causes of default

Amount paid in last installment
Causes of Default less than equal to more than
installment installment installment
Problem in borrower's business 17 35 30

Borrower used loan amount used in other expenses 16 56 41
Borrower's Income Problem 27 44 29
Illness or Death in borrower's family 17 46 44
Other Debt than microfinance loan 39 58 65
Ghost loan or installment 11 31 30
Borrower not satisfied with MFI or its employees 18 40 16
Migration or Death of borrower or legal heir (as
10 20 18
Problem among group members (in group loan) 5 7 1

No intention of borrower to pay (No specific reason
6 22 17
given by borrower)
Table 5.119(a) Chi square Test – Amount paid in last installment and causes of default
Causes of default amount of last installment
Chi-square 35.073
df 20
Sig. 0.02

5.8.6 Factors related to decision regarding microfinance loan

Person who took the decision related to certain factors of microfinance loan is compared
with causes of default in microfinance loan. Three such factors namely person who took
decision to take loan, person who used microfinance loan and person responsible to pay
microfinance loan are compared with causes of default by test of following hypothesis
using chi square test:
Ho22 There is no significant association between person who took decision to take
Ha22 There is significant association between person who took decision to take
The test result of hypothesis indicates that the p value is .00 which is less than the
acceptable value .05 and thus null hypothesis is rejected. This means that there is
significant association between person who decided to take loan and causes of default in
microfinance loan.
When the decision to take microfinance loan is taken by other or by self and other, there
are majority of the cases in that where loan amount is utilized by others. When decision
is taken by self or self and spouse, there are income and expense related problems.
Table 5.120 Person who decided to take loan and causes of default
Causes of Default self & self &
self spouse other
spouse other
47 2 2 49 12
other expenses
27 6 2 56 14
family
33 1 3 32 5
its employees


papers)
5 0 0 6 2
group loan)
borrower)
Table 5.120(a) Chi square Test – Person who decided to take loan and causes of default
Causes of default Person who decision to take loan
Chi-square 305.179
df 40
Sig. 0
Ho23 There is no significant between person who used microfinance loan amount and
Ha23 There is significant association between person who used microfinance loan amount
The acceptable value .05 is higher than the p value .00 and therefore the null hypothesis is
rejected and alternate hypothesis is Not Rejected. Thus there is significant association
between person who used microfinance loan amount and causes of microfinance loan
default.
As can be seen from table 5.121 below, it is found that when the microfinance loan
amount is utilized by self or self and spouse there are income or expenses related. When
the loan amount is utilized by other or self and other, there are more problems related to
behavioral and interpersonal. This is because when amount is utilized by others, borrower
himself/ herself do not take entire responsibility to repay and so borrowers’ income level
or economic conditions do not matter.

Table 5.121 Person who used loan amount and causes of default
self spouse other
spouse other
48 11 5 39 9
in other expenses
25 16 8 47 9
family
67 19 11 44 12
loan
33 7 4 26 4
or its employees
or legal heir (as mentioned in loan 1 0 0 0 0
papers)
8 0 1 4 0
(in group loan)
borrower)
Table 5.121(a) Chi square test – Person who used loan amount and causes of default
Causes of Default Person who use loan
Chi-square 336.044
df 40
Sig. 0
Ho24 There is no significant association between person who was responsible to pay
installment of microfinance loan and causes of microfinance loan default of MFIs in
Gujarat
Ha24 There is significant association between person who was responsible to pay
installment of microfinance loan and causes of microfinance loan default of MFIs in
Gujarat

The p value of the chi square test result is .00 which is less than .05 and so null hypothesis
is rejected. Thus it can be said that significant association is there between person
responsible to pay installment of microfinance loan and causes of default of microfinance
loan.
Table 5.122 Person responsible to pay installment and causes of default

Person responsible to pay installment amount
self spouse other
spouse other
46 15 6 36 9
expenses
Illness or Death in borrower's family 28 20 11 39 7
32 13 3 22 4
employees
Migration or Death of borrower or legal

1 0 0 0 0
heir (as mentioned in loan papers)

7 2 0 4 0
group loan)
17 10 2 16 0
Table 5.122(a) Chi square test - Person responsible to pay installment and causes of default
Pearson Chi-square Tests
Causes of default Person responsible to pay installment
Chi-square 307.091
df 40
Sig. 0

5.8.7 Factors related to training and supervision of borrowers

Two factors related to training and information that is receipt of training and information
and number of meetings held and one factor related to supervision are compared with
causes of default of microfinance loan as under:
Ho25 There is no significant association between receipt of training and information and
Ha25 There is significant association between receipt of training and information and
The chi square test calculated the p value .105 which is higher than the acceptable value
.05 and so null hypothesis is Not Rejected. Thus there is no significant association
between receipt of training and information and cause of microfinance loan default. This
means whether the borrower has received training or not, it does not affect the causes of
default because it was found from the survey that borrowers who have received training in
past, much time period have been passed and therefore though ideally borrower had
received training, he/she was at the same level of borrower who has not received training.
Table 5.123 Receipt of training and causes of default
Did borrower get training?

Causes of Default no
yes No
response
Problem in borrower's business 54 28 0
Borrower used loan amount used in other expenses 75 35 1
Borrower's Income Problem 66 27 2
Illness or Death in borrower's family 70 32 3
Other Debt than microfinance loan 107 43 3
Ghost loan or installment 41 25 6
Borrower not satisfied with MFI or its employees 40 32 2
Migration or Death of borrower or legal heir (as
0 1 0
Problem among group members (in group loan) 10 3 0
No intention of borrower to pay (No specific reason given
28 16 1
by borrower)

Table 5.123(a) Chi square test – Receipt of training and causes of default
Causes of Default got training
Chi-square 28.198
Df 20
Sig. 0.105
Ho26 There is no significant association between number of meetings conducted and

Ha26 There is significant association between number of meetings conducted and causes of
The p value is .269 which is higher than .05 and so null hypothesis is Not Rejected. Thus
it can be said that no significant association was found between number of meetings
conducted and causes of microfinance loan default.
Ideally, meetings should help borrowers to increase their awareness about microfinance
loan services and process and moreover more and regular meetings help borrowers’ to
share each other problems and overcome difficult situation. This leads to timely payment
of installment. But here no significant association was found as the meetings held are
either not seriously conducted by the MFI or the borrowers’ are not attending with full
intention and therefore the intended results through holding meetings are not found.
Table 5.124 No. of meetings held and causes of default

Causes of Default no more no
one two three four
meeting than 4 response
Problem in borrower's business 9 30 35 6 1 0 0
10 43 48 9 1 0 0
in other expenses
Borrower's Income Problem 7 25 57 7 0 0 0
11 43 42 9 0 0 0
family
18 49 64 20 2 0 0
loan


12 22 36 4 0 0 0
or its employees
or legal heir (as mentioned in 0 1 0 0 0 0 0
loan papers)
1 3 8 1 0 0 0
(in group loan)
(No specific reason given by 2 17 21 5 0 0 0
borrower)
Table 5.124(a) Chi square test – No. of meeting held and causes of default
Causes of Default meeting held
Chi-square 55.715
Df 50
Sig. 0.269
Ho27 There is no significant association between visit frequency of staff member and
Ha27 There is significant association between visit frequency of staff member and causes of
Null hypothesis is rejected as the p value is .00 which is less than .05. Therefore there is
significant association between visit frequency of staff member and causes of
With less frequency of visit of staff member, the causes related to dissatisfaction of the
borrower and ghost loan are higher in majority of the cases. Thus if the staff visits
borrower regularly, staff has the idea about loan utilization or the problem if any, faced by
the borrower.

Table 5.125 Visit frequency and causes of default

MFI staff's visit frequency at borrower's place
Causes of Default more than a no
Weekly fortnightly monthly
month gap response
13 31 45 23 0
11 24 50 20 0
family
15 44 71 23 0
loan
1 12 25 36 0
or its employees
or legal heir (as mentioned in 0 0 0 1 0
loan papers)
1 3 5 4 0
(in group loan)
borrower)
Table 5.125(a) Chi square test – Visit frequency and causes of default
Causes of Default visit frequency
Chi-square 88.819
Df 30
Sig. 0
5.9 Analysis of relationship of microfinance loan amount with other factors

(Testing of Hypothesis by Chi Square Test)
One important measure to control overdue or NPA in microfinance loan is to take preventative
actions at the time of loan amount disbursement. Thus in order to check which factors need to be
considered to avoid overdue, loan amount is compared with various other factors. Moreover, as
all the borrowers survey are having overdue/NPA account, the purpose is check the association

between loan amount and other factors and if the association is found, to study the type of
association which lead to default. There are 15 different factors under 4 heads that are compared
through formation of hypotheses and are tested using chi square test. The following is the table
showing summary of result of test of hypotheses:
Table 5.126 Summary of Result of Testing of Hypothesis (Chi Square Test)

Hypo Variable Variable p Value Decision of Null
thesis Hypothesis
Socio Demographic Factors
28. Loan Amount Age .543 Not Rejected
29. Loan Amount Education .868 Not Rejected
Economic Factors
30. Loan Amount No. of earning family members .417 Not Rejected
31. Loan Amount Individual economic activity .635 Not Rejected
32. Loan Amount Family economic activity .072 Rejected
33. Loan Amount Individual income .359 Not Rejected
34. Loan Amount Family income .000 Rejected
Microfinance loan related Factors
35. Loan Amount No. of installments .000 Rejected
36. Loan Amount Purpose of loan .016 Rejected
37. Loan Amount Type of borrowing .000 Rejected
38. Loan Amount Status of group loan .000 Rejected
39. Loan Amount No. of installment paid .000 Rejected
40. Loan Amount Receipt of training and .000 Rejected
information
41. Loan Amount No. of meetings conducted .278 Not Rejected
42. Loan Amount Frequency of staff visit .607 Not Rejected

5.9.1 Socio demographic factors

Two factors that should be considered at the time of deciding loan amount namely age and
education of the borrower is compared with default in microfinance loan as under:
Ho28 There is no significant association between borrowers’ age and microfinance loan
amount of MFIs in Gujarat
Ha28 There is significant association between borrowers’ age and microfinance loan
Here the p value is .543 which is higher than .05 and so null hypothesis is Not Rejected.
Thus there is no significant association between borrowers’ age and microfinance loan
amount.
Ideally when the loan amount is decided, age of the borrower should be considered
because age of the borrower is one of the factors which is related with the earning level of
borrower. For example, in general, elderly person do not have same earning capacity as
young people.
As can be seen from below table, loan amount has no relationship with age of borrowers
and this could be one of the reasons behind microfinance loan in default.
Table 5.127 Age of borrowers and loan amount

Age of the Borrowers
Loan Amount
(in Rs.) Above
0-20 21-30 31-40 41-50 51-60
60
Less than or
1 33 41 26 2 0
equal to 10000
10001 -20000 0 54 67 45 9 2
20001 - 30000 1 19 40 21 3 2
30001 - 40000 0 6 12 12 4 1
40001 - 50000 1 6 9 7 2 0
50001 - 60000 0 0 4 5 0 0
60001 - 70000 0 1 3 0 0 0
70001 - 80000 0 0 2 0 1 0
80001 - 90000 0 0 0 1 0 0
90001 - 100000 0 0 1 3 1 0
More than
0 0 2 1 0 0
100000


Table 5.127(a) Chi square test – Age of the borrowers and loan amount
Loan Amount Borrower's age
Chi-square 48.270
Df 50
Sig. 0.543
Ho29 There is no significant association between borrower’s education and

microfinance loan amount of MFIs in Gujarat
Ha29 There is significant association between borrower’s education and microfinance
loan amount of MFIs in Gujarat
The result of the above hypothesis shows that p value is .868 which is higher than .05
and so null hypothesis is Not Rejected. Through this is can be said that there is no
significant association between education of the borrower and loan amount.
Here too, theoretically, education level of the borrower should be considered before
deciding loan amount because based on the education level, economic activity of the
borrower affects and economic activity of the borrower in turn affect the income level
and income level affects the repayment capacity of borrower.
Therefore there should be association between education of borrower and loan amount
which is not the case here which might have lead to the causes of default in
microfinance loan.

Table 5.128 Education of the borrowers and loan amount

Education of the borrower
Loan Amount
un- Primary Secondary High school graduate Technical Ph.D.
(in Rs.)
educated 1-7 8-10 11-12 1-4 years Training (Pursuing)
Less than or
32 49 23 1 0 0 1
equal to 10000
10001 -20000 63 86 26 3 3 1 0
20001 - 30000 27 32 25 2 1 0 0
30001 - 40000 18 15 0 2 0 0 0
40001 - 50000 7 10 9 1 1 0 0
50001 - 60000 5 3 1 0 0 0 0
60001 - 70000 2 2 0 0 0 0 0
70001 - 80000 0 1 2 0 0 0 0
80001 - 90000 1 0 0 0 0 0 0
90001 - 100000 1 2 2 0 0 0 0
More than
0 2 1 0 0 0 0
100000
Table 5.128(a) Education of the borrower and causes of default
Loan Amount Borrower's education
Chi-square 47.997
Df 60
Sig. 0.868
5.9.2 Economic factors

Economic is very critical factor which decides the repayment capacity of the borrower and
in general based on repayment capacity, lending amount is decided. Thus five economic
factors such as number of earning members of borrower, economic activity of borrower
and family members and income level of borrower and family members has been
compared with loan amount by forming five hypotheses shown as under:

Ho30 There is no significant association between number of earning family members of

borrower and microfinance loan amount of MFIs in Gujarat
Ha30 There is significant association between earning family members of borrower and
Here the p value for the above hypothesis is .417 which is higher than .05 and so null
hypothesis is Not Rejected. Thus it can be concluded that no significant association is
found between number of earning members in borrowers’ family and loan amount.
Ideally, higher the number of earning members indicates more sources of income in the
family and as microfinance clients do live in joint family, this factor becomes important.
This means higher loan amount should be given to the borrowers’ whose numbers of
earning members are higher. This ensures surety of repayment of loan as it is divided
between more numbers of earning members.
But as it is seen from below table, no such association is found and therefore this is one of
the reasons behind microfinance loan default.
Table 5.129 Earning members in borrowers’ family and loan amount

No. of earning members of borrower's family
0-2 3 4 5 =<
Less than or equal to 10000 82 10 7 0
10001 -20000 137 22 5 2
20001 - 30000 56 18 6 0
30001 - 40000 22 7 4 0
40001 - 50000 18 4 3 0
50001 - 60000 8 1 0 0
60001 - 70000 4 0 0 0
70001 - 80000 3 0 0 0
80001 - 90000 0 1 0 0
90001 - 100000 2 2 1 0
More than 100000 3 0 0 0

Table 5.129(a) Chi square test – Earning members of borrowers’ family and loan amount
Loan Amount no. of earning members
Chi-square 30.975
df 30
Sig. 0.417
Ho31 There is no significant association between borrowers’ economic activity and

Ha31 There is significant association between borrowers’ economic activity and
Null hypothesis is Not Rejected here as the p value is .635 which is higher than .05. Thus
it can be said that there is no significant association between economic activity of
borrower and microfinance loan amount.
Economic activity is very critical factor and is directly related to the repayment capacity.
The more secure and regular economic activity the more is the security and regularity in
borrowers’ income. So borrowers’ with such economic activity should lend with higher
loan amount. Hence the association of these two factors should be positive.
As can be seen from the table 5.130 no association is found and therefore this may lead
to one of the causes of microfinance loan default.
Table 5.130 borrowers’ economic activity and loan amount

Borrowers’ economic activity
Loan Amount (in Rs.) Self Private Govern- Labour No
employed job ment job work activity
Less than or equal to 10000 29 23 0 13 31
10001 -20000 49 33 0 22 57
20001 – 30000 28 21 0 11 20
30001 – 40000 15 6 0 4 8
40001 – 50000 7 10 0 2 3
50001 – 60000 3 2 0 1 3
60001 – 70000 0 2 0 1 1
70001 – 80000 1 1 0 0 1
80001 – 90000 0 0 0 1 0

90001 – 100000 1 2 0 0 2
More than 100000 2 0 0 0 1
Table 5.130(a) Chi square test – Borrowers’ economic activity and loan amount
Loan Amount Borrowers’ economic activity
Chi-square 26.775
Df 30
Sig. 0.635
Ho32 There is no significant association between borrowers’ family economic activity and
Ha32 There is no significant association between borrowers’ family economic activity and
The p value of chi-square test is .072 which is higher than .05 and therefore null
hypothesis is Not Rejected. This means there is no significant association between
borrowers’ family economic activity and loan amount.
Microfinance loan is given mostly to female client and in many families women are not
working which can be seen from previous table. Thus economic activity of the family
members should also be considered while deciding the loan amount of the borrower.
But neither the economic activity of borrower nor the economic activity of the family
members is considered and this could be the reason behind microfinance loan being
overdue or NPA.

