Ch 3 MFI India
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Transcript of Ch 3 MFI India
Chapter-3: Micro Finance in India
The content in this chapter is categorized into four sections. The overall status of
Microfinance Sector in India has been discussed Section-I. India’s leading microfinance
delivery models viz., SHG Bank Linkage Model and MFI Bank Linkage Model have been
analyzed and discussed in Section – II and Section – III respectively. Section – IV is the
summary of the Microfinance Networks in India.
Section –I: Status of Micro-Finance Sector in India:
The growth of the microfinance sector in alignment with the rest of the economy
continued in the year 2010 but less vigorously than in the previous years. The macroeconomic
environment changed marginally for the better during 2010 as compared to the previous year.
Across the world, reports were of painful and slow recovery from the financial sector meltdown
of the previous year, and there was a continuing flow of bad and some good news. The bailouts
of financial institutions elaborately designed by different governments had run their course and
gave way to a great deal of attention for improving regulation and supervision of the financial
sector, and especially of the conglomerates. Pessimism and distrust gave way to cautious
attention to set things right. The impact, if any, on the microfinance sector had not been overly
negative. Of course, the initial withdrawal of funds-both of equity and of loans-was predictable
knee-jerk reaction of investors to consolidate their liquidity to minimize risks. With the passage
of time, both loan and capital funds have started to flow to the sector but with more
circumspection and caution. It is only a matter of time before the investors return to the
marketplace with full force.
The Indian economic environment recovered from slower growth rate of previous year to
post a GDP growth of 7.4 per cent in 2009-10. Industrial production continued to record double
digit growth with YOY growth at 14 per cent during April-May 2010. Agriculture, plagued by a
deficient monsoon, did not fare as well as the secondary and tertiary sector, and posted a growth
of 0.2 per cent. This prospect of a normal monsoon and heightened initial rainfall activity in the
current year has led to a significant increase in area sown across all major crop categories. The
1
prognosis for the agricultural sector in the current year is positive. However, the inflation
scenario according to the RBI is a cause for concern.
The Indian microfinance sector presents a strong growth story. Its growth performance
was impressively sustained through the liquidity crunch and continued at an increased rate in the
second half of 2009. As of March 2009, the MFIs in India reported a client base of 22.6 million
with an outstanding portfolio of more than $2 billion.7 over the past five years, the sector has
delivered a CAGR of 86% in the number of borrowers and 96% in portfolio outstanding. In the
12 months from March 2008 to March 2009, the microfinance industry experienced a 59%
growth in its client base from 14.2 million to 22.6 million and 52% growth in its portfolio
outstanding which increased from $1.5 billion to $2.3 billion.8 This reflects a 14% increase in
the absolute growth in portfolio outstanding and 33% increase in the absolute growth in the
number of borrowers from 2008 to 2009.
Table: Growth in Indian Microfinance Sector
Particulars 2005-06 2006-07 2007-08 2008-09 2009-10Outstanding Portfolio ($ Million) 496 824 1535 2346 Growth Rate (%) 96.8 66.1 86.3 52.8 No. of Borrowers (Million) 4.9 7.9 14.2 22.6 Growth Rate 113 61.2 79.8 59.2
(Source: Microfinance Industry in India by Lokpal March, 2010)
Fig: Growth in Indian Microfinance Sector – Outstanding Portfolio
2005-06 2006-07 2007-08 2008-09 2009-100
500
1000
1500
2000
2500
Outstanding Portfolio ($ Million)
2
Fig: Growth in Indian Microfinance Sector – No of borrowers
2005-06 2006-07 2007-08 2008-09 2009-100
5
10
15
20
25
No. of Borrowers (Million)
SBLP seems to have hit a plateau in terms of new group linkage which grew by about 8.5
per cent. The credit growth seems better with an increase of 20 per cent over the previous year.
The number of groups linked at the end of March 2010 stood at 4.58 million and the amount of
loans outstanding at Rs.272.66 billion. As in the case of last year, this data is provisional and
likely to undergo revision. The growth rates have abated and credit disbursal is around the levels
reached last year. New groups formed have not been linked to banks at the vigorous rates
achieved in the last decade. There seems to be credit linkage fatigue setting in among the banks.
On the other hand, the MFIs posted higher growth rates than SHGs but client acquisitions rates
had declined to 19 per cent compared to a high of 60 per cent last year. This is despite some
MFIs having doubled their client’s numbers. Two hundred and sixty MFIs reported a total
clientele of 26.7 millions, which is an increase of 4.1 million over the previous year. Outstanding
loans at Rs.183.44 billion had increased by Rs.66.10 billion, about 56 per cent over the last year.
Clearly, MFIs have also concentrated on increasing their loan size. The total outstanding loans of
SHGs and MFIs constituted 1.40 per cent of total bank credit of Rs.32,447 billion.
3
Table: Client Outreach-Borrowers with Outstanding Accounts (million)
Segment 2006-07 2007-08 2008-09 2009-10Growth
Rate (%)
SBLP 38.02 47.1 54 59.6 5.6MFIs 10.04 14.1 22.6 26.7 4.1Total 48.06 61.2 76.6 86.3 9.7
(Source: State of Sector Report 2009-10)
Fig: Client Outreach-Borrowers with Outstanding Accounts (Millions)
2006-07 2007-08 2008-09 2009-100
10
20
30
40
50
60
70
80
90
SBLPMFIsTotal
One of the features of the current year’s assessment of the numbers of clients is that the
overlap seems considerably higher than previously estimated. During visits to the field, it was
observed that almost every state had stories of high competition and multiple borrowings.