Table 5.131 Borrowers’ family economic activity and loan amount

Economic activity of borrowers’ family
Loan Amount (in Rs.) self private Govern- labour no
employed job ment job work activity
Less than or equal to 10000 32 33 1 21 12
10001 -20000 54 61 2 33 16
20001 - 30000 32 24 1 13 10
30001 - 40000 16 12 1 2 2
40001 - 50000 8 11 0 5 1
50001 - 60000 2 2 0 5 0
60001 - 70000 1 2 1 0 0
70001 - 80000 1 2 0 0 0
80001 - 90000 0 1 0 0 0
90001 - 100000 3 0 1 1 0
More than 100000 2 1 0 0 0
Table 5.131(a) Chi square test – Borrowers’ family economic activity and loan
amount
Loan Amount economic activity of family
Chi-square 53.740
df 40
Sig. 0.072
Ho33 There is no significant association between borrowers’ income and microfinance loan
Ha33 There is significant association between borrowers’ income and microfinance loan
The p value is .359 which is higher than .05 and so the decision here is to accept null
hypothesis. This means that there is no significant association between borrowers’
income and microfinance loan amount.
As can be seen from table 5.132, even borrowers’ with no income has been given loan
amount ranging as high as Rs. 100000 and above. Thus from this it can be concluded that
reason behind microfinance loan in default.

Table 5.132 Borrowers’ income and loan amount

Borrowers’ income (in Rs.)
no income 1 - 5000 5001 - 15000 15001 - 25000
10001 -20000 58 74 27 2
20001 – 30000 19 37 23 1
30001 – 40000 9 17 6 1
40001 – 50000 3 14 5 0
50001 – 60000 3 5 1 0
60001 – 70000 1 1 2 0
70001 – 80000 1 1 1 0
80001 – 90000 0 1 0 0
90001 – 100000 2 2 0 1
More than 100000 1 2 0 0
Table 5.132(a) Chi square test – Borrowers’ income and loan amount
Loan Amount individual income
Chi-square 32.186
Df 30
Sig. 0.359
Ho34 There is no significant association between borrowers’ family income and

Ha34 There is no significant association between borrower’s family income and
The p value is .00 which is less than the acceptable value .05 and so here the null
hypothesis is rejected. Thus it can be said that there is significant association between
borrowers’ family income and microfinance loan amount.
As was seen in previous hypothesis, loan with highest amount was given to lowest income
group which is not feasible. Therefore it becomes necessary to check the income level of
family members of borrowers.

As table 5.133 represents, family members having no income or income in lower range has
not been sanctioned loan amount more than Rs.40000 in most of the cases. Thus there is a
positive association between family income and loan amount which is ideal situation.
Table 5.133 borrowers’ family income and loan amount

Borrowers’ family income (in Rs.)
Loan Amount (in Rs.) no 1- 5001 - 15001 - 25001 - 35001 - above
income 5000 15000 25000 35000 45000 45000
Less than or equal to 10000 12 17 60 8 1 0 1
10001 -20000 15 37 95 16 3 0 0
20001 – 30000 10 13 43 12 2 0 0
30001 – 40000 2 6 20 4 1 0 0
40001 – 50000 1 5 16 1 2 0 0
50001 – 60000 0 2 7 0 0 0 0
60001 – 70000 0 1 3 0 0 0 0
70001 – 80000 0 1 2 0 0 0 0
80001 – 90000 0 0 0 1 0 0 0
90001 – 100000 0 0 2 1 1 1 0
More than 100000 0 0 2 1 0 0 0
Table 5.133(a) Chi square test – Borrowers’ family income and loan amount
Loan Amount Family income
Chi-square 125.383
Df 60
Sig. 0

Microfinance loan amount is compared with the other loan related factors to check the
compatibility between these factors. Here, total number of installments, purpose of
borrowing, type of borrowing, status of group loan and number of installments paid are
compared with loan amount as below:

Ho35 There is no significant association between borrowers’ microfinance loan’s number

of installment and microfinance loan amount of MFIs in Gujarat
Ha35 There is significant association between borrowers’ microfinance loan’s number of
installment and microfinance loan amount of MFIs in Gujarat
As can be seen from table 5.134(a) the value of p is .00 which is less than .05 and
therefore null hypothesis is rejected. Thus it can be said that significant association is
found between total number of installment and microfinance loan.
As it is analyzed from table 5.134, loan with higher loan amount, is having higher number
of installments in majority of the cases. Ideally when the loan amount increases, either the
installment amount or number of installments is increased. In case of microfinance loan, if
installment amount is increased, the burden of the borrower increases which may result
into overdue and thus it is advisable to increase number of installments. Thus here the
association with number of installments and loan amount is positive which is
recommendable and so this is not the reason behind microfinance loan default.
Table 5.134 Total no. of installment and loan amount
Loan Amount (in Total number of installments (in months)

Rs.) </= 12 13 - 15 16 - 18 19 - 21 22 - 24 25 - 36 37 - 48 49 - 60
Less than or equal
45 31 13 1 0 12 0 4
to 10000
10001 -20000 42 24 40 16 0 56 0 4
20001 – 30000 3 0 22 20 4 32 0 6
30001 – 40000 1 1 2 7 0 18 0 6
40001 – 50000 0 0 0 3 0 20 0 5
50001 – 60000 0 0 0 0 0 8 0 1
60001 – 70000 0 0 0 0 0 3 0 1
70001 – 80000 0 0 0 0 0 2 0 1
80001 – 90000 0 0 0 0 0 0 0 1
90001 - 100000 0 0 0 0 0 2 0 3
More than 100000 0 0 0 0 0 3 0 0

Table 5.134(a) Chi square test – Total no. of installment and loan amount
Loan Amount no of installments
Chi-square 270.419
Df 60
Sig. 0
Ho36 There is no significant association between borrowers’ purpose of microfinance loan

and microfinance loan amount of MFIs in Gujarat
Ha36 There is significant association between borrowers’ purpose of microfinance loan and
The p value is .019 which is less than .05 and therefore null hypothesis is rejected and
alternate hypothesis is Not Rejected. This means there is significant association between
borrowers’ purpose of loan and microfinance loan amount.
As can be seen from below table 5.135, for a loan purpose of purchasing assets, the loan
amount sanctioned in majority of the cases is either less than 10,000 or between 10,001 to
20,000. But in today’s age it is very difficult to own any asset with this loan amount and
therefore chances are there that the loan amount is utilized for other than purchasing
assets. Thus though there is an association between purpose of loan and loan amount but it
is not positive and therefore problems may arise out of it. And therefore this can be one of
causes that might lead to microfinance loan default.
Table 5.135 Purpose of loan and loan amount

Purpose of loan
invest in starting repayment renovati purchas other

existing a new of previous on of ing consum
business business debt house asset ption
Less than or equal to

48 19 4 6 19 10
10000
10001 -20000 79 37 9 14 22 21
20001 – 30000 45 10 5 12 8 7
30001 – 40000 11 5 3 9 6 1
40001 – 50000 9 5 2 6 0 6

50001 – 60000 5 0 1 3 0 0
60001 – 70000 1 2 0 1 0 0
70001 – 80000 2 1 0 0 0 0
80001 – 90000 0 0 0 1 0 0
90001 – 100000 2 0 0 3 0 0
More than 100000 3 0 0 0 0 0
Table 5.135(a) Chi square test – Purpose of loan and loan amount
Loan Amount purpose of loan
Chi-square 73.918
Df 50
Sig. 0.016
Ho37 There is no significant association between type of borrowing of borrowers’

microfinance loan and microfinance loan amount of MFIs in Gujarat
Ha37 There is significant association between type of borrowing of borrowers’
The result of the above hypothesis shows that p value is .00 which is less than .05 which
means null hypothesis is rejected and alternate hypothesis is Not Rejected. Therefore there
is significant association between type of borrowing of borrowers’ microfinance loan and
loan amount.
As can be seen from the below table, the relationship is found partial because initially
when loan amount is lower, it is distributed both in group and individual borrowing but
gradually when the loan amount is increased, the type of borrowing is only to individual in
majority of the cases. As in higher loan amount, loan is sanctioned based on the individual
behavior and repayment capacity and if higher loan amount is sanctioned in group, it is
difficult to recover, because each borrower in group have different behavior and
repayment capacity.

Table 5.136 Type of borrowing and loan amount

Type of borrowing
group Individual
Less than or equal to 10000 87 19
10001 -20000 122 60
20001 - 30000 50 37
30001 - 40000 10 25
40001 - 50000 15 13
50001 - 60000 0 9
60001 - 70000 0 4
70001 - 80000 0 3
80001 - 90000 0 1
90001 - 100000 0 5
More than 100000 0 3
Table 5.136(a) Chi square test – Type of borrowing and loan amount
Loan Amount type of borrowing
Chi-square 78.482
Df 10
Sig. 0
Ho38 There is no significant association between status of borrowers’ group loan and
Ha38 There is significant association between borrowers’ group loan and microfinance
loan amount of MFIs in Gujarat
From table 8.137(a), it can be seen that p value is .00 which is less than .05 and so null
hypothesis is rejected and alternate hypothesis is Not Rejected. Thus there is significant
association between borrowers’ group loan and microfinance loan amount.

Table 5.137 Status of group loan and loan amount

Status of group loan
Loan Amount (in Rs.) regular irregular fully overdue/
payment payment paid NPA
10001 -20000 18 0 50 54
20001 – 30000 14 4 10 22
30001 – 40000 6 1 1 2
40001 – 50000 5 2 3 5
Table 5.137(a) Chi square test – Status of group loan and loan amount
Loan Amount status of group loan
Chi-square 42.522
Df 12
Sig. 0
Ho39 There is no significant association between number of installment paid of borrowers’

Ha39 There is significant association between number of installment paid of borrowers’
Null hypothesis is rejected and alternated hypothesis is Not Rejected as the p value is.00
which is less than .05. This means that there is significant association between number of
installment paid of borrowers’ microfinance loan and loan amount.
As can be seen from the below table 5.138, with the increase in loan amount, the number
of installment paid is also increased in majority of the cases. This is because loan with
higher amount have more number of installments and so compared to other loans , more
number of installments have been paid.

Table 5.138 No. of installment paid and loan amount

Number of installment paid
</= 3 4–6 7-9 10 - 12 13 - 15 > 15
10001 -20000 14 40 59 41 18 10
20001 – 30000 8 24 16 22 6 11
30001 – 40000 2 10 3 8 5 7
40001 – 50000 3 4 5 3 4 9
50001 – 60000 1 2 0 3 1 2
60001 – 70000 0 0 0 0 2 2
70001 – 80000 0 0 1 1 0 1
80001 – 90000 1 0 0 0 0 0
90001 – 100000 1 1 0 0 0 3
More than 100000 0 1 1 0 0 1
Table 5.138(a) Chi square test – No. of installment paid and loan amount
Loan Amount total installment paid
Chi-square 109.607
Df 50
Sig. 0
5.9.4 Factors related to training and supervision of borrower

Three factors related to training and supervision namely receipt of training and
information, number of meetings held and visit frequency is compared with microfinance
loan amount as under:

Ho40 There is no significant association between receipt of training and information and
Ha40 There is significant association between receipt of training and information and
The p value is .00 which is less than .05 and so null hypothesis is rejected and alternate
hypothesis is Not Rejected. Thus there is significant association between receipt of
training and information and microfinance loan amount.
As it is analyzed in table 5.139, borrowers who do not receive training and information are
having loan amount in 10000 to 50000. Generally, this range of loan amount is sanctioned
in second or more number of borrowing cycle. Thus follow up borrowers are not receiving
training and information compared to first time borrowers because it was found during the
survey that only one time training and information is provided to borrowers when they
become part of MFI. Thus lack of follow up training and information might be one of the
reasons behind microfinance loan default.
Table 5.139 Receipt of training and loan amount

Receipt of training
yes no no response
Less than or equal to 10000 82 14 0

10001 -20000 108 47 5
20001 – 30000 40 34 5
30001 – 40000 19 11 3
40001 – 50000 11 11 0
50001 – 60000 2 7 0
60001 – 70000 2 2 0
70001 – 80000 2 1 0
80001 – 90000 0 1 0
90001 – 100000 2 3 0
More than 100000 2 1 0

Table 5.139(a) Chi square test – Receipt of training and loan amount
Loan Amount got training
Chi-square 48.259
df 20
Sig. 0
Ho41 There is no significant association between number of meetings conducted and

Ha41 There is significant association between number of meetings conducted and
As can be seen from table 5.140(a), the p value is .278 which is higher than .05 and so null
hypothesis is Not Rejected. Thus there no significant association is found between number
of meetings conducted and microfinance loan amount. It is recommendable that all
borrowers’ with whatever be their loan amount, should conduct meeting regularly in order
to create and maintain the bond among group members and also with MFI. But as can be
seen below overall the number of meetings held are very less and therefore the number of
meetings conducted should be increased overall.
Table 4.140 No. of meetings held and loan amount

Loan Amount (in Rs.) no more
one Two three four
meeting than 4
10001 -20000 11 55 79 14 1 1
20001 – 30000 15 24 32 6 1 0
30001 – 40000 4 14 12 2 0 0
40001 – 50000 4 8 7 3 0 0
50001 – 60000 2 5 1 1 0 0
60001 – 70000 1 2 1 0 0 0
70001 – 80000 0 2 1 0 0 0
80001 – 90000 1 0 0 0 0 0
90001 – 100000 2 3 0 0 0 0
More than 100000 1 1 1 0 0 0

Table 5.140(a) Chi square test – No. of meeting held and loan amount
Loan Amount meeting held
Chi-square 55.401
df 50
Sig. 0.278
Ho42 There is no significant association between visit frequency of staff member and
Ha42 There is no significant association between visit frequency of staff member and
The p value is .607 which is higher than .05 and so null hypothesis is Not Rejected.
Therefore it can be said that there is no significant association between visit frequency of
staff member and microfinance loan amount.
In ideal situation where all borrowers are regular payment, it is good to keep contact with
each and every borrower. But in this situation when borrowers’ loan account is overdue or
NPA, special focus should be given to borrowers’ with higher loan amount as they are the
one with higher risk. This should be done in order to ensure maximum amount recovery.
Table 5.141 Visit frequency and loan amount

MFI's staff visit frequency
Weekly Fortnightly monthly more than a month gap
Less than or equal to
2 28 40 26
10000
10001 -20000 12 32 66 51
20001 – 30000 9 19 30 21
30001 – 40000 5 7 14 7
40001 – 50000 2 4 9 7
50001 – 60000 0 2 3 4
60001 – 70000 1 0 3 0
70001 – 80000 0 1 2 0
80001 – 90000 0 0 0 1
90001 – 100000 1 2 1 1
More than 100000 0 0 1 2

Table 5.141(a) Chi square test – Visit frequency and loan amount
Loan Amount visit frequency
Chi-square 27.306
Df 30
Sig. 0.607
5.10 Analysis of overall adequacy factors with other factors (Testing of hypothesis
using one way ANOVA)
Three questions were asked to borrowers on adequacy of loan amount, repayment period and
installment amount. These three questions show the thinking and opinion of borrowers. In order
to check the similarity and difference of this thinking with various other factors, 13 hypotheses
has been framed and tested using one way ANOVA test. Further, post hoc test is applied on those
hypotheses were significant different is found in order to identified the groups that have similarity
or differences. These 13 hypotheses have been classified under four different heads. For the
purpose of hypotheses testing three questions of adequacy have been combined using summated
scale in SPSS. Following is the summary table of result of hypotheses test using one way
ANOVA and followed by this is the detail analysis of each hypothesis:
Table 5.142 Summary of result of hypotheses test using one way ANOVA
Hypo Variable Variable Sig. Decision of Null
thesis Value Hypothesis
Socio Economic Factors
43. Adequacy factors Age 0.036 Rejected
44. Adequacy factors Education 0.000 Rejected
45. Adequacy factors Individual income 0.000 Rejected
46. Adequacy factors Family income 0.000 Rejected
Microfinance loan related Factors
47. Adequacy factors Number of borrowing cycle 0.143 Not Rejected
48. Adequacy factors Loan amount 0.027 Rejected
49. Adequacy factors Installment Amount 0.546 Not Rejected

50. Adequacy factors No. of installments 0.440 Not Rejected

51. Adequacy factors Purpose of loan 0.364 Not Rejected
Factors related to repayment of microfinance loan
52. Adequacy factors No. of installment paid 0.368 Not Rejected
53. Adequacy factors Time period since payment of last 0.227 Not Rejected
installment
54. Adequacy factors No. of meetings conducted 0.000 Rejected
55. Adequacy factors Frequency of staff visit 0.000 Rejected
5.10.1 Socio-Economic Factors

Two socio-demographic factors age and education of borrowers and two economic factors
income of borrowers and their family members have been studied and tested through
following four hypotheses:
Ho43 There is no significant difference amongst the various age group of borrowers
regarding overall adequacy factors of microfinance loan of MFIs in Gujarat
Ha43 There is significant difference amongst the various age group of borrowers regarding
overall adequacy factors of microfinance loan of MFIs in Gujarat
As can be seen from below table 5.143, significance value is .036 which is less than the
acceptable value .05 and so null hypothesis is rejected and alternate hypothesis is Not
Rejected. Therefore, there is significant difference amongst the various age group
regarding overall adequacy factors of microfinance loan.
The table 5.143(a) shows the result of post hoc test. It is found that there is similarity
amongst age group of 0-20, 21-30 and 31-40 regarding overall adequacy factors. While
rest all other group have difference regarding overall adequacy factors.

Table 5.143 One way ANOVA Test - Age of borrowers and overall
adequacy factors
Sum of Mean
Df F Sig.
Squares Square
Between Groups 644.191 6 107.365 2.267 .036
Within Groups 21598.366 456 47.365
Total 22242.557 462
Table 5.143(a) Post hoc test - Age of borrowers and overall adequacy
factors
95% Confidence
Mean Interval
Difference Std. Lower Upper
(I) age (I-J) Error Sig. Bound Bound
0-20 21-30 -7.40336* 2.08449 .008 -13.5767 -1.2300
31-40 -6.71271* 2.05152 .020 -12.7884 -.6370
41-50 -6.16529 2.08291 .050 -12.3339 .0034
51-60 -6.68182 2.46982 .099 -13.9963 .6327
Above 60 -4.60000 3.66334 .872 -15.4492 6.2492
21-30 0-20 7.40336* 2.08449 .008 1.2300 13.5767
31-40 .69065 .81222 .979 -1.7148 3.0961
41-50 1.23807 .88852 .805 -1.3933 3.8695
51-60 .72154 1.59718 .999 -4.0086 5.4517
Above 60 2.80336 3.14181 .974 -6.5013 12.1080
31-40 0-20 6.71271* 2.05152 .020 .6370 12.7884
21-30 -.69065 .81222 .979 -3.0961 1.7148
41-50 .54742 .80816 .994 -1.8460 2.9408
51-60 .03089 1.55391 1.000 -4.5711 4.6329
Above 60 2.11271 3.12004 .994 -7.1275 11.3529
41-50 0-20 6.16529 2.08291 .050 -.0034 12.3339
21-30 -1.23807 .88852 .805 -3.8695 1.3933
31-40 -.54742 .80816 .994 -2.9408 1.8460
51-60 -.51653 1.59512 1.000 -5.2406 4.2075
Above 60 1.56529 3.14077 .999 -7.7363 10.8669
51-60 0-20 6.68182 2.46982 .099 -.6327 13.9963
21-30 -.72154 1.59718 .999 -5.4517 4.0086
31-40 -.03089 1.55391 1.000 -4.6329 4.5711

41-50 .51653 1.59512 1.000 -4.2075 5.2406

Above 60 2.08182 3.40968 .996 -8.0161 12.1798
Above 60 0-20 4.60000 3.66334 .872 -6.2492 15.4492
21-30 -2.80336 3.14181 .974 -12.1080 6.5013
31-40 -2.11271 3.12004 .994 -11.3529 7.1275
41-50 -1.56529 3.14077 .999 -10.8669 7.7363
51-60 -2.08182 3.40968 .996 -12.1798 8.0161
*. The mean difference is significant at the 0.05 level.
Ho44 There is no significant difference amongst various education group of borrowers

Ha44 There is significant difference amongst various education group of borrowers
The significance value is .000 which is less than .05 and so null hypothesis is rejected and
alternate hypothesis is Not Rejected. Thus it can be said there is significant difference
amongst various education group of borrowers regarding overall adequacy factors of
microfinance loan.
As can be seen from table 5.144(a) the education group of ‘graduate’ has similarities with
all the other education groups of uneducated, primary, secondary and high school. While
all other education group have differences amongst themselves with regards to adequacy
factors.
Table 5.144 One way ANOVA Test – Education of borrowers and overall
adequacy factors
Sum of Mean
Squares df Square F Sig.
Between Groups 1261.411 4 315.353 6.884 .000
Within Groups 20981.146 458 45.810
Total 22242.557 462

Table 5.144(a) Post hoc Test – Education of borrowers and overall

adequacy factors
95% Confidence
Mean Interval
(I) education (I-J) Error Sig. Bound Bound
un- Primary 1-7 .28148 .72142 .995 -1.6942 2.2572
educated Secondary 8-10 -.77737 .89910 .910 -3.2397 1.6850
High school -1.25427 2.32028 .983 -7.6088 5.1002
11-12
graduate 1-4 -13.12729* 2.61496 .000 -20.2888 -5.9658
years
Primary uneducated -.28148 .72142 .995 -2.2572 1.6942
1-7 Secondary 8-10 -1.05885 .86111 .734 -3.4171 1.2994
High school -1.53575 2.30582 .964 -7.8507 4.7792
11-12
graduate 1-4 -13.40877* 2.60214 .000 -20.5352 -6.2824
years
Secondary uneducated .77737 .89910 .910 -1.6850 3.2397
8-10 Primary 1-7 1.05885 .86111 .734 -1.2994 3.4171
High school -.47690 2.36744 1.000 -6.9606 6.0067
11-12
graduate 1-4 -12.34992* 2.65689 .000 -19.6263 -5.0736
years
High uneducated 1.25427 2.32028 .983 -5.1002 7.6088
school Primary 1-7 1.53575 2.30582 .964 -4.7792 7.8507
11-12 Secondary 8-10 .47690 2.36744 1.000 -6.0067 6.9606
graduate 1-4 -11.87302* 3.41092 .005 -21.2144 -2.5316
years
graduate uneducated 13.12729* 2.61496 .000 5.9658 20.2888
1-4 years Primary 1-7 13.40877 *
2.60214 .000 6.2824 20.5352
Secondary 8- 12.34992* 2.65689 .000 5.0736 19.6263
10
High school 11.87302* 3.41092 .005 2.5316 21.2144
11-12

Ho45 There is no significant difference amongst the various income group of borrowers
Ha45 There is significant difference amongst various income group of borrowers regarding
The null hypothesis Not Rejected here as the significance value as can be seen from below
table 5.145, is .000 which is less than .05. Thus there is significant difference amongst
various income groups of borrowers regarding overall adequacy factors of microfinance
loan.
As can be seen from post hoc test analysis in table 5.145(a) below, the income group of
‘Rs. 15000-25000 have similar responses as of group of ‘no income’, ‘1-5000’ and 5001-
15000. While rest various groups have difference amongst themselves while responding
regarding overall adequacy factors.
Table 5.145 One way ANOVA Test – Income of borrowers and overall
adequacy factors
Sum of Mean
Df F Sig.
Squares Square
Between Groups 2428.025 4 607.006 14.031 .000
Within Groups 19814.532 458 43.263
Total 22242.557 462
Table 5.145(a) Post hoc Test – Income of borrowers and overall
adequacy factors
95% Confidence
Mean Interval
(I) individual income (I-J) Error Sig. Bound Bound
no 1 – 5000 .32889 .73857 .992 -1.6938 2.3516
income 5001 - 15000 1.59900 .93696 .431 -.9670 4.1650
15001 - 25000 7.80153* 1.12728 .000 4.7143 10.8888
1 - 5000 no income -.32889 .73857 .992 -2.3516 1.6938
5001 - 15000 1.27011 .87343 .593 -1.1219 3.6621
15001 - 25000 7.47264* 1.07506 .000 4.5284 10.4169
5001 - no income -1.59900 .93696 .431 -4.1650 .9670
15000 1 - 5000 -1.27011 .87343 .593 -3.6621 1.1219

15001 - 25000 6.20253* 1.21989 .000 2.8616 9.5434

*
15000- no income -7.80153 1.12728 .000 -10.8888 -4.7143
25000 1 - 5000 -7.47264* 1.07506 .000 -10.4169 -4.5284
5001 - 15000 -6.20253* 1.21989 .000 -9.5434 -2.8616
Ho46 There is no significant difference amongst the various income group of borrowers’
family members regarding overall adequacy factors of microfinance loan of MFIs in
Gujarat
Ha46 There is significant difference amongst various income group of borrowers’ family
members regarding overall adequacy factors of microfinance loan of MFIs in
Gujarat
As can be seen from below table 5.146, the significance value is .000 and therefore null
hypothesis is rejected and alternate hypothesis is Not Rejected. Thus it can be said that
there is significant difference amongst various income group of borrowers’ family
members regarding overall adequacy factors of microfinance loan.
For the purpose of analysis, the income group of 25000-3500 have been merged with
35000-45000 and above 45000 and has been renamed as ‘above 25000’ as there were less
than or equal to two responses in that category.
Similar to individual income, highest income group of family income has similarities with
all the other income group. That it ‘above 25000’ group of income has similarities with
‘no income, ‘1-5000’, 50001 -15000 and 15001-25000.
Table 5.146 One way ANOVA Test - Borrowers’ family income and
overall adequacy factors
Sum of Mean
df F Sig.
Squares Square
Between Groups 1778.492 5 355.698 7.943 .000
Within Groups 20464.065 457 44.779
Total 22242.557 462

Table 5.146(a) Post hoc test – Borrowers’ family income and overall
adequacy factors
95% Confidence
Mean Interval
(I) family income (I-J) Error Sig. Bound Bound
no 1 - 5000 -.46951 1.29057 .999 -4.1629 3.2239
income 5001 - 15000 -1.29000 1.13956 .868 -4.5513 1.9713
15001 - 25000 -.25000 1.46191 1.000 -4.4338 3.9338
Above 25000 6.25000* 1.54883 .001 1.8175 10.6825
1 - 5000 no income .46951 1.29057 .999 -3.2239 4.1629
5001 - 15000 -.82049 .85159 .929 -3.2576 1.6166
15001 - 25000 .21951 1.25052 1.000 -3.3593 3.7983
Above 25000 6.71951* 1.35111 .000 2.8528 10.5862
5001 - no income 1.29000 1.13956 .868 -1.9713 4.5513
15000
1 - 5000 .82049 .85159 .929 -1.6166 3.2576
15001 - 25000 1.04000 1.09399 .933 -2.0909 4.1709
Above 25000 7.54000* 1.20769 .000 4.0838 10.9962
15001 - no income .25000 1.46191 1.000 -3.9338 4.4338
25000 1 - 5000 -.21951 1.25052 1.000 -3.7983 3.3593
5001 - 15000 -1.04000 1.09399 .933 -4.1709 2.0909
Above 25000 6.50000* 1.51562 .000 2.1625 10.8375
Above no income -6.25000* 1.54883 .001 -10.6825 -1.8175
25000 1 - 5000 -6.71951 *
1.35111 .000 -10.5862 -2.8528
*
5001 - 15000 -7.54000 1.20769 .000 -10.9962 -4.0838
*
15001 - 25000 -6.50000 1.51562 .000 -10.8375 -2.1625

Five factors related to microfinance loan factors were tested through framing of
hypotheses. These factors are number of borrowing cycle, loan amount, number of
installment, installment amount and purpose of loan. Following is the analyses of all these
factors:

Ho47 There is no significant difference amongst the various group of number of borrowing
cycle regarding overall adequacy factors of microfinance loan of MFIs in Gujarat
Ha47 There is significant difference amongst the various group of number of borrowing
cycle regarding overall adequacy factors of microfinance loan of MFIs in Gujarat
Here null hypothesis is Not Rejected as the significance value in below table is 5.147
which is higher than .05. Therefore it can be concluded that there is no significant
difference amongst the various group of number of borrowing cycle regarding overall
adequacy factors of microfinance loan.
This means that there is no bifurcation in the type of responses given by borrowers though
they belong to different group of number of borrowing cycle. Thus whether the borrowers
have taken loan for the first time or fifth time, there is no difference in them with respect
to this factor while answering the adequacy questions.
Table 5.147 One way ANOVA Test – Number of borrowing cycle and
Sum of Mean
Df F Sig.
Squares Square
Between Groups 396.413 5 79.283 1.659 .143
Within Groups 21846.144 457 47.803
Total 22242.557 462
Ho48 There is no significant difference amongst the various loan amount group regarding
Ha48 There is significant difference amongst the various loan amount group regarding
The significance value is .027 which is less than .05 and thus it can be said that there is
significant difference amongst the various loan amount group regarding overall adequacy
factors of microfinance loan.
It should be noted here that as there were less responses with 80001-90000 and above
100000 group, 90001-100000 and above 100000 have been merged into ‘Rs.81000 to
90000’ group.

As can be seen from table 5.148(a) below, there are similarities seen two times. First the
loan amount group of ‘less than or equal to Rs. 10000 have similarity with ‘Rs.10001-
20000’ group and ‘Rs.21001 to 30000’ group of loan amount. Secondly ‘Rs.80001-90000’
group have similarity with ‘above Rs. 90000’.
Table 5.148 One way ANOVA Test – Loan amount and overall adequacy
factors
Sum of Mean
Df F Sig.
Squares Square
Between Groups 605.240 5 121.048 2.557 .027
Within Groups 21637.317 457 47.346
Total 22242.557 462
Table 5.148(a) Post Hoc Test – Loan amount and overall adequacy
factors
95% Confidence
Mean Interval
(I) amount of Difference Std. Lower Upper
disbursement (I-J) Error Sig. Bound Bound
Less 10001 -20000 6.25000* 1.54883 .001 1.8175 10.6825
than or 20001 - 30000 -6.71271* 2.05152 .020 -12.7884 -.6370
equal to
10000 30001 - 40000 -.81995 1.35953 1.000 -5.1427 3.5028
40001 - 50000 .95148 1.48179 1.000 -3.7600 5.6630
50001 - 60000 .42767 2.42126 1.000 -7.2709 8.1263
60001 - 70000 .09434 3.55205 1.000 -11.1997 11.3884
70001 - 80000 .42767 4.08287 1.000 -12.5542 13.4095
80001 - 90000 1.09434 2.92649 1.000 -8.2107 10.3994
More than 90000 -.90566 4.08287 1.000 -13.8875 12.0762
10001 - Less than or -6.25000* 1.54883 .001 -10.6825 -1.8175
20000 equal to 10000
20001 - 30000 -1.08873 .90896 .972 -3.9789 1.8014
30001 - 40000 -.35934 1.28714 1.000 -4.4519 3.7332
40001 - 50000 1.41209 1.41567 .992 -3.0892 5.9133
50001 - 60000 .88828 2.38136 1.000 -6.6835 8.4600
60001 - 70000 .55495 3.52498 1.000 -10.6530 11.7629
70001 - 80000 .88828 4.05934 1.000 -12.0188 13.7953
80001 - 90000 1.55495 2.89357 1.000 -7.6454 10.7553