Households borrowed from SHGs and MFIs, and informal sources as well. While overlap
between SHGs and MFIs cold be around 10 per cent, the overlap within MFIs is much higher;
multiple loans in competitive locations could result in a customer to accounts ratio of 2:3, which
means that there are 65 unique customers for every 100 microfinance loans.
4
Table: Client Outreach-Borrowers with Outstanding Accounts (millions)
Segment 2007-08 2008-09 2009-10Growth
(2009-10)
Banking System (SHGs) 47.10 54.00 59.60 5.60MFIs 14.10 22.60 26.70 4.10Total 61.20 76.60 86.30 9.70
Fig: Client Outreach-Borrowers with Outstanding Accounts (millions)
Average Loan Size:
In terms of outstanding loans there was a large gap between SBLP and the MFIs (chart).
But over the last two years, MFIs have been narrowing the gap which is presently Rs.89.22
billion. If the current trends in disbursements and portfolio accretion continue over the next three
years, then MFIs may overhaul the SBLP in terms of loan portfolio as well.
5
Fig: Average Loan Size
In 2010, the average loan sizes increased over the previous year (Table). The average
loan per member in the MFIs has been increased by a large extent than in the case of the SHG
member. The difference in average loan per customer between MFIs and SHGs is widening.
Reports of SHGs splitting and becoming Joint Liability Groups (JLGs) to avail loans from MFIs
are plenty and the increasing loan size of MFIs will accelerate this trend. The all-India averages
should be read with caution on account of inter-state, inter-bank and inter-MFIs differences.
Table: Comparison of Average Loan Size (in Rupees)
TypeAvg. Loan per Customer
Extent of increase in 2009-102008-09 2009-10
SHG Member 4120 4570 450MFI Customer 5190 6060 870
6
Fig: Comparison of Average Loan Size
Estimate of Microfinance Clients:
The broader microfinance sector could be defined as direct customers of banks for small
loans, small and vulnerable members of primary cooperative credit societies, SHG members and
MFI clients. Since there is a time lag in some series of data, the information as on 31 st March,
2009 has been provided in the below table:
Table: Estimation of Microfinance Clients
AgencyClients
Mar-07 Mar-08 Mar-09Commercial Banks (including RRBs) Small Loan Accounts 38.60 41.00 39.20
Primary Cooperative Societies Borrowers (Small, Vulnerable) 26.80 28.50 28.70SHGs - Members 39.90 47.10 54.00MFIs - Clients 14.10 14.10 22.60Total 119.10 130.70 143.90
7
Fig: Estimation of Microfinance Clients
The data represents a mixture of number of accounts and number of clients. In case of
Primary Agricultural Credit Societies (PACs), the number of customers is clearly indicated. In
the case of commercial banks, SHS and MFIs, the data relates to accounts rather than unique
customers. The data shows that there has been an increase of about 10 per cent in the clientele of
microfinance, but the increase in numbers has come entirely from SHGs and MFIs. The absolute
number of small accounts with Scheduled Commercial Banks (SCBs) has registered a decline
while borrowing membership of microfinance customers in PACs has almost remained the same.
On another plane, the reduction number of accounts in commercial banks does not augur well for
financial inclusion. The total amount of loans given and outstanding under the small loan
accounts of the SCBs was of the order of Rs.429.36 billion. This was more than the total loans of
Rs.359.39 billion outstanding under both the SHGs and MFIs that had a combined customer base
of 76.6 million in 2009. The average loan per account in case of banks was Rs.10951, which was
almost double the average loan size of MFIs and SHGs.
Along with increased portfolio in terms of clients and loan volumes, default risks have
tended to increase. Banks have reported higher default rates in case of SHGs. MFIs also have
reported increase incidence of defaults. Portfolio at Risk (PARs) (60 days) increased from 0.9
per cent in 2008 to 1.82 in 2009. Current Repayment Rates declined from 99.1 per cent in 2008
8
to 96.87 per cent in 2009. While the PR ratio still seems small, the real picture possibly remains
hidden by continuing high rates of accretion of customers and creative accounting.
9
Section – II: Overview of SHG Bank Linkage Program in India:
The SBLP is by far the dominant model of microfinance in India, in terms of number of
borrowers and loan outstanding. NABARD is actively involved in promoting SBLP in India.
Since 2006-07, NABARD has been compiling and analyzing the data on progress made in
microfinance sector, based on the returns furnished by Commercial Banks (CBs), Regional Rural
Banks (RRBs) and Cooperative Banks operating in the country. The banks operating, presently,
in the formal financial system comprise Public Sector CBs (27), Private Sector CBs (22), RRBs
(82), State Cooperative Banks (31) and District Central Cooperative Banks (370). Most of the
banks participating in the process of microfinance have reported the progress made under the
programme.