More than 90000 -.44505 4.05934 1.000 -13.3521 12.4620

20001 – Less than or 6.71271* 2.05152 .020 .6370 12.7884
30000 equal to 10000
10001 -20000 1.08873 .90896 .972 -1.8014 3.9789
30001 - 40000 .72939 1.39589 1.000 -3.7090 5.1678
40001 - 50000 2.50082 1.51522 .822 -2.3170 7.3186
50001 - 60000 1.97701 2.44186 .998 -5.7871 9.7411
60001 - 70000 1.64368 3.56613 1.000 -9.6951 12.9825
70001 - 80000 1.97701 4.09512 1.000 -11.0438 14.9978
80001 - 90000 2.64368 2.94356 .996 -6.7156 12.0030
More than 90000 .64368 4.09512 1.000 -12.3771 13.6645
30001 – Less than or .81995 1.35953 1.000 -3.5028 5.1427
40000 equal to 10000
10001 -20000 .35934 1.28714 1.000 -3.7332 4.4519
20001 - 30000 -.72939 1.39589 1.000 -5.1678 3.7090
40001 - 50000 1.77143 1.76817 .992 -3.8506 7.3935
50001 - 60000 1.24762 2.60638 1.000 -7.0396 9.5348
60001 - 70000 .91429 3.68073 1.000 -10.7889 12.6175
70001 - 80000 1.24762 4.19530 1.000 -12.0917 14.5870
80001 - 90000 1.91429 3.08140 1.000 -7.8833 11.7119
More than 90000 -.08571 4.19530 1.000 -13.4250 13.2536
40001 – Less than or -.95148 1.48179 1.000 -5.6630 3.7600
50000 equal to 10000
10001 -20000 -1.41209 1.41567 .992 -5.9133 3.0892
20001 - 30000 -2.50082 1.51522 .822 -7.3186 2.3170
30001 - 40000 -1.77143 1.76817 .992 -7.3935 3.8506
50001 - 60000 -.52381 2.67219 1.000 -9.0203 7.9726
60001 - 70000 -.85714 3.72762 1.000 -12.7095 10.9952
70001 - 80000 -.52381 4.23650 1.000 -13.9941 12.9465
80001 - 90000 .14286 3.13726 1.000 -9.8323 10.1181
More than 90000 -1.85714 4.23650 1.000 -15.3275 11.6132
50001 – Less than or -.42767 2.42126 1.000 -8.1263 7.2709
60000 equal to 10000
10001 -20000 -.88828 2.38136 1.000 -8.4600 6.6835
20001 - 30000 -1.97701 2.44186 .998 -9.7411 5.7871
30001 - 40000 -1.24762 2.60638 1.000 -9.5348 7.0396
40001 - 50000 .52381 2.67219 1.000 -7.9726 9.0203
60001 - 70000 -.33333 4.19070 1.000 -13.6580 12.9914
70001 - 80000 0.00000 4.64916 1.000 -14.7824 14.7824

80001 - 90000 .66667 3.67549 1.000 -11.0199 12.3532

More than 90000 -1.33333 4.64916 1.000 -16.1158 13.4491
60001 – Less than or -.09434 3.55205 1.000 -11.3884 11.1997
70000 equal to 10000
10001 -20000 -.55495 3.52498 1.000 -11.7629 10.6530
20001 - 30000 -1.64368 3.56613 1.000 -12.9825 9.6951
30001 - 40000 -.91429 3.68073 1.000 -12.6175 10.7889
40001 - 50000 .85714 3.72762 1.000 -10.9952 12.7095
50001 - 60000 .33333 4.19070 1.000 -12.9914 13.6580
70001 - 80000 .33333 5.32629 1.000 -16.6021 17.2687
80001 - 90000 1.00000 4.50153 1.000 -13.3130 15.3130
More than 90000 -1.00000 5.32629 1.000 -17.9354 15.9354
70001 – Less than or -.42767 4.08287 1.000 -13.4095 12.5542
80000 equal to 10000
10001 -20000 -.88828 4.05934 1.000 -13.7953 12.0188
20001 - 30000 -1.97701 4.09512 1.000 -14.9978 11.0438
30001 - 40000 -1.24762 4.19530 1.000 -14.5870 12.0917
40001 - 50000 .52381 4.23650 1.000 -12.9465 13.9941
50001 - 60000 0.00000 4.64916 1.000 -14.7824 14.7824
60001 - 70000 -.33333 5.32629 1.000 -17.2687 16.6021
80001 - 90000 .66667 4.93118 1.000 -15.0125 16.3458
More than 90000 -1.33333 5.69404 1.000 -19.4380 16.7714
80001 – Less than or -1.09434 2.92649 1.000 -10.3994 8.2107
90000 equal to 10000
10001 -20000 -1.55495 2.89357 1.000 -10.7553 7.6454
20001 - 30000 -2.64368 2.94356 .996 -12.0030 6.7156
30001 - 40000 -1.91429 3.08140 1.000 -11.7119 7.8833
40001 - 50000 -.14286 3.13726 1.000 -10.1181 9.8323
50001 - 60000 -.66667 3.67549 1.000 -12.3532 11.0199
60001 - 70000 -1.00000 4.50153 1.000 -15.3130 13.3130
70001 - 80000 -.66667 4.93118 1.000 -16.3458 15.0125
More than -13.40877* 2.60214 .000 -20.5352 -6.2824
90000
More Less than or .90566 4.08287 1.000 -12.0762 13.8875
than equal to 10000
90000 10001 -20000 .44505 4.05934 1.000 -12.4620 13.3521
20001 - 30000 -.64368 4.09512 1.000 -13.6645 12.3771
30001 - 40000 .08571 4.19530 1.000 -13.2536 13.4250
40001 - 50000 1.85714 4.23650 1.000 -11.6132 15.3275
50001 - 60000 1.33333 4.64916 1.000 -13.4491 16.1158

60001 - 70000 1.00000 5.32629 1.000 -15.9354 17.9354

70001 - 80000 1.33333 5.69404 1.000 -16.7714 19.4380
80001 - 90000 13.40877* 2.60214 .000 6.2824 20.5352
Ho49 There is no significant difference amongst the various installment amount group
Ha49 There is significant difference amongst the various installment amount group
As can be seen from table 5.149 below, the significance value is .546 which is higher than
.05 and therefore null hypothesis is Not Rejected. So, it can be said that there is no
significant difference amongst the various installment amount group regarding overall
Theoretically, if only one factor of installment is considered, the higher amount of
installment means higher burden on borrowers. Thus, borrowers are satisfied or it is
adequate for them when the installment amount is lower. But here, this is not true and it is
found that there is no effect of installment amount while answering adequacy factors.
Table 5.149 One way ANOVA Test – installment amount and overall
adequacy factors
Sum of Mean
Df F Sig.
Squares Square
Between Groups 240.790 6 40.132 .832 .546
Within Groups 22001.767 456 48.249
Total 22242.557 462

Ho50 There is no significant difference amongst the various number of installments group
Ha50 There is significant difference amongst the various number of installments group
Null hypothesis is Not Rejected here as the significance value is .440 which is higher than
.05. Thus there is no significant difference amongst the various number of installments
group regarding overall adequacy factors of microfinance.
This means that there is no difference found in the types of responses given by respondent
while answering adequacy factors with respect to various group of different number of
installments. Thus adequacy of different factors do not depend on what are number of
installments of loan
Table 5.150 One way ANOVA Test – Number of installments and overall
adequacy factors
Sum of Mean
Df F Sig.
Squares Square
Between Groups 282.377 6 47.063 .977 .440
Within Groups 21960.181 456 48.158
Total 22242.557 462
Ho51 There is no significant difference amongst the various purpose of loan group
Ha51 There is significant difference amongst the various purpose of loan group regarding
As can be analyzed from table 5.151 below, the significance value is .364 which is higher
than .05 and so null hypothesis is Not Rejected. Thus it can be said that there is no
significant difference amongst the various purpose of loan group regarding overall
In general, the requirement amount of loan for borrowers could be identified based on the
purpose of microfinance loan. And so if that required amount matches with the actual loan
amount, borrower agrees on the different factors of loan. But then, it is not related like that
every time as there are many other factors which affect the requirement of loan amount. So

is the case here and so there is no difference in the responses of adequacy factors with
respect to the borrowers’ purpose of microfinance loan.
Table 5.151 One way ANOVA Test – Purpose of loan and overall
adequacy factors
Sum of Mean
Df F Sig.
Squares Square
Between Groups 262.794 5 52.559 1.093 .364
Within Groups 21979.763 457 48.096
Total 22242.557 462
5.10.3 Factors related to repayment of microfinance loan

Under this head, two factors number of installments and time period since date of last
installment paid are studied with respect to overall adequacy factors. The following is
their analysis:
Ho52 There is no significant difference amongst the various group of number of
installments paid regarding overall adequacy factors of microfinance loan of MFIs in
Gujarat
Ha52 There is significant difference amongst the various group of number of installments
paid regarding overall adequacy factors of microfinance loan of MFIs in Gujarat
The significance value is .368 which is higher than .05 and so the decision regarding null
hypothesis is to accept it. Therefore it can be said that no significant difference was found
amongst various group of number of installments paid regarding overall adequacy factors
of microfinance loan.
This means that the responses regarding overall adequacy factors is not affected with
respect to how many installments have been paid by the borrowers.

Table 5.152 One way ANOVA Test – Number of installment paid and
Sum of Mean
df F Sig.
Squares Square
Between Groups 260.699 5 52.140 1.084 .368
Within Groups 21981.858 457 48.100
Total 22242.557 462
Ho53 There is no significant difference amongst the various group of time period since last
installment paid regarding overall adequacy factors of microfinance loan of MFIs in
Gujarat
Ha53 There is significant difference amongst the various group of time period since last
installment paid regarding overall adequacy factors of microfinance loan of MFIs in
Gujarat
As can be seen from table 5.153, the significance value is .227 which is higher than .05
and so null hypothesis is Not Rejected. Therefore there is no significant difference
amongst various group of time period since last installment paid regarding overall
Thus it can be concluded that responses on overall adequacy factors is not influenced or
related with respect to how much time period have been passed since the payment of last
installment amount.
Table 5.153 One way ANOVA Test – Time period since last installment
and overall adequacy factors
date of last Sum of Mean
df F Sig.
installment Squares Square
Between Groups 451.319 7 64.474 1.346 .227
Within Groups 21791.239 455 47.893
Total 22242.557 462

5.10.4 Factors related to training and supervision of borrowers

Number of meetings held and visit frequency of MFI are two factors related to training
and supervision of borrowers. These two factors are compared with overall adequacy
factors as under:
Ho54 There is no significant difference amongst the various group of number of meetings
held regarding overall adequacy factors of microfinance loan of MFIs in Gujarat
Ha54 There is significant difference amongst the various group of number of meetings held
Null hypothesis is rejected and alternate hypothesis is Not Rejected as the significance
value is .000 which is less than .05. Therefore it can be said that significant difference is
found amongst various group of number of meetings held regarding overall adequacy
factors of microfinance loan.
As can be analyzed from table 5.154(a) below, the groups of ‘no meeting’ have similarities
with number of meetings of ‘one’ and ‘two’ groups. There is difference amongst rest of
other groups of number of meetings held regarding overall adequacy factors.
Table 5.154 One way ANOVA Test – Number of meetings held and
Sum of Mean
Df F Sig.
Squares Square
Between Groups 2057.443 5 411.489 9.316 .000
Within Groups 20185.114 457 44.169
Total 22242.557 462
Table 5.154(a) Post hoc Test – Number of meetings held and overall
adequacy factors
95% Confidence
Mean Interval
(I) meeting held (I-J) Error Sig. Bound Bound
no One -7.04457* 1.10733 .000 -10.2136 -3.8756
meeting Two -6.50053* 1.06258 .000 -9.5415 -3.4596
Three -.04003 1.14293 1.000 -3.3109 3.2309
Four -10.11565 3.95276 .110 -21.4279 1.1966

One no meeting 7.04457* 1.10733 .000 3.8756 10.2136

Two .54404 .74327 .978 -1.5831 2.6712
Three 1.12337 1.24566 .946 -2.4415 4.6883
Four -3.07108 3.87913 .969 -14.1726 8.0304
Two no meeting 6.50053* 1.06258 .000 3.4596 9.5415
One -.54404 .74327 .978 -2.6712 1.5831
Three .57932 1.20606 .997 -2.8722 4.0309
Four -3.61512 3.86660 .937 -14.6808 7.4505
three no meeting .04003 1.14293 1.000 -3.2309 3.3109
One -1.12337 1.24566 .946 -4.6883 2.4415
Two -.57932 1.20606 .997 -4.0309 2.8722
Four -4.19444 3.99372 .900 -15.6239 7.2350
Four no meeting 10.11565 3.95276 .110 -1.1966 21.4279
One 3.07108 3.87913 .969 -8.0304 14.1726
Two 3.61512 3.86660 .937 -7.4505 14.6808
Three 4.19444 3.99372 .900 -7.2350 15.6239
Ho55 There is no significant difference amongst the various group of visit frequency of
MFI staff regarding overall adequacy factors of microfinance loan of MFIs in
Gujarat
Ha55 There is no significant difference amongst the various group of visit frequency of
MFI staff regarding overall adequacy factors of microfinance loan of MFIs in
Gujarat
As can be seen from below table 5.155, significance value is .000 which is less than .05
and so null hypothesis is rejected. Therefore it can be said that there is significant
difference amongst various group of visit frequency of MFI staff regarding overall
The post hoc test result is presented in table 5.155(a). From that it can be analyzed that
visit frequency group of ‘weekly’ has similarities with ‘fortnightly’ group. While amongst
rest of other groups of visit frequency of MFI staff have differences regarding overall
adequacy factors.

Table 5.155 One way ANOVA Test – Visit frequency of MFI staff and
Sum of Mean
visit frequency df F Sig.
Squares Square
Between Groups 2537.653 4 634.413 14.746 .000
Within Groups 19704.904 458 43.024
Total 22242.557 462
Table 5.155(a) Post hoc Test – Visit frequency of MFI staff and overall
adequacy factors
95% Confidence
Mean Interval
(I) visit frequency (I-J) Error Sig. Bound Bound
Weekly fortnightly 10.00000* 1.50329 .000 5.8830 14.1170
Monthly 2.59172 1.26454 .244 -.8715 6.0549
more than a 3.30833 1.30500 .085 -.2656 6.8823
month gap
fortnightly Weekly -10.00000* 1.50329 .000 -14.1170 -5.8830
Monthly -.48197 .84111 .979 -2.7855 1.8216
more than a .23465 .90079 .999 -2.2323 2.7016
month gap
Monthly Weekly -2.59172 1.26454 .244 -6.0549 .8715
fortnightly .48197 .84111 .979 -1.8216 2.7855
more than a .71662 .78301 .891 -1.4278 2.8610
month gap
more than Weekly -3.30833 1.30500 .085 -6.8823 .2656
a month fortnightly -.23465 .90079 .999 -2.7016 2.2323
gap Monthly -.71662 .78301 .891 -2.8610 1.4278

5.11 Analysis of relationship of borrowers’ combined causes/ situation and

overall reasons of NPA of microfinance loan
It is vital to comprehend intra-relations and effect of every cause that leads to default on
reasons of microfinance loan becoming non-performing asset in order to assess intra
connections among different elements and effects investigations of numerous variables. It is
required to concentrate on relationship examination and different relapse investigation.
5.11.1 Correlation Analysis

In the examination, different situation or causes have been recognized which lead to the
foundation and affected reasons of NPAs in microfinance loan. These situations or causes
are combined under three major heads. These Combined situations or causes affecting
reasons of NPA are: Overall situation or causes where no income or less income was
generated, overall situations or causes where income was generated but utilized in other
things and combined miscellaneous causes. Likewise, intra co-connection among these
parameters has been examined.
5.11.2 Quality of relationship

Estimation of connection coefficients demonstrates quality of relationship between 2
variables. Here I have arranged intra connection network of all elements I have considered
and attempted to comprehend their intra connection and quality of such relationship
among different variables.
On off chance that r is < 0.30 than there is powerless connection between two variables, if
r is between 0.30 to 0.50 than there is medium relationship between’s two variables and if
r is > 0.50 than there is solid relationship between’s two variables. I have additionally
checked whether these components are noteworthy at 5% or 1% level

Table 5.156 Correlation Analysis
Correlations
Overall Overall Overall
situations situations where reasons for
where no or income was Combined NPA in
less income utilized for other miscellan- microfinance
generated things eous causes loan
Overall Pearson 1 .468** .094* .374**
situations Correlation
where no or Sig. (2-tailed) .000 .043 .000
less income
generated N 463 463 463 463
Overall Pearson .468** 1 .135** .431**
situations Correlation
where Sig. (2-tailed) .000 .004 .000
income was
N 463 463 463 463
utilized for
other things
Combined Pearson .094* .135** 1 .293**
miscellaneou Correlation
s causes Sig. (2-tailed) .043 .004 .000
N 463 463 463 463
Overall Pearson .374** .431** .293** 1
reasons for Correlation
NPA in Sig. (2-tailed) .000 .000 .000
microfinance N 463 463 463 463
loan
**. Correlation is significant at the 0.01 level (2-tailed).
*. Correlation is significant at the 0.05 level (2-tailed).
5.11.3 Findings of the correlation analysis

The above table 5.156 shows the relationships between various variables. The following is
the detail description of the findings of the output of above table:
5.11.3.1. Overall situations where no or less income generated and Overalls situation where
income was utilized for other things
First evaluation is done on connection between respondent's overall situations where no
or less income generated and overall situation was utilized for other things. Here, there

are two constant variables: overall situation where no or less income generated and
overall situation was utilized for other things.
Estimation of r is 0.468 which propose strong relationship between these two constant
variables i.e. overall situation where no or less income generated and overall situation
was utilized for other things. Two fold bullet marks on this worth proposes this quality
is critical at 1% level of criticalness. It is entirely clear overall situation where no or less
income generated and overall situation was utilized for other things are two
autonomous variables.
In event that I have consider t – test between these two variables it is 0.000 which is
noteworthy at 1% level. This proposes prime area of foundation that overall situation
where no or less income generated and overall situation was utilized for other things do
play important role in reasons of NPA in microfinance loan.
5.11.3.2. Overall situations where no or less income generated and Combined miscellaneous
causes
Second evaluation is done on connection between respondent's overall situation where
no or less income generated and combined miscellaneous causes of microfinance loans
in default. Here, there are two constant variables: overall situation where no or less
income generated and combined miscellaneous causes.
variables i.e. overall situation where no or less income generated and combined
miscellaneous causes. It is entirely clear that overall situation where no or less income
generated and combined miscellaneous causes are two independent variables.
where no or less income generated and combined miscellaneous causes do play
important role in reasons of NPA in microfinance loan.

5.11.3.3. Overall situations where no or less income generated and Overall reasons for NPA
in microfinance loan
Third evaluation is done on connection between respondent's overall situation where no
or less income generated and overall reasons for NPA in microfinance loan loans. Here,
there are two constant variables: overall situation where no or less income generated
and overall reasons for NPA in microfinance loans.
variables i.e. overall situation where no or less income generated and overall reasons for
NPA in microfinance loan loans. Two fold bullet marks on this worth proposes this
quality is critical at 1% level of criticalness. It is entirely clear overall situation where
no or less income generated and overall reasons for NPA in microfinance loans are two
autonomous variables.
where no or less income generated and overall reasons for NPA in microfinance loans
do play important role.
5.11.3.4. Overall situations where income was utilized for other things and Combined
miscellaneous causes
Fourth evaluation is done on connection between respondent's Overall situation where
income was utilized for other things and Combined miscellaneous causes. Here, there
are two constant variables: Overall situation where income was utilized for other things
and Combined miscellaneous causes.
variables i.e. Overall situation where income was utilized for other things and combined
miscellaneous causes. It is entirely clear that Overall situation where income was
utilized for other things and combined miscellaneous causes are two independent
variables.

noteworthy at 1% level. This proposes prime area of foundation that Overall situation
where income was utilized for other things and combined miscellaneous causes do play
important role in reasons of NPA in microfinance loan.
5.11.3.5. Overall situations where income was utilized for other things and Overall reasons
for NPA in microfinance loan
Fifth evaluation is done on connection between respondent's overall situation where
income was utilized for other things and overall reasons for NPA in microfinance loan.
Here, there are two constant variables: overall situation where income was utilized for
other things and overall reasons for NPA in microfinance loan.
variables i.e. overall situation where no or less income generated and overall situation
was utilized for other things. Two fold bullet marks on this worth proposes this quality
is critical at 1% level of criticalness. It is entirely clear respondent's overall situation
where income was utilized for other things and overall reasons for NPA in microfinance
loans are two autonomous variables.
noteworthy at 1% level. This proposes prime area of foundation that respondent's
overall situation where income was utilized for other things and overall reasons for
NPA in microfinance loan do play important role.
5.11.3.6. Combined miscellaneous causes and Overall reasons for NPA in microfinance loan
Sixth evaluation is done on connection between respondent's combined miscellaneous
causes and overall reasons for NPA in microfinance loan. Here, there are two constant
variables: combined miscellaneous causes and overall reasons for NPA in microfinance
loan.

variables i.e. combined miscellaneous causes and overall reasons for NPA in
microfinance loan. Two fold bullet marks on this worth proposes this quality is critical
at 1% level of criticalness. It is entirely clear respondent's combined miscellaneous
causes and overall reasons for NPA in microfinance loan are two autonomous variables.
noteworthy at 1% level. This proposes prime area of foundation that combined
miscellaneous causes and overall reasons for NPA in microfinance loan do play
important role.
5.12 Analysis of impact of borrowers’ combined causes/ situations and overall

reasons for NPA
The research study is related with the situation or causes that lead to the arrears and their
impact on the reason behind microfinance loan becoming NPA. The major focus of the study is
to understand the inter relationships amongst the various factors which is influencing to
reasons of NPA in microfinance loan of MFIs in Gujarat. Further I want to analyze the impact
of each factor which directly creates the impact on a vital parameter of overall reasons for
NPA. I have purposefully select multiple regression models to understand & analyze the
impact of independent variables like overall situation where no or less income was generated,
overall situation where income was utilized for other things and combined miscellaneous
causes on dependent variable overall reasons for NPA in microfinance loan.
5.12.1 Process in stepwise multiple regression model

In the multiple regression models it’s challenging to derive impact of 3 different
independent variables on to dependent variable. It is required to identify which factors are
most influencing on the dependent variable and which are the factors least influencing on
the dependent variable, therefore step wise multiple regression model have been applied.
The entire multiple regression model analysis is classified in “3” parts. In the first part it is
very important to check how many factors are significant with the dependent variable.
This analysis is derived in model summary. Secondly, it has also been tested whether the

combine influence of which independent variable create significant impact on overall

reasons of NPA with ANOVA analysis. In the third part, impact of each individual factor
on dependent variable which is overall reasons of NPA has been derived with the help of
the regressions coefficient chart and co-linearity chart.
5.12.2 Analysis of model summary and hypothesis testing

It is very important to identify most affect independent factors and least influencing factor
to the overall reasons of NPA in microfinance loan. It is also necessary to derive how one
individual factor influencing to dependent variable. Next, if another independent factors
club together what would be the impact on dependent variable and how second
independent factor creates variations to influence the dependent variable. Again, in order
to check whether multiple regression models are significant or not, this important aspect
also tested through the model summary.
Here model summary table 5.157 below, clearly indicates that out of “3” independent
factors (there combined influence measured) all the “3” are influencing and impact to
dependent variable overall reasons of NPA. The influence of independent factors on
dependent variable that can be interpreted with R square (coefficient of determination) and
changes in the R square as under:
First value of table related with respondent’s overall situation where income was utilized
for other things is most influencing factor. The value of R square is 0.398, it indicates that
39.8% variations in the overall reasons of NPA occurs because of overall situation where
income was utilized for other things and remaining 60.2% variations occurs because of
remaining factors. Significant F value is 0.000; it indicates that these factors create
significant impact on the dependent variable overall reasons of NPA
Second value indicates that the influence of combine influence of respondent’s overall
situation where income was utilized for other things and combined miscellaneous causes
on dependent variable overall reasons of NPA. Here value of R square is 0.565 and
changes in R square is 0.167 it indicates that combine influence of two independent factor

is 56.50% and remaining changes occurs because of remaining factors, 0.167 indicates
that because of combined miscellaneous causes 16.7% changes occurs in dependent
variable. Significant value of F is 0.000 that indicates multiple regression model is
significant with two independent factors.
Third value indicates the combine influence of three independent variables i.e. overall
situation where income was utilized in other things, combined miscellaneous causes and
overall situation where no or less income generated on dependent variable (overall reasons
of NPA). In the table value of R square is 0.682 which indicates that 68.2% variations
occurs in dependent variable because of these three independent variables. While
remaining 39.8% changes in total turnover occurs because of remaining factors. Here a
change in R square is 0.117 it indicates that overall situation where no or less income
generated creates additional impact of 11.7% on dependent variable. If we see significant
value of F is 0.000 that indicates that model is significant with three independent factors.
Overall it indicates that impact of three independent factors on overall reasons of NPA is
68.2% and remaining 39.8% changes occurs because of remaining factors.
Table 5.157 Model Summary of stepwise multiple regression model
Std. Change Statistics

Adjusted Error of R
R R the Square F Sig. F
Model R Square Square Estimate Change Change df1 df2 Change
1 .631a .398 .184 1.76307 .398 105.275 1 461 .000
2 .752b .565 .239 1.70303 .167 34.082 1 460 .000
c
3 .826 .682 .272 1.66508 .117 22.207 1 459 .000
a. Predictors: (Constant), overall situations where income utilized for other things
b. Predictors: (Constant), overall situations where income utilized for other things, combined
miscellaneous causes
c. Predictors: (Constant), overall situations where income utilized for other things, combined miscellaneous
causes, overall situations where no or less income generated

Ho56 There is no significant impact of combined influence of all three independent

variables on dependent variable.
Ha56 There is a significant impact of combined influence of all three independent
variables on dependent variable.
Here all three F significant value is < 0.05 it clearly indicates that step wise multiple
regression model is significant and combine influence of three independent variables
i.e. overall situation where income was utilized in other things, combined miscellaneous
causes and overall situation where no or less income generated shows significant
impact on dependent variable.
5.12.3 ANOVA Analysis and hypotheses testing

Individual hypothesis for all three independent variables have been tested with Anova
analysis as shown in the below table 5.158:
Table 5.158 ANOVA Analysis of stepwise multiple regression model

Sum of Mean
Model Squares Df Square F Sig.
1 Regression 327.239 1 327.239 105.275 .000b
Residual 1432.986 461 3.108
Total 1760.225 462
2 Regression 426.087 2 213.043 73.456 .000c
Residual 1334.138 460 2.900
Total 1760.225 462
3 Regression 487.654 3 162.551 58.630 .000d
Residual 1272.570 459 2.772
Total 1760.225 462
a. Dependent Variable: Overall Reasons of NPA
b. Predictors: (Constant), overall situation where income utilized in other things
c. Predictors: (Constant), overall situation where income utilized in other things,

combined miscellaneous causes

d. Predictors: (Constant), overall situation where income utilized in other things,
combined miscellaneous causes, overall situation where no or less income generated
Ho57 There is no significant impact of respondent’s overall situation where income was
utilized in other things on overall reasons of NPA in microfinance loan of MFIs in
Gujarat.
Ha57 There is significant impact of respondent’s overall situation where income was
utilized in other things on overall reasons of NPA in microfinance loan of MFIs in
Gujarat.
Here the significant value is 0.000 which is <0.05 which indicates that there is significant
impact of respondent’s overall situation where income was utilized in other things on
overall reasons of NPA in microfinance loan of MFIs in Gujarat.
utilized in other things and combined miscellaneous causes on overall reasons of
NPA in microfinance loan of MFIs in Gujarat.
utilized in other things and combined miscellaneous causes on overall reasons of
impact of respondent’s overall situation where income was utilized in other things and
combined miscellaneous causes on overall reasons of NPA in microfinance loan of MFIs
in Gujarat.
utilized in other things, combined miscellaneous causes and overall situation where
no or less income generated on overall reasons of NPA in microfinance loan of MFIs
in Gujarat.
utilized in other things, combined miscellaneous causes and overall situation where

no or less income generated on overall reasons of NPA in microfinance loan of MFIs

in Gujarat.
impact of respondent’s overall situation where income was utilized in other things,
combined miscellaneous causes and overall situation where no or less income was
generated on overall reasons of NPA in microfinance loan of MFIs in Gujarat.
5.12.4 Analysis of Coefficients

The table 5.159 below indicates constant values, regression coefficients, part correlations,
and VIF values which show the multi Col-linearity statistics. Here the response of 463
borrowers whose microfinance loan account is overdue or default has been collected
therefore unstandardized coefficient has been considered.
Table 5.159 Coefficients Analysis of stepwise multiple regression model

Standar
dized
Unstandardized Coeffic Co-linearity
Coefficients ients Correlations Statistics
Std. Zero-
Model B Error Beta T Sig. order Partial Part Tolerance VIF
1 (Constant) 12.148 .589 20.633 .000
Overall .143 .014 .431 10.260 .000 .431 .431 .431 1.000 1.000
situation
where
income
utilized in
other things
2 (Constant) 7.442 .986 7.544 .000

Overall .132 .014 .399 9.735 .000 .431 .413 .395 .982 1.019
situation
where
income
utilized in
other things
Combined .123 .021 .239 5.838 .000 .293 .263 .237 .982 1.019
miscellaneou
s causes
3 (Constant) 6.128 1.004 6.104 .000
Overall .100 .015 .301 6.658 .000 .431 .297 .264 .773 1.294
situation
where
income
utilized in
other things
Combined .119 .021 .233 5.803 .000 .293 .261 .230 .980 1.020
miscellaneou
s causes
Overall .084 .018 .212 4.712 .000 .374 .215 .187 .780 1.282
situation
where no or
less income
generated
a. Dependent Variable: overall reasons of NPA

5.12.4.1. constant value a = 12.148 and regression coefficient is 0.143 indicated that if following
model is applied:
Y = a+bX+€,
Where Y = overall reasons of NPA, a = constant, b = regression coefficient of
respondent’s overall situation where income utilized in other things on overall reasons
of NPA, X = independent variable and € = error term.
Y = 12.148 + 0.143X+ €
It means 0.143 unit’s changes in respondent’s overall situation where income was
utilized in other things will change 1 unit of overall reasons of NPA.
Since VIF value of independent variable is “1” which is <10 and tolerance value is >0.1
it indicates that multi Co-llinearity is not present.
Here indication of unique contribution of respondent’s overall situation where income

was utilized in other things can be analyzed by using square of part correlation value.
Table indicates part correlation value is 0.431 which indicates that respondent’s overall
situation where income was utilized in other things changes 18.57% variance in overall
reasons of NPA.
5.12.4.2. constant value a = 7.442 and regression coefficient is 0.132 (overall situation where
income utilized in other things) and 0.123 (combined miscellaneous causes) it indicates
that if the following model the following model is applied:
Y = a +b01X1 + b02X2 + €
Where Y = overall reasons of NPA, a = constant, b01 = regression for overall situation
where income utilized in other things on overall reasons of NPA, b 02= regression
coefficient of combined miscellaneous causes on overall reasons of NPA, X 1 =

respondent’s overall situation where income utilized in other things, X 2 = combined

miscellaneous causes are independent variables and € = error term.
Y = 7.442 +0.132X1 + 0.123X2 + €
It means 0.132 unit’s change in respondent’s overall situation where income utilized in
other things and 0.136 unit’s change in combined miscellaneous causes will change 1
unit of overall reasons of NPA.
Since VIF value of both independent variable is “1.019” which is <10 and tolerance
value is >0.1 it indicates that multi Collinearity is not present.
Here indications of unique contribution of respondent’s overall situation where income

utilized in other things and combined miscellaneous causes have been analyzed by
using square of part correlation value. Table indicates part correlation value is 0.395
and 0.237 respectively which indicates that respondent’s overall situation where
income utilized in other things and combined miscellaneous cause’s changes 15.60%
and 5.62% variance in overall reasons of NPA.
5.12.4.3. constant value a = 6.128 and regression coefficient is 0.100 (overall situation where
income utilized in other things), 0.119 (combined miscellaneous causes) and 0.084
(overall situation where no or less income generated) it indicates that if the following
model is applied:
Y = a +b01X1 + b02X2 + b03X3+ €
Where Y = overall reasons of NPA, a = constant, b01 = regression for respondent’s

overall situation where income utilized in other things on overall reasons of NPA, b 02=
regression coefficient of combined miscellaneous causes on overall reasons of NPA, b 03
= regression coefficient of respondent’s overall situation where no or less income
generated on overall reasons of NPA, X1 = respondent’s overall situation where income

utilized in other things, X2 = combined miscellaneous causes, X3 = respondent’s overall

situation where no or less income generated and € = error term.
Y = 6.128 +0.100X1 + 0.119X2 + 0.084X3+ €
It means 0.100 unit’s change in respondent’s overall situation where income utilized in
other things, 0.119 unit’s change in combined miscellaneous causes and 0.084 unit’s
change in respondent’s overall situation where no or less income generated will change
1 unit of overall reasons of NPA.
Since VIF value of all the three independent variable is “1.294”, “1.020” and “1.282”
respectively which is <10 and tolerance value is >0.1 it indicates that multi Collinearity
is not present.
Here indication of unique contribution of respondent’s overall situation where income

utilized in other things, combined miscellaneous causes and respondent’s overall
situation where no or less income generated have been analyzed by using square of part
correlation value. Table indicates part correlation value is 0.264, 0.230 and 0.187
respectively which indicates that respondent’s overall situation where income utilized
in other things, combined miscellaneous causes and respondent’s overall situation
where no or less income generated changes 6.97%, 5.29% and 3.50% variance in
overall reasons of NPA.
5.13 Summing up
This chapter analyzed both secondary and primary data. All the sections of the chapter also
analyzed each sub-objective of the third research objectives, thus providing the analysis of
causes of default in microfinance loan becoming NPA. Along with the analysis of individual
parameter, it also described the findings of that particular parameter. The overall and major
findings of the data analysis have been included in the following chapter that is chapter 6.