The data presented in this section booklet covers information relating to savings of Self
Help Groups (SHGs) with banks as on 31 March 2010, loans disbursed by banks to SHGs during
the year 2009-10, loans outstanding of the banking system against the SHGs and the details of
Non-Performing Assets (NPAs) and recovery percentage in respect of bank loans provided to
SHGs as on 31 March 2010. The data have been compiled region-wise, State wise and agency-
wise. The booklet also provides details relating to SHGs coming under Swarnjayanti Gram
Swarojgar Yojna (SGSY) and exclusive women groups. In addition, the information relating to
bulk lending provided by Banks and Financial Institutions to Micro Finance Institutions (MFIs)
for on lending to groups and individuals have also been provided. Based on these data and
information, this booklet attempts an assessment of progress on varied dimensions of the
microfinance sector.
The coverage of the SHG-bank linkage program is given in Table 3. While the program
was slow to take off, in recent years it has expanded exponentially. At the end of August 2007,
2.93 million self-help groups, an overwhelming number of SHGS comprising exclusively
women, had been provided credit by the banks. The total amount of outstanding credit is Rs. 181
billion. It is claimed to be currently the largest micro-finance program worldwide.
NABARD's corporate mission is to make available micro-finance services to about 100
10
million rural poor through one million SHGs by the year 2007-08. Though this target has already
been achieved by March 2004 itself there are certain issues that need more attention from the All
India Institutions. There is, at present, a high degree of concentration in the southern states with
just two states, Andhra Pradesh and Tamil Nadu, accounting for more than 58 per cent of the
SHGs linked to banks. These states have a history of women's enterprise, higher levels of literacy
and existence of cooperative institutions. After the Southern region, the SHG program has been
successful in the Western region again because of higher levels of literacy and the existence of a
co-operative movement. The SHG-bank linkage program has not as yet made an impact in the
poverty belt of the northern, central and eastern regions.
The outreach of the SHG-bank linkage may seem to be impressive, but in the context of
the magnitude of poverty in India and the flow of funds for poverty alleviation it represents a
very small intervention, accounting for less than 5 per cent of the banking system's
disbursements for agriculture and allied activities. Thus while the SHG program has made
notable progress in providing loans to largely poor families, it has not made a significant addition
to the credit flow to the rural areas.
Below table indicates the growth and progress of SBLP in India during 2006-07 to 2009-10.
11
Table: Progress of SHG Bank Linkage Program in India
Particulars2006-07 2007-08 2008-09 2009-10
No. of SHGs
Rs. In Crores
No. of SHGs
Rs. In Crores
No. of SHGs
Rs. In Crores
No. of SHGs
Rs. In Crores
Savings of SHGs with bank as on 31st March
Total SHGs
4,160,584 3,512.71 5,009,794 3,785.39 6,121,147 5,545.62 6,953,250 6,198.71
Out of which SGSY
956,317 757.57 1,203,070 809.51 1,505,581 1,563.38 1,693,910 1,292.63
Bank Loans disbursed to SHGs during the year
Total SHGs
1,105,749 6,579.39 1,227,770 8,849.26 1,609,586 12,253.51 1,586,822 14,453.30
Out of which SGSY
188,962 1,411.02 246,649 1,857.74 264,653 2,015.22 267,403 2,198.00
Bank loans outstanding with SHGs during the year
Total SHGs
2,894,505 12,366.49 3,625,94116,999.9
14,224,338 22,679.84 4,851,356 28,038.28
Out of which SGSY
687,212 3,273.03 916,978 4,816.87 976,887 5,861.72 1,245,394 6,251.08
(Source: State of Sector Report – 2006, 2007, 2008, 2009, 2010 and The Status of Microfinance in India by NABARD 2009-10)
12
Growth Trends in SBLP:
The provisional data of NABARD indicates that the SHG growth might be in a declining
trend both in outreach and loan portfolio. The number of SHGs that had outstanding loans was
4.58 millions at the end of March, 2010 which represents 8.5 per cent growth over the last year
of 4.22 million. The volume of outstanding loans was at Rs.272.66 billion representing an
increase of 20 per cent over the previous year of Rs.26.79 billion. The incremental loan
outstanding achieved by SBLP was the order of Rs.45.87 billion. The credit disbursements by the
banks to SHGs are increased by 49 per cent over the last year of Rs.122.53 billion to Rs.183.43
billion. Savings by SHG members increased to Rs.63.58 billion from Rs.55.45 billion. The
numbers of SHGs with savings are increased by 6.12 million to 6.81 million, by 11 per cent. The
average disbursement per group increased by Rs.115000 which was a substantial step up over the
last year Rs.76000 (refer to the below table). While the disbursement had increased impressively,
the same did not strongly reflect outstanding loans. The possible reason is that the loans are short
term compared to the past practice of providing three year loans to SHGs.
Table: Growth Trends in SBLP
Particulars 2006 2007 2008 2009 2010No of SHGs provided with bank loans (in Lakhs)
22.38 29.24 36.25 42.24 45.87
-Southern Region (in Lakhs) 12.14 15.22 18.61 22.83 24.21 -Share of Southern Region (%) 54 52 51 55 53Average loan disbursed per group (Rs.)
37,574 44,343 46,800 74,000 115,820
Outstanding loans (Rs. billion) NA 123.66 169.99 226.79 272.66Incremental Groups (in millions) NA 0.69 0.70 060 0.36Incremental loans outstanding (Rs. Billion)
NA NA 46.33 56.80 45.87
(Source: State of Sector Report, 2010)
13
Fig: Growth Trends in SBLP – No. of SHGs
2006 2007 2008 2009 20100
10
20
30
40
50
60
No of SHGs provided with bank loans (in Lakhss) -Southern Region (in Lakhss) -Share of Southern Region (%)
Fig: Growth Trends in SBLP – Average Loan disbursed per group
2006 2007 2008 2009 20100
20,000
40,000
60,000
80,000
100,000
120,000
Average loan disbursed per group (Rs.)
Regional Spread of SBLP:
There exists no uniformity with regard to its progress across the regions. It has had good
success in Southern Regions whereas in the Northeast and Northern region, its progress is very
low. It is also very low in case of the central region. The growth of the program has been
14
overwhelming in the South. The Southern region continues to lead in terms of share in client
outreach as well as loan disbursement and outstanding. Calculation from the absolute data in
below table shows that the share of the Southern region was 52.03 in 2006-07 per cent and it is
steadily continuing with the same pace over the years till 2009-10.
Table: Regional share in SBLP (Number of Groups Linked)
Region 2006-07Per cent
share2007-08
Per cent
share2008-09
Per cent
share2009-10
Per cent
share
Northern 182018 6.0 134783 3.80 166087 3.9 158829 3.5
Northeastern 91754 3.0 103424 2.90 117609 2.8 85276 1.9
Eastern 525881 18.0 753048 20.80 893126 22.1 985094 21.5
Central 332729 11.0 326763 9.00 326602 7.9 497340 10.8
Western 270447 9.0 446550 12.30 357775 9.3 439199 9.6
Southern152214
4 52.0186137
3 51.30228399
2 54.0242144
0 52.8
All Regions292497
3 100.0362594
1 100.00414519
1 100.0458717
8 100.0(Source: NABARD, 2009-10 Status of Microfinance in India Report)
Fig: Regional Share in SBLP for 2009-10 No. of groups linked
Northern Northeastern Eastern Central Western Southern All Regions0
500000
1000000
1500000
2000000
2500000
3000000
3500000
4000000
4500000
5000000
15
Fig: Regional Share in SBLP for 2009-10 per cent share
NorthernNortheasternEasternCentralWesternSouthernAll Regions
In case of borrowing groups, the region-wise distribution has undergone a moderate
change. The trends seen in the last year of a more decentralized distribution of growth of SHG
credit linkage has continued. North and Northeast regions recorded a decline in absolute number
of groups that had outstanding loans. The reason for this could be that repeat loans are not
available to SHGs after repayment of the earlier loans. Comparatively, in Southern region, there
is considerable pressure from the state authorities for lending to SHGs. Hence, the repeat loan
rations are higher and could account for the higher share. When the groups are initially linked,
banks incur costs of establishing familiarity with the group and completing initial
documentation. To discontinue services to once linked groups is a loss in material terms to the
bank, unless it is for reasons of risk and credit worthiness.
Top States in India in SBLP:
A comparison across states throws up no surprise. Andhra Pradesh had a marginally
higher share of number of groups and loans from banks. It had 29 per cent share of groups and
39 per cent of loans outstanding. In terms of number of SHGs, Andhra Pradesh was followed y
Tamil Nadu (12 per cent), West Bengal (9 per cent), Maharashtra (7 per cent) and Orissa (7 per
cent). Andhra Pradesh had the largest share of SHG loans.
16
NABARD had identified 13 priority states and the northeastern region for giving a fillip
to microfinance activities. In some of the states, the program had paid dividends. The state wise
trends indicate that the YOY variability is too high to come to conclusions that SBLP is maturing
in some of the states outside the southern region. One of the reasons could be the provisional
nature of data, which when finalized, could change the direction of analysis and conclusions. But
it is amply clear that non-traditional states are increasingly participating in SBLP. The direction
of the program over the long-term is positive in most states, through the progress is slow
compared in Southern States.
Table: Top States in SBLP in 2009-10
State RegionGroups
O/S loans
Per cent share
Loans O/S (Rs.
Mn)
Per cent share
Andhra Pradesh
Southern 1331596 24.7
105584.9 38.7
Tamil NaduSouthern 562275 12.3 38990 14.3
West Bengal Eastern 506496 9.4 13260.8 4.9Maharashtra North 365540 6.8 10555.5 3.9
OrissaSouthern 357041 6.6 14797.1 5.4
Fig: Per cent Share of Groups with Loans outstanding
24.7%
12.3%
9.4%
6.8%6.6% Andhra
Pradesh
Tamil Nadu
West Bengal
Maharashtra
Orissa
17
Fig: Per cent Share of Loans outstanding
38.7%
14.3%
4.9%
3.9%5.4% Andhra
Pradesh
Tamil Nadu
West Bengal
Maharashtra
Orissa
Savings Performance of SHGs:
One of the redeeming features during the current year was a substantial increase in the
number of SHGs that saved with the banking system. As at the end of 31 st March, 2009,
approximately 6.12 million groups had saved their surpluses with banks. At the end of March,
2010 the number of groups that saved increased to approximately 6.81 million. Savings by SHGs
increased by Rs.81.24 billion, that is by 14.6 per cent over the last year. The continuing growth
in savings over the years a reflection of how this opportunity is valued by the poor.