CHAPTER 6
MAJOR FINDINGS, CONCLUSION AND SUGGESTIONS
Chapter Contents
6.1 Findings of Objective 1 379
6.1.1 Financing structure indicators 379
6.1.2 Outreach indicators 379
6.1.3 Overall financial performance indicators 379
6.1.4 Revenue indicator 380
6.1.5 Expense indicator 380
6.1.6 Productivity indicator 380
6.1.7 Efficiency indicator 380
6.1.8 Risk and liquidity indicator 381
6.2 Findings of Objective 2 381
6.3 Finding of Objective 3 382
6.3.1 Findings of sub-objective 1 382
6.4 Overall Findings 396
6.5 Conclusion 398
6.6 Suggestions 399
6.7 Future scope of Research 402
Major Findings, Conclusion and Suggestions
Chapter 6:
MAJOR FINDINGS, CONCLUSION AND SUGGESTIONS
6.1 Findings of objective 1

The first objective of the research was to ‘To analyze the financial performance of
Microfinance Institutions in Gujarat’. Eight indicators of financial performance were
identified and under these eight indicators, fifteen ratios were calculated and analyzed.
The following are the major finding of the objective one under eight indicators:
6.1.1 Financing Structure Indicators
Two ratios namely capital/asset ratio and debt/equity ratio was calculated to
analyze the financing structure of three MFIs. All the three MFIs have different
legal forms and therefore their capital structure formation is also different.
Therefore huge difference is seen in debt/equity ratio of all the three MFIs. The
capital base of all the three MFIs is less and therefore the capital/asset ratio of
these MFIs is found low.
6.1.2 Outreach Indicators

Outreach indicator highlights the client base of MFIs. It is found that SEWA
bank is having highest number of active borrowers or client based compared to
SAATH and SEWA. This is because SEWA Bank is older compared to other
two MFIs and therefore it has covered more areas and in turn more client base.
6.1.3 Overall financial performance Indicators

In order to analyze the overall financial performance of MFI, three ratios have
been calculated. It is found that return on equity is higher in all the three MFIs
compared to return of assets as their equity base is less as seen in financing
structure. Operational self sufficiency ratio indicates that all the three MFIs are
able to manage their operating expenses through their financial revenue.

6.1.4 Revenue indicator

Profit margin and financial revenue ratio have been calculated to analyze the
revenues of the MFIs. It is found that revenue ratio of Sewa bank is less
compared to other two MFIs. This is because of Sewa Bank is a co-operative
bank and so it collects deposits from its customer and also lends the money
under different schemes. Whereas, SAATH and PRAYAS are majorly involve
in only one type of lending scheme under microfinance which is unsecured.
Thus assets base of Sewa Bank is much wider compared to other two MFIs
which have resulted into less revenue ratio compared to other two MFIs.
6.1.5 Expenses indicator

As mentioned in previous indicator, Sewa bank’s asset base is higher followed
by SAATH and PRAYAS respectively. And therefore the expenses ratios of
these three MFIs are in reverse order of their asset base. Moreover, if this
indicator is compared with efficiency indicator, it can be concluded that Sewa
Bank is having higher efficiency and therefore the overall expenses of Sewa
Bank is less compared to other two MFIs.
6.1.6 Efficiency indicator

Efficiency of MFI is studied by calculating the operating expense/ loan portfolio
and costs per borrowers. It is found that over the five years period, operating
expense/loan portfolio is gradually increasing in all the three MFIs which mean
that compared to its loan portfolio, percentage increase of operating expenses
are higher. Cost per borrower of PRAYAS is highly fluctuating because its
write-off policy is fluctuating. By analyzing the cost per borrower of SAATH, it
is found that for the first two years it is stable but from third year it has
drastically increased this is because in the initial two years it did not write-off its
account and in third it write-off all the bad debts before its establishment as a
co-operative and which it was carry forwarding it for initial two years.
6.1.7 Productivity indicator

The ratio calculated in order to study the productivity indicator is number of
borrowers per staff members. It was found that PRAYAS had an increasing trend
that is its employee’s productivity had gradually increased over the five year

period. While this was reverse in case of SEWA which had a decreasing trend of
number of borrowers per staff members. SAATH is having stable ratio over the
five year period.
6.1.8 Risk and liquidity indicator

Two ratio are calculated under risk and liquidity indicator namely portfolio at
risk (PAR)>30 days and risk coverage ratio. It is found that Sewa bank PAR >
30 is highest compared to other two MFIs. This is because according to norms
of RBI on bank, it cannot write-offs its default loan accounts and therefore Sewa
Bank is carrying forwarding its default loan accounts since its inception.
Therefore this ratio is found higher in Sewa Bank. As PRAYAS have
fluctuating policy of writing-off its assets, its provisioning pattern is also seen
fluctuating. For SAATH, it has not written off its assets for initial two years and
therefore less provision for initial two years and on third year, when it has
written off its loss accounts, provisioning amount is higher and so on.

Second objective was to analyze the non-performing assets of microfinance institutions
in Gujarat. Eight ratios have been studied to understand the trend of NPA of MFIs in
Gujarat. The following are the findings of objective two:
 NPA has been defined for the analysis purpose and it means overdue accounts whose
either interest or principal amount of microfinance is outstanding for a period
exceeding 90 days. Accordingly it was found that Gross NPA and Net NPA ratio of
Sewa Bank was higher because, as mentioned earlier, it does not write-off its default
accounts. Net NPA of SAATH and PRAYAS is negative, this is because, Net NPA is
calculated by deducting provision from NPA. Now NPA means accounts that are
outstanding. That means when these two MFIs provide for provisions, it is to write-off
default accounts. Hence while Net NPA calculations, default accounts have already
been written-off and additionally total provision for the year is mentioned during the
year and not after deducting write-off amount. Therefore, the negative ratio for the both
MFIs.
 NPA of MFI is further is divided into two categories, sub-standard and doubtful assets.
Sub-standard indicates default for shorter period and therefore there are chances to

recover more compared to doubtful assets. Analyzing three MFIs individually, it is

found that Sewa Bank is having slightly more doubtful assets compared to sub-standard
and the reason for this is its writing off policy. SAATH is having almost 80% of NPA
in doubtful category and therefore chances are such that majority of them may result in
loss accounts.
 All the three MFIs studied have different ways to classify their loan assets, provisioning
and also write off of NPAs. For example, SEWA bank does not write off their accounts
and so the write off ratio and loan loss rate is zero. PRAYAS write offs non performing
asset that are older than 180 days to 360 days that is within one financial year, while
SAATH writes off its non-performing assets that are older than two to three years. In
addition to this, as SAATH co-operative society was established in 2011, it did not
write off its portfolio for initial three years.

The third objective of the research was to ‘To investigate the causes of defaults in
microfinance loans of microfinance institutions in Gujarat’. In order to achieve this
objective, primary data was conducted through self administered questionnaire. All the
responses thus collected were analyzed in this chapter. The findings are summarized by
the sub-objectives of the above major objective. The following mentioned are different
sub-objectives and their major findings:
6.3.1. Findings of sub-objective 1: Analysis of factors individually

Analysis of the responses of the survey was presented through frequency tables
and pie charts. The responses were classified under six categories. Findings of
responses under different categories are as under:
 Socio –Economic information of borrowers
o Borrowers were asked five questions related to their socio-demographic
details namely their gender, age, education, caste and marital status as these
factors do impact repayment capacity of borrowers. 92.2% of the total
borrowers’ surveyed were female as microfinance services are provided
mostly to female clients. Almost 93% of the total borrowers belong to age
range between 21-50 years which can be considered as age when earning
capacity is in the highest level. SC/ST, OBC and minority are the caste that
belongs to lower section of the society and around 80% of the borrowers

surveyed come under this category. Rest 17% did not know their caste.
33.7% of the borrowers were uneducated and 43.6% of the borrowers
studied only in primary section. During the survey it was found that inspite
of primary education, most of borrowers were just able to write their name
for signature purpose only. Thus it can be said that 77% of the borrowers
were lacking basic education. Out of total borrowers, 82% of them were
married. Borrowers’ were asked six questions related to economic
information. These information were number of family members, number
of earning members, economic activity of borrower and his/her family
members and income level of borrowers and his/her family members.
Financial decisions are taken in family and so other family members’
economic information do affect repayment capacity of borrowers and
therefore family members’ economic information has also been collected.
o It was found from the survey that 32.4% of borrowers were self employed
and were doing small retail business or small services while 24% were
employed in private firm. The major concern was that 30.5% of borrowers
were not involved in any economic activity. Majority of the family
members were either self employed (35.3%) or working in private firm
(34.8%).
o Most of the borrowers (48.2%) were earning a maximum of Rs. 5000 per
month and followed by this were the borrowers with no income which
formed 31.4% of the total borrowers. Majority of the income of borrowers’
family members fell in the range of Rs. 5001 and Rs. 15000. It was found
that on an average, borrowers and their family members earns Rs. 5000 to
Rs. 10000 per person
 Details of Microfinance loan

o It was found that in microfinance services, it is MFI who approach the
clients first and client did not approached MFI. This is due to the
characteristic of the clients.
o On analyzing the details of microfinance loan it was found that majority of
the borrowers had taken loan either second or third time with loan amount
ranging between 10000 to 30000, installment amount with 500 to 1500,
number of installment between 25 to 36 or equal to 12, the purpose behind

taking microfinance loan was to invest in business either new or existing

and the loan had been taken in group.
o The group characteristic majorly found in the borrowers of group
borrowing were: there were of 4 to 10 members in one group, group was
formed by group members, the common link between group members was
that they were neighbours that is living in same society, the loan amount
among group members was unequal which means that if the member with
higher loan amount
 Repayment of microfinance loan
o Three questions were asked related to repayment of microfinance loan. It
was found that majority of the borrowers had paid between 4-9 number of
installments.
o Default period that is time period since payment of last installment was
either very less that is less than or equal to three months or its was between
12-24 months. It should be noted here that though they might have paid
within three months but it is not necessary that till last payment borrowers
were regular in payment that is there were cases that though last installment
was paid within three months but second last installment had wide gap.
o And because of this irregularity in payment, the amount of installment was
also not exactly to the actual monthly installment amount. Based on the
availability of the money, borrower paid higher, lower or equal to the
installment amount.
 Loan decisions and adequacy

o While analyzing the responses of the questions related to the loan decisions
it was found that spouse was involved in majority of the cases of decision
related to microfinance loan.
o Moreover there were person other than spouse also involved in decision
making and this can be one of the causes behind microfinance loan
becoming NPA.
o Further it was seen that in three question of decision, the person involved
were different in different questions and this could also be one of the causes
that might have lead into the default in microfinance loan.

o In order to check the adequacy of microfinance loan terms, three questions

were asked and it was seen that in most of the cases borrowers responded
positively towards adequacy of loan amount, installment amount and
repayment period.
 Reasons/causes of default
The following are the three major causes of default that were found from the
survey of borrowers:
o The first major causes leading to default in microfinance loan was related to
other debt. That means income was there but it was utilized in repayment of
other debt. The other debt could have been taken from friend or relative,
private money lender or other microfinance institutions. The third type of
debt is related to the multiple lending which is one of the major concerns in
microfinance in recent time (as analyzed in literature review chapter).
o The second major cause was of income problem that is no income or less
income was generated and so there was no money left for the payment of
installment amount. This can again be confirmed through their income level
and the type of economic activity they are involved.
o The third problem was related to the utilization of income in expenses such
for social, Medical, household or education purpose. Thus this is the case of
meeting daily expenses and in certain case unexpected events which lead to
the increase of expenses and so rather than payment of installment; income
is utilized in these expenses. This happens because borrowers do not have
much savings with them to deal with unexpected expenses.
 Training and supervision of borrowers

o Majority of the borrowers said that they had knowledge of training and
information but not all of them had received training or information. Again
out of the borrowers who had received training, they were not able to recall
the exact information received to them.
o The borrower who had not received training, the major reason they gave for
that was they had been provided once before and so during current
disbursement of loan, it was not provided.

o The majority responses received for number of meetings held were two
meetings which is very less as in the initial two meetings the person do not
generate much familiarity. While the second major number of meetings
held was just one that is at the time of explaining loan product.
o It was found that visit frequency of MFI staff in majority of the responses
given was just once in a month and the purpose was majorly to collect
installment amount. Thus it can be said that personal relation of MFI staff
and borrowers was missing which is required in microfinance.
6.3.2. Findings of sub-objective 2: To evaluate and compare different factors

leading to defaults in microfinance loans of microfinance institutions in
Gujarat.
Cross tabulation analysis is done in order to evaluate and compare different
factors leading to defaults in microfinance loan. The cross tabulation analysis is
done in two sections: first section includes evaluating two factors at a time and
second section included evaluating three factors at a time. Eight cross tabulation
under each of the above section has been studies which means total 16 cross
tabulations has been studied. The analysis is represented through table and
stacked column chart. Following are the major findings of the cross tab analysis:
 Major findings of analyses of two factors at a time

o While comparing installment amount and age group of the borrowers, it
was found that in age group between 21-30 years the maximum installment
amount is between Rs. 501 to 1000 and less number of responses in higher
installment amount.
o Number of borrowing cycle was compared with time period since payment
of last installment that is NPA category. It was found that Borrowers’ with
third and fourth borrowing cycle have maximum time range of 12 to 24
months since payment of last installment.
o It was found from cross tab of number of borrowing cycle and receipt of
training and information that majority of the people who are having more
than one borrowing cycle, have not received training.
o Number of borrowing cycle and number of meetings conducted before loan
disbursement was studied and it was seen that with the increase in the

number of borrowing cycle there are few responses in the meetings

conducted and that too maximum of two meetings are held.
o In time period since loan sanctioned is 4 to 5 years or above five years, the
frequency of visit of staff is in majority once in a month or even more than
one month gap.
o In most of the cases, the similarity was found in three crosstab formed in
three questions person who took the decision to take microfinance loan,
person who was responsible to pay microfinance loan installment and
person who used microfinance loan that means the one person took all the
decision but the problem was that person was not always borrowers and this
can be one of the situation which lead to the defaults in microfinance loan.
 Major findings of analyses of three factors at a time

o Proportion of earning members was very less compared to total family
members of borrowers. While comparing installment amount between Rs.
1001 to 1500 and Rs. 1501-2000, it was found that the majority was in
earning member between 0-2 while family members are 0-4 and 5-7.
o In majority of the cases the individual income of borrower is maximum of
Rs. 5000 per month inspite of whatever different types of economic activity
borrower is involved. Additionally, though borrower is having same
income, the installment amount ranges from Rs. 500 to Rs 2500, in the
income level which is maximum Rs. 5000.
o Majority of the family members that were self employed or doing job in
private institute had a monthly income ranging from Rs. 5001 to Rs. 15000.
Next when economic activity and installment amount is compared, it can be
seen that there is no pattern in installment with economic activity.
o Initially when borrowers are new clients to the MFI, that is during first two
borrowing cycle, the MFI has disbursed loan in group. Individual
borrowing is seen more in case of three and more borrowing cycle in
majority of the cases as by that time borrower have become familiar with
MFI. Some MFI only lends only in group and therefore borrowing cycle is
not relevant as whatever be the borrowing cycle, lending is done only in
group. While comparing installment amount and borrowing cycle, it is
found that higher installment amount is charged in the higher number of

borrowing cycle. It can be concluded that the borrowing cycle of borrower

do impact installment amount while there is partial impact of type of
borrowing on installment amount.
o When all the three factors that are total number of installments, number of
installments paid and installment amount are analyzed together, it was
found that irrespective of the installment amount; at least 50% of the total
number of installment has been paid by majority of the borrowers. Even
there are cases when 80-90% of the total number of installment has been
paid. Thus it can be concluded that less number of installments are
outstanding compared to total number of installment.
o Group loan status of overdue/NPA is seen majorly in case where group is
formed by group members and in both equal and unequal loan amount. It
can be concluded that though when the group is formed by other person,
there is no much problem with overall status of group loan. When the group
is formed by group members only but inspite of this, overall status of group
is not found good.
o Loan disbursed that are 1-2 years old, have been paid 7-12 installments in
majority of the cases, while their NPA level is in all category. Thus as the
loan is older the number of installments paid on it is also higher. Loan older
than 4- 5 years and more than 5 years has been last paid 36-48 months ago.
Thus older the loan, higher the NPA level in terms of time.
o With the increase in number of borrowing cycle, loan amount also increases
and as the loan amount increases, installment amount on it also increases in
majority of the cases. Thus all three factors are directly related with each
other.
6.3.3. Findings of sub-objective 3: To understand and derive association between

causes of defaults in microfinance loan and various factors such as
demographic factors of borrowers, lending terms and supervision &
training of borrowers of microfinance institutions in Gujarat.
Twenty seven hypotheses were tested using Chi-square test in order to derive
association between causes of default in microfinance loan and other factors.
These factors were classified under seven different categories. Summated scale
was used to group the similar or related causes of defaults and was converted in

10 major causes. These 10 major causes were considered at the time of

hypothesis testing. Following mentioned are the major findings under seven
categories:
 Association between socio-demographic factors and causes of default

Marital status of borrower had association with causes of default in
microfinance loan. While other socio-demographic factors namely age and
education do not have significant association with defaults in microfinance loan.
This means that certain relationship was found with marital status while no
pattern was seen in age and education factor.
 Association between economic factors and causes of default

All the economic factors namely number of earning members, borrowers’
income and economic activity and borrowers’ family income and activity had
no significant association with causes of default in microfinance loan. This is
because that all these factors are interrelated and together decide the economic
condition of borrowers and so no relationship is found with individual factor.
 Association between microfinance loan related factors and causes of default

Seven variables or factors were studied and out of them five variables had
significant association with the causes of default. These factors were time period
since loan taken, installment amount, number of installments, purpose of
borrowing and type of borrowing had signification relationship with causes of
default. While no relationship was found between number of borrowing cycle
and loan amount with causes of default.
 Association between factors related to microfinance group loan and causes of

default
Group loan status of overdue/NPA is seen majorly in case where group is

formed by group members and in both equal and unequal loan amount. It was
found that though group was formed by MFI employee, it does not affect the
overall functioning of the group. Similar trend was found in case when group
was formed by agent/mediator.

 Association between factors related to repayment of microfinance loan and

causes of default
All the three factors related to repayment of microfinance loan such as total
number of installments paid, time period since payment of last installment and
installment amount paid in last installment have found to have significant
association with causes of default. This means that certain relationship is found
between pattern of causes of default and repayment of microfinance loan.
 Association between decision related factors and causes of default

By analyzing three decision related factors, it was found that all of them had
significant association with causes of loan defaults. It means that person who
takes decisions related to microfinance role do affect the causes of default.
 Association between factors related to training and supervision and causes of

default
Out of three factors analyzed under this section, only the visit frequency of MFI
staff had association with the causes of default. Thus it can be said that visit
frequency of MFI staff do have relationship with causes of defaults. While other
two factors that is receipt of training and information and number of meetings
held do not have association with causes of loan default. This is because it was
found that number of meetings held on an average was very less and training
and information provided to borrowers’ was in past and thus though borrower
had received training and conducted meetings it was almost same as not
receiving or conducting.
6.3.4. Findings of sub-objective 4: To know the association between microfinance

loan amount and various factors such as demographic factors of borrowers,
lending terms and supervision & training of borrowers of microfinance
institutions in Gujarat.
Association between microfinance loan and other factors has been tested
through 15 hypotheses using chi-square test. These factors have been divided
into four different categories and major findings under each these categories are
an under:

 Association between socio-demographic factors and loan amount

Two factors age and education were tested using hypotheses and it was found
that there was no significant association between both these factors and
microfinance loan amount. This means that at the time of deciding loan amount,
age factor and education factor of borrower was not taken into consideration as
there is no relationship found.
 Association between economic factors and loan amount

There was no significant association found between microfinance loan amount
and three economic factors namely number of earning family members,
borrowers’ income and borrowers’ economic activity tested through formation
of individual hypothesis. Two factors that are borrowers’ family income and
family economic activity had significant association with microfinance loan
amount. Thus it can be concluded that while deciding loan amount, family
income and economic activity was taken into consideration. This is because
many women borrowers were not involved in any economic activity and thus it
is necessary to check family income and economic activity.
 Association between microfinance loan related factors and loan amount

Five factors namely number of installment, purpose of loan, type of borrowing,
status of group loan and number of installment paid were individually compared
with microfinance loan amount. And in all five factors significant association
was found that means there was relationship between all the above factors and
microfinance loan amount.
 Association between factors related to training and supervision and loan amount
Significant association was found between receipt of training and information
and microfinance loan amount. That means that there was relationship between
these two factors but then it was found that relationship was negative that is
with the increase in loan amount, the receipt of training was not there as MFI
generally gave training during the first time of borrowing and higher loan
amount is given only in follow up cycle.
No significant association was found in number of meetings conducted and
frequency of staff visit compared with loan amount. The number of meetings

conducted should be equal for all and it should not be related with loan amount
but here in total the number of meeting conducted were very less and so it
should be increased. Moreover, visit frequency should also be equal to every
loan amount which is the result of hypothesis but here overall visit frequency is
very les therefore it is required to increase.
6.3.5. Findings of sub-objective 5: To understand and analyze overall loan

adequacy with different factors such as demographic factors of borrowers,
lending terms and supervision & training of borrowers of microfinance
institutions in Gujarat.
Three questions of adequacy were combined using summated scale and then the
significant difference is checked with other factors to study the responses of
borrowers’ under different categories using one way ANOVA test. Further post
hoc test is applied to factors where significant difference was found. The
following are the findings according to different categories:
 Difference amongst socio-economic factors and overall adequacy factors

Significant difference was found amongst various groups of socio-economic
factors namely age, education, individual income and family income regarding
overall adequacy factors of microfinance loan. Post hoc test showed that there
was similarity amongst age group of 0-20, 21-30 and 31-40 regarding overall
adequacy factors. The education group of ‘graduate’ has similarities with all the
other education groups of uneducated, primary, secondary and high school. The
borrowers’ individual income group of ‘Rs. 15000-25000 have similar
responses as of group of ‘no income’, ‘1-5000’ and 5001-15000. In borrowers’
family income, ‘above 25000’ group of income has similarities with ‘no
income, ‘1-5000’, 50001 -15000 and 15001-25000.
 Difference amongst microfinance loan related factors and overall adequacy

factors
Among the five factors under microfinance loan related factors, it was found
that only one factor that is loan amount had significant difference regarding
overall adequacy factors. This means that while responding to the question
related to overall adequacy factors no difference was found amongst various

group of number of borrowing cycle, installment amount, number of installment

and purpose of loan. Amongst various group of loan amount, it was found that
there are similarities seen two times. First the loan amount group of ‘less than or
equal to Rs. 10000 have similarity with ‘Rs.10001-20000’ group and ‘Rs.21001
to 30000’ group of loan amount. Secondly ‘Rs.80001-90000’ group have
similarity with ‘above Rs. 90000’.
 Difference amongst factors related repayment of microfinance loan and overall

adequacy factors
There was no significant difference found amongst various group of number of
installment paid and time period since payment of last installment amount
regarding overall adequacy factors of microfinance.
 Difference amongst factors related to training and supervision of borrowers and

Two factors related to training and supervision were tested using two
hypotheses and it was found that there was significant difference amongst
various group of number of meetings conducted and frequency of staff visit
regarding overall adequacy factors of microfinance loan. Amongst the various
groups of number of meetings held, the group of ‘no meeting’ has similarities
with number of meetings of ‘one’ and ‘two’ groups. Amongst the various
groups of visit frequency of MFI staff, the group of ‘weekly’ has similarities
with ‘fortnightly’ group.
6.3.6. Findings of sub-objective 6: To understand and analyze the relationship

and impact of borrower’s combined causes/ situations that lead to
arrears/defaults in microfinance loan on overall reasons behind NPA in
microfinance loan of MFIs in Gujarat
Relationship of borrower’s combined causes/ situations that lead to arrears/
defaults in microfinance loan on overall reasons behind NPA in microfinance
loan of MFIs in Gujarat was studied using correlation analysis and the impact of
above two variables was studied through application of stepwise regression
model. The following are the findings of above analysis:

 Relationship borrower’s combined causes/ situations that lead to arrears/

defaults in microfinance loan on overall reasons behind NPA in microfinance
loan of MFIs in Gujarat using Correlation Analysis
o First evaluation is done on connection between respondent's overall
situations where no or less income generated and overall situation was
utilized for other things. Estimation of r is 0.468 which propose strong
relationship between these two constant variables.
o Second evaluation is done on connection between respondent's overall
situation where no or less income generated and combined miscellaneous
causes of microfinance loans in default. Estimation of r is 0.094 which
propose strong relationship between these two constant variables.
o Third evaluation is done on connection between respondent's overall
situation where no or less income generated and overall reasons for NPA in
microfinance loan loans. Estimation of r is 0.374 which propose strong
o Fourth evaluation is done on connection between respondent's Overall
situation where income was utilized for other things and Combined
miscellaneous causes. Estimation of r is 0.135 which propose strong
relationship between these two constant variables
o Fifth evaluation is done on connection between respondent's overall
situation where income was utilized for other things and overall reasons for
NPA in microfinance loan. Estimation of r is 0.431 which propose strong
o Sixth evaluation is done on connection between respondent's combined
miscellaneous causes and overall reasons for NPA in microfinance loan.
Estimation of r is 0.293 which propose strong relationship between these
two constant variables
 Impact of borrower’s combined causes/ situations that lead to arrears/ defaults

in microfinance loan on overall reasons behind NPA in microfinance loan of
MFIs in Gujarat using Stepwise Multiple Regression Model
 Model Summary
o First value related with respondent’s overall situation where income was
utilized for other things is most influencing factor. The value of R square

is 0.398, it indicates that 39.8% variations in the overall reasons of NPA

occurs because of overall situation where income was utilized for other
things
o Second value of R square is 0.565 and changes in R square is 0.167 it
indicates that combine influence of two independent factor that are
combine influence of respondent’s overall situation where income was
utilized for other things and combined miscellaneous causes is 56.50%
and remaining changes occurs because of remaining factors, 0.167
indicates that because of combined miscellaneous causes 16.7% changes
occurs in dependent variable.
o Third value indicates the combine influence of three independent
variables i.e. overall situation where income was utilized in other things,
combined miscellaneous causes and overall situation where no or less
income generated on dependent variable (overall reasons of NPA). In the
table value of R square is 0.682 which indicates that 68.2% variations
occurs in dependent variable because of these three independent
variables. While remaining 39.8% changes in total turnover occurs
because of remaining factors.
 ANOVA Analysis
The individual hypotheses for all three independent variables have been
tested with ANOVA analysis and following are the findings:
o The significant value is 0.000 which is <0.05 which indicates that there
is significant impact of respondent’s overall situation where income was
utilized in other things on overall reasons of NPA in microfinance loan
of MFIs in Gujarat.
utilized in other things and combined miscellaneous causes on overall
reasons of NPA in microfinance loan of MFIs in Gujarat.
utilized in other things, combined miscellaneous causes and overall

situation where no or less income was generated on overall reasons of

 Coefficient Analysis
Three equations are formed by stepwise adding all three independent variable
to check the impact of these three independent variables on dependent
variable. Following are the findings:
o The first equation means 0.132 unit’s change in respondent’s overall
situation where income utilized in other things and 0.136 unit’s change
in combined miscellaneous causes will change 1 unit of overall reasons
of NPA.
o The second equation means 0.132 unit’s change in respondent’s overall
situation where income utilized in other things and 0.136 unit’s change
in combined miscellaneous causes will change 1 unit of overall reasons
of NPA.
o The third equation means 0.100 unit’s change in respondent’s overall
situation where income utilized in other things, 0.119 unit’s change in
combined miscellaneous causes and 0.084 unit’s change in respondent’s
overall situation where no or less income generated will change 1 unit of
overall reasons of NPA.
6.4 Other findings

Previous three sections describe findings of the research objective wise. This section
includes overall findings through studying of remaining secondary data, interviews and
meetings with MFI staff and observation during survey.
 It was found by studying the existing regulatory framework for microfinance

institutions, that there was no single regulatory authority guiding all legal forms of
microfinance institutions except NBFC-MFIs. As seen above, because of lack of
unique regulatory authority, there are different ways of classification of assets and
provisioning. Because of this, it is difficult to compare MFIs with each other.

 It was observed during the survey that borrowers were involved in economic activity
which was dependent on day to day availability of work. For example, majority of
the women client were involved in handicraft, stitching and other work which was
purely dependent on the order received and did not guaranteed work on a regular
basis and therefore their income was also not fixed. Moreover, the borrowers’
belonged to community were more importance is given to rituals and customs and so
majority of their income was spend behind such events. Thus, on one side income
was not generated regularly and on the other side this little income was utilized in
non-economic activities.
 Borrowers’ belong to lower class of society where they did not have much
awareness about the money management. Because of lack of proper knowledge,
majority of them were not giving much importance to savings or they had not
planned the repayment schedule when they had taken microfinance loan. They were
just focusing on the current requirement and based on that they apply of the loan.
Moreover, most of them did not know the basic information of loan terms and
conditions. They just asked the amount they get at the time of loan and the amount
they will have to pay afterwards on a monthly basis.
 It was found that the MFI staff did not much believed in training and all the process
of training was just a formality in majority of the cases. That means either number of
days or number of hours of training were cut short and completed earlier. Moreover,
the training was provided for the new clients or borrowers only while second and
more time borrowers were not provided any training. In certain cases, there were
situation were borrowers themselves were not interested in receiving training and
assumed that the training process was a waste of time and they only demanded the
loan money.
 MFI staffs that were directly connected with the borrowers that is front line staff
were found to be more professional in nature. That means they did not have much
interest in understanding the problems or queries of the borrowers but were only
concern about the installment money.

 Approach of microfinance institutions toward their borrowers was found to be

adequate in terms of loan process, methodology of collection and other financial
services such as savings, insurance etc. But the problem was found in terms of
proper implementation and reach to the client or borrower. For example, there is
provision of providing training, verification of repaying capacity of borrower,
visiting and meeting borrower frequently etc as a part of microfinance loan process
but as seen in previous findings, all these things were not actually implemented
properly.
 It was found from the conversation with MFI staff at different level that most of the
staff was not satisfied with the remuneration policy of the MFI. Because of this, it
was observed that the employees of MFI were not performing their duties properly
with utmost integrity. And this could be one of the situations which may lead
misunderstanding between borrower and MFI and MFI staff and resulting in
6.5 Conclusion
This section concludes the findings mentioned in above four sections as under:
Financial performance analysis of microfinance institutions concludes that overall all

the three MFIs have performed better than its previous year except for Sewa bank
whose client base have been decreased over the years and therefore most of the
financial indicators have been affected. Common things highlighted from the study is
that all the three have less equity base compared to debt and the more the year of
experience and the more was the client outreach.
The trend of indicators of non-performing has been found different in three MFIs as
they have different norms and policies to deal with non performing assets. Moreover, it
was found from observation and interaction with account department staff of MFIs that
both Saath and Prayas MFI have fluctuating policies on NPAs, and therefore no
particular trend was found in majority of NPA indicators. While Sewa bank have
comparatively stable policies, one because they follow the guidelines given by central

bank that is Reserve Bank of India and another because it is the most experienced MFI
in all the three MFIs studied.
From the primary data, it was found that major cause of default was other debt which
highlights the situation of multiple lending where different MFIs lends to same
borrower. At the same time it was seen from literature review data that microfinance
has not been reached in many of remote areas of Gujarat. Thus it can be concluded that
MFIs are providing microfinance services to same areas rather than approaching to
uncovered market.
Moreover, MFIs were not giving much importance to demographic and economic status
of borrower while deciding the loan amount and rather it was related majorly to number
of borrowing cycle. Next, training and supervision are important pre and post
disbursement activity of microfinance respectively. But from the survey it was found
that not much attention was paid to these two activities.
The overall conclusion of the findings was that though there are certain problems of
borrowers due to the unexpected situation or lack of awareness while repayment of
microfinance loan but this problem of repayment can be reduced by minor changes in
the working policy and behavioral aspect of MFI. The next section thus highlights the
suggestions based on the findings of the research.
6.6 Suggestions
Based on the findings of both primary as well as secondary data mentioned above,
following are the major suggestions to microfinance institutions in Gujarat to reduce
the non performing assets of microfinance loan:
 Major cause of microfinance loan becoming default was due to other debt taken
by borrower and this other debt also include situation where microfinance loan is
taken from more than one microfinance institutions. In order to avoid this
multiple lending that is different MFIs lending to same borrower at the same time,
common data base should be created of all the borrowers taking microfinance
loan. This is similar to the software used by bank which is called ‘CIBIL’ which

helps to know the past financial transaction of the person who comes to take loan
from bank. Similar software should be used by MFI.
 Another way to avoid multiple lending is by exploring new avenues and reaching
the most remote areas and covering the poorest. It was found during the survey
and secondary data analysis that MFI have not yet covered the most remote areas
of Gujarat and therefore the above suggestion is quoted to MFI.
 Other major cause that lead to microfinance loan default was ghost loan or
installment that is though borrower have take microfinance loan on his/her name
but the loan amount have been utilized by person other than borrower. This is a
situation which have aroused due to lack of awareness among borrowers that if
loan amount is not paid regularly and loan is shown under borrower’s name then
the borrower will not be able to get future loan due to decrease in credibility of
borrower. Moreover, borrowers were not able to recall basic loan details and
other microfinance services when asked during the survey. Therefore in order to
increase awareness and knowledge among borrowers, proper training is required
to be provided to them by MFIs and that too at a regular interval.
 There were lot of cases where the causes of microfinance loan default was
migration that is change of place where borrower was living without informing
MFI and this could be either for short term or permanent. This problem could be
overcome through regular and timely supervision by MFI staff. Regular
supervision will create bonding between MFI staff and borrower and so borrower
will be able to share his/her personal things including if they are going to shift
their house. In addition to this, once the strong bond is created, borrower will not
try to cheat the MFI staff and this will ensure timely repayment by the borrower.
 It was found that the purpose of loan at the time of loan application was different
from the actual usage of loan amount and that too in non-economic activity in
majority of the cases. Thus it is the responsibility of the MFI to ensure that on
first hand, borrower should tell the actual purpose of taking loan and secondly,
MFI should ensure that borrower use the money for the same purpose. This can
be done through regular supervision by MFI staff.