Table: Savings performance of SHGs (No. of SHGs)
Agency
No. of SHGs Amount saved (Rs. Millions) Avg savings
per SHG in 2010
(Rs.)
2008 2009 2010 2008 2009 2010
CBs 2810750354950
9 4062822 20777.3 27729.9 36812.7 9060
RRBs 1386838162858
8 1646059 11664.9 19897.5 12697.7 7714
18
Coop. Banks 812206 643050 1108870 5411.7 7828.8 14069.8 12688
Total 5009794612114
7 6817751 37853.9 55456.2 63580.2 9325
Figure: Savings Performance of SHGs - No. of SHGs for 2010
58%
20%
22%
CBs
RRBs
Coop. Banks
Fig: Savings performance of SHGs -Amount Saved for 2010
CBsRRBsCoop. BanksTotal
Of the amounts saved, a lion’s share was saved with the commercial banks. 58 per cent of
19
SHGs savings were with commercial banks at an average of Rs.9060 per group. In case of
commercial banks the average per group savings increased by 16 per cent. Regional Rural Banks
(RRBs) had a share of 20 per cent of SHG savings. There is a decline in the average savings per
group in case of RRBs from the last year’s Rs.14,400 to Rs.7,700. Cooperatives put in a good
performance, raising their share of SHGs savings from 14 per cent last year to 22 per cent in the
current year. The average savings per group with cooperatives increased by 50 per cent over last
year’s level of Rs.8020.
As on 31 March 2010, a total of 69.53 Lakhs SHGs were having saving bank accounts
with the banking sector with outstanding savings of Rs.6198.71 Crores as against 61.21 Lakhs
SHGs with savings of Rs.5545.62 Crores as on 31 March 2009, thereby showing a growth rate of
13.6 per cent and 11.8 per cent, respectively. Thus, more than 97 million poor households were
associated with banking agencies under SHG-Bank Linkage Programme. As on 31 March 2010,
the CBs lead with savings accounts of 40.53 Lakhs SHGs (58.3%) with savings amount of
Rs.3673.89 Crores (59.3 %) followed by RRBs having savings bank accounts of 18.21 Lakhs
SHGs (26.2% ) with savings amount of Rs.1299.37 Crores (21.0%) and Cooperative Banks
having savings bank accounts of 10.79 Lakhs SHGs (15.5 %) with savings amount of Rs.1225.44
Crores (19.8%).
Agency wise Distribution of SHGs:
Bank Loans Disbursed to SHGs:
During 2009-10, banks have financed 15.87 Lakhs SHGs, including repeat loan to the
existing SHGs, with bank loans of Rs.14,453.30 Crores as against 16.10 SHGs with bank loans
of Rs.12,253.51 Crores during 2008-09, registering a decline of 1.4 per cent of SHGs but a
growth of 17.9 per cent in bank loans disbursed. Out of the total loans disbursed during 2009-10,
SHGs financed under SGSY accounted for 2.67 Lakhs (16.9%) with bank loan of Rs. 2198.00
Crores (15.2%) as against 2.65 Lakhs SHGs (16.4%) with bank loan of Rs. 2015.22 Crores
(16.4%) during 2008-09. The agency-wise details of loans disbursed by banks to SHGs during
the years 2008-09 and 2009-10 are given in the below table:
20
Table: Bank Loans disbursed to SHGs
YearCommercial Banks RRBs Cooperative BanksNo. of SHGs
Rs. in Crores
No. of SHGs
Rs. in Crores
No. of SHGs
Rs. in Crores
2006-07 2007-08 2008-09 1004587 8060.53 405569 3193.49 199430 999.492009-10 977521 9780.18 376797 3333.2 232504 1339.92
(Source: NABARD, Status of Microfinance in India 2009-10)
It may be observed from the above table that as always, CBs led in disbursement of loans
to SHGs during 2009-10 with 61.6 per cent share followed by RRBs with a share of 23.7 per cent
and Cooperative Banks with a share of 14.7 per cent. During 2009-10, average bank loan
disbursed per SHG was Rs.91,083 as against Rs.76,128 during 2008-09. The average loan per
SHG ranged from of Rs.1,00,050 per SHG by CBs to Rs.57,629 per SHG by Cooperative Banks.
Bank loans outstanding with SHGs:
Commercial Bank’s share of borrowings of SHGs remained the same at 67 per cent as in
the last year. In terms of volume of loans, commercial banks had a proportionately high share of
68 per cent. The RRBs share of groups and loans declined during the year. RRBs lost 1 per cent
share in groups linked and 2 per cent share in loans outstanding compared to 2009. Cooperative
Banks improved their share of SHG lending, with their share of groups increasing by 1 per cent
to 11 per cent in 2010. In case of loans, their share of in 2010 was 11 per cent, an increase 5 per
cent over last year of 6 per cent. In the midst of revamp the increased exposure to low risk loans
to SHGs makes good business sense for cooperatives.
21
Table: Bank Loans outstanding with SHGs
YearCommercial Banks RRBs Cooperative BanksNo. of SHGs
Rs. in Crores
No. of SHGs
Rs. in Crores
No. of SHGs
Rs. in Crores
2006-07 1893016 87638 729255 28017.6 272234 8043.52007-08 2378847 114754.7 875716 44210.4 371378 11300.92008-09 2831334 161494.3 977834 50234.9 415130 130602009-10 3237263 20164.71 1103980 6144.58 510113 1728.99
(Source: NABARD, Status of Microfinance in India 2009-10)
Fig: Bank Loans Outstanding with SHGs – Amount wise
2006-07 2007-08 2008-09 2009-100
500000
1000000
1500000
2000000
2500000
3000000
3500000
Commercial BanksRRBsCooperative Banks
22
Fig: Bank Loans Outstanding with SHGs – No. of SHGs
2006-07 2007-08 2008-09 2009-100
20000
40000
60000
80000
100000
120000
140000
160000
180000
Commercial BanksRRBsCooperative Banks
As on 31 March 2010, total number of 48.51 Lakhs SHGs were having outstanding bank
loans of Rs.28,038.28 Crores as against 42.24 Lakhs SHGs with bank loans of Rs.22,679.85
Crores as on 31 March 2009, representing a growth of 14.8 per cent in number of SHGs and 23.6
per cent in bank loans outstanding against SHGs. The share of SHGs under SGSY was 12.45
Lakhs SHGs (25.7%) with outstanding bank loans of Rs.6,251.07 Crores (22.3%) as against 9.77
Lakhs SHGs (23.1%) with outstanding bank loans of Rs.5,861.72 Crores (25.8%) as on 31
March 2009. The agency-wise position of outstanding bank loans to SHGs for the years 2008-09
and 2009-10 are given in above table. It may be observed from above table, that following the
highest disbursements, CBs also had the maximum share of 66.7 per cent in outstanding bank
loans to SHGs followed by RRBs with a share of 22.8 per cent and Cooperative Banks with a
share of 10.5 per cent. The average bank loan outstanding per SHG had increased from
Rs.53,689 as on 31 March 2009 to Rs.57,795 as on 31 March 2010. It varied between Rs.62,289
per SHG in case of CBs and Rs.33,894 per SHG in case of Co-operative Banks as on 31 March
2010.
23
NABARD’s Promotional Support to SHG Bank Linkage Program:
Micro Finance Equity and Development Fund:
To strengthen the efforts of NABARD towards promotional support for micro finance,
the Government of India in the Union Budget for 2010-11 had further increased the corpus of
Micro Finance Development and Equity Fund (MFDEF) to Rs.400 Crores. Recognizing the need
for up scaling the micro-Finance interventions in the country, the Hon’ble Union Finance
Minister, while presenting the budget for the year 2000-01, had created MFDF with an initial
contribution of Rs.100 Crores, to be funded by Reserve Bank of India, NABARD and
commercial Banks in the ratio of 40:40:20. In the Union Budget for 2005-06, the Government of
India had decided to re-designate the MFDF into MFDEF and raised its corpus from Rs.100
Crores to Rs.200 Crores. The MFDEF is managed and administered by NABARD under the
guidance of an MFDEF Advisory Board. The objective of MFDEF is to facilitate and support the
orderly growth of the microfinance sector through diverse modalities for enlarging the flow of
financial services to the poor, particularly for women and vulnerable sections of society
consistent with sustainability.
Table: MFDEF Sanctions (2009-10)
AgencyOutstanding loans of SHGs
NoAmount (Rs.
Lakhs)No. of SHGs
Cooperative Banks 7 63.23 5230RRBs 4 40.14 3395NGOs 306 2620.1 53393Farmer's club IRVs 2 154.7 9250Total 319 2878.17 71268
Fig: MFDEF Sanctions – Amount wise
24
Cooperative BanksRRBsNGOsFarmer's club IRVsTotal
Fig: MFDEF Sanctions–No. of SHGs
Cooperative BanksRRBsNGOsFarmer's club IRVsTotal
NABARD’s role in the SHG movement had been hailed in the past for the vision,
strategies and an innovative spirit. NABARD had embarked upon this journey of mobilizing
poor people into groups and harnessing their power in groups to set up a financial architecture
that reached the hinterland in the rural areas. For the current year, according to U.C Sargani,
Chairman of NABARD will concentrate ‘on maintaining and improving the quality of their
graduation to micro enterprises’. Apart from capacity building support, NABARD has provided
long term liquidity to banks (refinance) to incentivize their lending to SHGs. During the last
year, the Microfinance Development and Equity Fund (MFDEF) available with NABAD has
25
been utilized to the extent of Rs.809.1 million during 2010 which also included Rs.600 million
given as loans to MFIs (Refer to the below table). Last year’s sanctions were mostly to NGOs
and banks for the Individual Rural Volunteers (IRVs) to fund formation and maintenance of
SHGs.
Refinance support to Banks:
The refinance provided by NABARD to banks was Rs.31.73 billion, an increase of 21 per
cent in 2010. The share of SHG refinance in the annual disbursement was 26 per cent, the second
higher share for any subsector. NABARD has backed up its thought leadership with finance to b
banks. But one cannot escape the feeling that over the last four or five years, the enthusiasm on
the part of the NABARD towards SHGs is on the wane. The loss of enthusiasm is inexplicable as
NABARD has everything to gain as an apex development agency from a fully functional rural
financial architecture that could marry the informality required for the rural clients with the
formalities associated with high finance.