 From the data analysis and conversation with field officer at the time of survey, it
was found that the loan amount was decided based on the number of borrowing
cycle. This means that higher the number of borrowing cycle, the more the loan
amount. And this was one of the cause which lead to the microfinance loan into
default because it was found through questionnaire data analysis that economic
factors (such as economic activity and income level etc.) of most of the borrowers
indicated that borrower did not had repayment capacity. Thus repayment capacity
of the borrower should be analyzed properly by MFI staff before deciding the
amount of loan.
 As mentioned in section of ‘other findings’, approach of MFIs towards its

employees and staff was not adequate in majority of the cases and most of the
staff was dissatisfied and had complain against MFIs. Microfinance institutions
are in service industry and their main asset is their employees and therefore they
should properly managed as if the employees are not satisfied, they will not
provide proper service and it will effect overall performance of MFIs. Thus it is
required that MFI should revisit its remuneration policy to reduce dissatisfaction
among staff.
 It was observed during the survey that there were internal problems between the
employees. In addition to this, majority of them did not have proper knowledge
about the microfinance and methodology adopted by its MFI to provide
microfinance services. Because of this proper information did not reach to the
borrower leading to misunderstanding and dissatisfaction of borrower with MFI
or MFI staff. This can be avoided by arranging training sessions to the
employees.
 Even within in same MFI (SAATH MFI), it was found that same borrower have
taken loan simultaneously from two different branches of the MFI. Thus, MFI
should upgrade its database and maintain in consolidated form that means there
should be centralized system of maintaining data of its clients and which could be
accessed by each branch of the MFI.

6.7 Future scope of Research

Following are few of the suggestions for future scope of research:
 The objective of the research was to investigate the causes of default in
microfinance loan and in order to achieve this objective; primary data was
collected from default borrowers. Further research can be conducted by surveying
MFI’s staff at various level of organization structure.
 Respondent of the research were default borrowers. Further the comparative
research can also be carried out by analyzing regular borrowers.
 The research was conducted in a particular area with specific topic. Thus the
current research can be carried forward by widening scope or changing the scope
of the research. For example the present research was carried in Gujarat state of
India and future research can study be conducted by studying other state or it can
even widened the scope by comparing two or more states. Similarly time horizon
can be increased for further study.
 The present research was focused on microfinance loan services of microfinance
institutions and its impact. Further, the study can be done on other services of
microfinance to get overall impact of microfinance.

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Organisation for Sustainable Development: http://www.prayas4development.org/

APPENDIX I
QUESTIONNAIRE

SECTION I: PERSONAL INFORMATION

1. Name: ___________________________________________________________
2. Address: _________________________________________________________
3. MFI name: _______________________________________________________
 Please tick √ where applicable
4. Gender: Female Male

5. Age:
A. Less than or equal to 20 years D. Between 41 to 50 years
B. Between 21 to 30 years E. Between 51 to 60 years
C. Between 31 to 40 years F. Above 60 years
6. Caste :
A General C OBC E Any other
B SC/ST D Does not know
7. Education:
A Uneducated D High school 11-12 G Technical Training
B Primary 1-7 E Graduate 1-4 years H Others
C Secondary 8-10 F Post graduate
8. Marital status:
A Unmarried C Divorced E Widow
B Married D Deserted
9. Total number of family members living in house :

A. Less than or equal to 4 C. 8-10
B. 5-7 D. More than 10
10. Total number of earning members in house:

A. Less than or equal to Two C. Four
B. Three D. More than or equal to Five
11. Economic Activities of self and family:

INDIVIDUAL FAMILY
A. A.
B. B.
C. C.

12. Individual (Ind.) and family income (excluding Ind. income) (FI) (Rs./per month):
Ind. FI Ind. FI
A. No income D. Rs. 25,001 to Rs. 35,000
B. Re. 1 to Rs. 5,000 E. Rs. 35,001 to Rs. 45,000
C. Rs. 5,001 to Rs. 15,000 F. Above Rs. 45,000
Rs. 15,001 to Rs. 25,000
SECTION II: MICROFINANCE LOAN AND REPAYMENT TRENDS

13. From where did you get the information of microfinance loan?
Sr.no. Source of information √
A Group member
B Agent/ mediator
C MFI employee
D Self
E Relative/ Friends
14. No. of borrowing cycles:

One Two Three Four Five More than five
15. Amount of disbursement:

A. Less than or equal to G. Rs. 60,001 to Rs.70,000
Rs.10,000
B. Rs.10,001 to Rs.20,000 H. Rs.70,001 to Rs. 80,000
C. Rs.20,001 to Rs.30,000 I. Rs. 80,001 to Rs.90,000
D. Rs.30,001 to Rs.40,000 J. Rs. 90,001 to Rs.1,00,000
E. Rs.40,001 to Rs.50,000 K. More than Rs. 1,00,000
F. Rs.50,001 to Rs.60,000
16. Time period since date of disbursement (As on December 31, 2015)
A. Less than 1 year (after 31/12/2014) D. 3 to 4 years (01/01/2012 to 31/12/2012)
B. 1 to 2 years (01/01/2014 to 31/12/2014) E. 4 to 5 years (01/01/2011 to 31/12/2011)
C. 2 to 3 years (01/01/2013 to 31/12/2013) F. More 5 years (Before 01/01/2011)
17. Rate of Interest (%) (per annum):

A. Less than or equal to 20 C. 22.01 - 24 E. More than 26
B. 20.01-22 D. 24.01 - 26
18. Amount of installment (Monthly):

A. Less than or equal to Rs.500 F. Rs.2,501 to Rs.3,000
B. Rs.501 to Rs.1,000 G. Rs.3,501 to Rs.4,000
C. Rs.1,001 to Rs.15,00 H. Rs.4,001 to Rs.4,500
D. Rs.1,501 to Rs.2,000 I. Rs.4,501 to Rs.5,000
E. Rs.2,001 to Rs.2,500 J. More than Rs. 5,000

19. Total number of installments (loan duration) (monthly):

A. Less than or equal to 12 D. 19-21 G. 37-48
B. 13-15 E. 22-24 H. 49-60
C. 16-18 F. 25-36 I. Above 60
20. Purpose of loan:

A. Invest in existing Business E. Purchasing Asset
B. Starting a new business F. Other Consumption
C. Repayment of previous debt G. Others; please specify
D. Renovation of house
21. Type of Borrowing : Group □ Individual □

If group borrowing in (Q. 21) above, please answer following questions:
21.1 No. of members in group:
Less than or equal to 5 □ 6-10 □ 11-15 □ 15-20 □ More than 20 □

21.2 Who formed the group?
A. Group leader D. MFI Employee
B. Group members E. Other, please specify:
C. Agent/Mediator
21.3 What is the homogeneity factor in formation of group?

A. Neighbour D. No homogeneity
B. Relatives E. Other, please specify:
C. Friends
21.4 Loan amount given to all group members: Equal □ Unequal □

21.5 Status of loan of group members:
Status of loan No. of members Status of loan No. of members
A. Regular payment C. Fully repaid
B. Irregular payment D. Overdue/ NPA
22. Loan taken through: MFI employee □ Agent □ Approached MFI by own □
23. Total number of installments paid (monthly):
A. Less than or equal to 3 C. 7-9 E. 13-15
B. 4-6 D. 10-12 F. More than
15

24. Time period since payment of last amount (As on December 31,2015):
A. Less than or equal to 3 months (on or E. Between 24 to 36 months (01/01/2013
after 30/09/2015) to 31/12/2013)
B. Between 3 to 6 months (01/07/2015 to F. Between 36 to 48 months (01/01/2012
30/09/2015) to 31/12/2012)
C. Between 6 to 12 months (01/01/2015 to G. Between 48 to 60 months (01/01/2011
30/06/2015) to 31/12/2011)
D. Between 12 to 24 months (01/01/2014 H. More than 60 months (Before
to 31/12/2014) 01/01/2011)
25. What was the last amount paid?
Less than installment □ Equal to installment □ More than installment □

Questions Self Spouse Other Self & Self & No
spouse other response
26. Who took the decision to
take the last loan?
27. Who took the decision as to
how to use the last loan?
28. Who was responsible to pay
installment of last loan?
Question Strongly Agree Neutral Disagree Strongly

Agree Disagree
29. Was amount of loan adequate to purpose?
30. Was repayment period adequate?
31. Was amount of installment adequate?
32.(A) Causes/ Situations that leads to the loans in arrears
Sr. Causes Most More Neut Less Least

no. Affected Affected ral Affected Affected
No income or less income was generated
1 Business activity was slowed down
2 Business activity was seasonal
3 In business activity inventory was sold for credit
4 Assets in business were either damaged or stolen
5 Business activity was closed
6 Job was not permanent
7 There was critical illness of self
8 There was critical illness of spouse
Income was generated but utilized in other things
9 Money was spent in rituals of death of family
member
10 Money was spent in Medical Expenses of family
11 Money was spent in Household expenses
12 Money was spent in Social expenses

13 Money was spent in Educational Expenses

14 Money was spent in repayment of Other debt (from
relatives and friends)
15 Money was spent in repayment of Loan from private
money lenders/pawn brokers
16 Money was spent in repayment of Loan from other
MFI (Multiple loan )
17 Loan amount was used by other person
18 Installment amount was used by other person
Other causes
19 There was irregularity of agent/ MFI employee in
installment collection
20 There was dissatisfaction with agent/ employee of
MFI
21 There was dissatisfaction with MFI
22 There was no intention to take other loan in future
23 Nonpayment of installment by another borrower lead
to nonpayment of installment by the borrower
24 There was short term migration of borrower
25 There was permanent migration of borrower and it
was not known to MFI
26 There was permanent migration of borrower but
follow up was taken through telephone
27 There was death of borrower or legal heir
32. (B) Reasons for loan in arrears:
Sr. Reasons Strongly Agree Neutral Disagree Strongly

no. Agree Disagree
1 Incapability to generate sufficient income to repay
installment amount (1 to 8)
2 Diversion of funds to other activities or personal
use (9 to 18)
3 Problems with system and procedure of MFI (19
to 21)
4 Problems with borrower’s integrity (22 to 26)
5 Permanent non availability of borrower (27)
SECTION III: ROLE OF TRAINNING AND SUPERVISION ON LOAN

REPAYMENT
32. Do you know about the training & information provided by MFI?
Yes □ No □ No response □
33. Did you get training and information before receiving loan?
Yes □ No □ No response □
34.1 If yes in (Q 34) above, what information did you get?

Sr. Information Strongly Agree Neutral Disagree Strongly
No. Agree Disagree
A Detail of MFI
B If GL, Group formation and its
working
C Loan process
D Rate of interest
E Amount of installment
F Total no. of installments
G Repayment schedule
H Loan amount utilization
34.2 If no in (Q 34) above, what are the reasons for not getting training and
information?
Sr.no. Reasons √
A Not provided by MFI
B Timings not suitable
C Not interested
D Already informed
E Others; please specify
34. How many a times meetings where conducted by group (if GL) or by agent or by
MFI employee before loan disbursement?
No meeting □ One □ Two □ Three □ Four □ More than four times □

35. How frequently the agent or MFI employee comes to visit you after loan
disbursement?
Weekly □ Fortnightly □ Monthly □ More than one month gap □

36. Purpose of visit of the agent or MFI employee
Purpose Strongly Agree Neutral Disagree Strongly
Agree Disagree
Collect Installment (loan recovery)
Check loan amount utilization
Casual
Others,; please specify
Thank You
Bhoomi Parekh

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APPENDIX II
LIST OF RESEARCH PAPER PUBLISHED
Sr Year & Journal

No Title of the Paper Journal/ Book Name Volume Type
1 “Measuring Trends of Financial Recent trends in Engineering 2016; pg no. Inter -

Performance of Microfinance and Management 38 to 48 National
institutions in Gujarat” (ISBN: 978-93-5158-299-1)
2 Management & Research 2016; pg no. National
“Microfinance delivery models practices in emerging 65 to 73
followed by Microfinance markets
Institutions in Gujarat” (ISBN: 978-93-80867-85-4)
3 “Emergence of IFRS as good Sankalp : Journal of Volume 3, Inter -
governance to financial Management & Research February National
reporting in India” (ISSN No. 2231-1904) 2013; pg no.
113 to 117

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A STUDY ON NON PERFORMING ASSETS OF MICROFINANCE INSTITUTIONS IN

Thesis · November 2016

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GUJARAT TECHNOLOGICAL UNIVERSITY

A Thesis submitted to Gujarat Technological University

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GUJARAT TECHNOLOGICAL UNIVERSITY

Signature of the Research Scholar: ……………… Date: ………………….

Name of Research Scholar: Bhoomi Mukulbhai Parekh

Signature of Supervisor: ……………………… Date: ……………

Name of Supervisor: Dr. Viral Bhatt

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Signature of the Research Scholar: _____________

Name of Research Scholar: Bhoomi Mukulbhai Parekh

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Chapter 1 – Microfinance in India and Gujarat : A Bird’s Eye View 1

Figure Title Page

MICROFINANCE IN INDIA AND GUJARAT – BIRD’S EYE VIEW

1.1 Introduction to Microfinance

The emergence of microfinance has established new contractual structures and

A study on Non Performing Assets of Microfinance Institutions in Gujarat Page 2

1.1.1 Meaning of microfinance

In the report by sub-committee of the board of directors of Reserve bank of India to

a) The borrowers are low-income groups.

A study on Non Performing Assets of Microfinance Institutions in Gujarat Page 3

1.1.2 Background of microfinance

1.1.3 Difference between microfinance and formal lending pattern

Table 1.1 Comparison of microfinance and formal banking

1.1.4 Demand/ Client for microfinance services

A study on Non Performing Assets of Microfinance Institutions in Gujarat Page 5

1.1.5 Players/ Suppliers of microfinance sector

1.2 Overview of Gujarat region

A study on Non Performing Assets of Microfinance Institutions in Gujarat Page 6

Table 1.2 Demography of Gujarat

A study on Non Performing Assets of Microfinance Institutions in Gujarat Page 7

Gujarat’s major industrial sectors comprises of chemicals, petrochemicals, dairy,

Figure 1.1 Gujarat’s Gross State Domestic Product

(Source: (IBEF, 2016)10)

A study on Non Performing Assets of Microfinance Institutions in Gujarat Page 8

livelihood. The Gujarati community is entrepreneurial in nature and therefore the

1.3 History and growth of microfinance

A study on Non Performing Assets of Microfinance Institutions in Gujarat Page 9

To supplement these efforts, the credit scheme Integrated Rural Development

It was in this cheerless background that the microfinance revolution occurred

In India, the first initiative to introduce microfinance was the establishment of

A study on Non Performing Assets of Microfinance Institutions in Gujarat Page 10

1.3.2. Concept and growth of Self Help groups

A study on Non Performing Assets of Microfinance Institutions in Gujarat Page 11

Thus in contrast to the Grameen model of Bangladesh, the SHG based