Training and Capacity Building Programs:
NABARD continued to organize/ sponsor training programmes and exposure visits for
the benefit of officials of banks, NGOs, SHGs and government agencies to enhance their
effectiveness in the field of microfinance. Training supplements and materials were supplied to
banks and other agencies. Best practices and innovations of partner agencies were widely
circulated among government agencies, banks and NGOs. During the year 2009-10, fund support
of Rs.9.93 Crores was provided for capacity building, exposure visits and awareness-building as
against Rs.6.10 Crores during 2008-09. The cumulative fund support for the purpose as on 31
March 2010 stood at Rs.45.02 Crores. During 2009-10, 6,804 training/capacity building
programmes were conducted covering 2,53,868 participants. The progress under training and
capacity building during the year 2009-10 is given in the below Table.
26
Table: Training and Capacity Building Programs conducted during 2009-10
Program No. of
Programs conducted
No. of participants
Awareness creation and capacity building programmes organised for SHG members in association with identified resource NGOs, covering participants to inculcate skills for managing thrift and credit 1991 83131
Awareness-cum-refresher programmes conducted for NGOs, including CEOs 1130 35648
Training programmes conducted for bankers covering officials of Commercial banks,RRBs and Co-operative Banks 462 14945
Exposure visits for bank officials / NGOs to agencies pioneering in Microfinance(MF) initiatives 14 387
Field visits of Block Level Bankers' Committee (BLBC) members to nearby SHGs 227 5880
Programmes for the elected members of Panchayati Raj Institutions (PRIs) to createawareness among them about the MF initiatives 80 2799
Training & exposure programmes for government officials 79 3385
Other training programmes for microfinance sector 1181 65029
Micro Enterprises Development Programme (MEDP) 1530 38313
Micro Enterprise Promotional Agency 36 1000
Meetings and Seminars (Bankers, NGO officials, etc.) 74 3351 (Source: NABARD, Status of Microfinance in India, 2009-10)
27
Micro Enterprise Development Program (MEDP) for Skills Development:
MEDP was launched by NABARD in March, 2006 with the basic objective to enhance
the capacities of the members of matured SHGs to take up micro enterprises through appropriate
skill up gradation / development in the existing or new livelihood activities both in farm and non-
farm sectors by way of enriching knowledge of participants on enterprise management, business
dynamics and rural markets.
In 2009-10, a total of 1530 MEDPs, both under Farm and Non-farm activities, were
conducted across the country covering 38313 members of the matured SHGs. Cumulatively, total
2837 MEDPs have been conducted so far covering 93777 participants. The dominant activities in
agriculture and allied sector covered under MEDPs were animal husbandry, bee-keeping,
mushroom cultivation, vermi-compost/organic manure, horticulture, floriculture, etc. whereas
predominant non-farm activities taken up under MEDPs were readymade garments, Agarbatti
making, embroidery, bamboo-craft, beauty parlous, etc.
Grant support to Partner Agencies for Promotion and Nurture of SHGs:
NABARD continued its efforts in the formation and nurturing of quality SHGs by means
of promotional grant support to NGOs, RRBs, DCCBs, and Individual Rural Volunteers (IRVs)
and by facilitating capacity building of various partners, which has brought impressive results in
the promotion and credit linkage of SHGs. Further, the number of partner institutions/individuals
functioning as Self-Help Promoting Institutions (SHPIs) over the years has increased to 2911
which has resulted in the expansion of the programme throughout the country. The cumulative
sanctions made by NABARD to various agencies from 2007-08 to 2009-10 are given in the
below table:
Table: Grant support to various agencies (Cumulative Sanctions)
Agency 2007-08 2008-09 2009-10
28
No.Rs. in Lakhs
No. of SHGs
No.Rs. in Lakhs
No. of SHGs
No.Rs. in Lakhs
No. of SHGs
NGOs 2007 4841.42 245276 2318 6405.17 291780 2624 9025.81 345173
RRBs 111 368.6 43790 113 389.3 44590 117 429.44 47975
Cooperatives 83 426.21 44410 85 563.13 53875 102 626.36 59105
IRVs 59 483.14 28643 66 529.76 31233 68 684.46 40483
Fig: Grant Support to NGOs – Amount wise
2007-08 2008-09 2009-100
1000
2000
3000
4000
5000
6000
7000
8000
9000
10000
Fig: Grant Support to RRBs – Amount wise
29
2007-08 2008-09 2009-10330
340
350
360
370
380
390
400
410
420
430
Fig: Grant Support to Cooperatives – Amount wise
2007-08 2008-09 2009-100
100
200
300
400
500
600
700
Fig: Grant Support to IRVs – Amount wise
30
2007-08 2008-09 2009-100
100
200
300
400
500
600
700
Pilot Project on SHG-Post office Linkage Program (SPOLP):
The Pilot Project for SHG-Post Office Linkage programme was initially launched in five
select districts of Tamil Nadu, viz., Sivaganga, Pudukottai, Tiruvannamalai, Thanjavur and
Tiruvarur. The initial results have been encouraging. Thus, NABARD has sanctioned an
additional Revolving Fund Assistance (RFA) of Rs.200 Lakhs to India Post for on-lending to the
SHGs, taking the total RFA sanctioned to Rs.500 Lakhs. As on 31 March 2010, 2,828 SHGs
have opened zero interest savings accounts with select Post Offices in Tamil Nadu and 1195
SHGs have been credit linked with loans amounting to Rs.321.25 Lakhs. NABARD has
sanctioned RFA of Rs.5 Lakhs to Post Offices in Meghalaya for on-lending to 50 SHGs in East
Khasi Hills.
Special initiative for scaling up SHGs/ SHG Federations:
31
NABARD has been associated with Rajiv Gandhi Charitable Trust (RGCT) for
promotion, credit linkage and formation of SHG Federations in select districts of Uttar Pradesh.
The project envisages promotion and credit linkage of 22,000 SHGs, 1,100 cluster-level
associations and 44 block-level associations in collaboration with participating banks and
implementing NGOs. The project would cover 15 and 29 blocks under Phase I and II
respectively in 12 districts of Uttar Pradesh viz. Sultanpur, Rae Bareli, Barabanki, Pratapgarh,
Lucknow, Unnao, Fatehpur, Jhansi, Lalitpur, Bahraich, Shravasti and Banda. NABARD and
RGCT have designed the project with technical assistance from Society for Elimination of Rural
Poverty (SERP), Government of Andhra Pradesh. As at the end of 31 March 2010, 21,868 SHGs
have been promoted, of which 12,749 SHGs have been credit linked. In addition, 676 Village
Level and 15 Block Level SHG Federations were formed under Phase I and Phase II.
Other support services:
Apart from the above, NABARD is providing some other services like financing Joint
Liability Groups (JLGs), financial support to Activity Based Groups (ABGs), financial assistance
to SHG Federations and specific support to Arunachala Pradesh and Tripura.
Based on the studies conducted by NABARD, it was found that financing of Joint
Liability Groups (JLGs) is a good business proposition. It needs simplified documentation, group
dynamics, timely repayment culture and prospects of credit enhancement to quality clients.
Keeping in view the need and findings of the studies, NABARD has issued comprehensive
guidelines on JLGs to Banks focusing on small and marginal farmers, oral lessees, tenant farmers
engaged in farm sector and other clients under nonfarm activities.
Recognizing the emerging role of the SHGs’ Federations in nurturing of SHGs,
enhancing the bargaining powers of group members and livelihood promotion, NABARD
introduced during 2007-08, a flexible scheme to support such Federations, irrespective of their
model.
32
Arunachala Pradesh: During 2008-09, an amount of Rs.39.15 Lakhs was sanctioned by
NABARD for implementing the project ‘Micro Finance Vision 2011’ by the Govt. of Arunachal
Pradesh. Further, an amount of Rs. 33.66 Lakhs was sanctioned to the Essom Foundation Trust
for setting up a Resource Centre at Itanagar for providing policy, operational inputs, capacity
building support and marketing linkages among the groups. NABARD has released Rs.5.452
Lakhs to the trust up to 31 March 2010.
Tripura: NABARD continued to provide technical support to the State support project on
SHGs being implemented by the Government of Tripura for credit linkage of 11,500 existing
SHGs, forming and credit linking 35,000 new SHGs and promoting livelihood activities among
the 3 Lakhs members up to 2012.
Section-III: Microfinance Institution (MFI) Program:
During the last few yeas, there has been an increase in the number of MFIs in India,
promoted by government, NGOs and individuals. The different organizations in this field can be
classified as Mainstream Micro Finance Institutions and Alternative Micro Finance Institutions.
While both public and private ownership are found in case of mainstream financial institutions
offering microfinance service, the alternative microfinance institutions are mainly in the private
sector. These come up to fill the gap between the demand and supply for microfinance. These
can be classified as MFIs and Community Based Organizations. These MFIs are operating under
various legal forms. The “For Profit” MFIs, apart from the traditional credit services, are
providing composite services to the poor. The recent time period, MFIs have been experiencing
high growth rate with coverage and loan outstanding. Despite reported problems and concerns
arising from rising default rates and attention of the wrong kind from some state authorities, the
sector has posted good growth. The growth rates have been modest compared to the last year but
33
far ahead of any other sector in the Indian Economy. As per provisional data made available by
Sa-dhan, MFIs achieved a client outreach of 26.7 million and loan portfolio of Rs.1863.44
billion, which is 18 per cent growth in loan portfolio over 2009. In terms of vibrancy and future
potential, the sector seemed to be the best among the investor community. A poll of 50
investment banking firms/companies brought out that the microfinance is the top ranked
destination for investments in financial sector today. Of those who voted, more than 80 per cent
rated microfinance as the best sector for investments. The continuing acceleration of client
acquisition and business volumes on a very large expanded base indicates strong demand and the
inadequate supply to meet the needs of vulnerable people.
Geographical Distribution of MFIs in India:
There is a high geographic concentration with 75% of MFIs in two states only: Andhra
Pradesh 62% and Tamil Nadu 13% (refer to the below table), while the remaining 25% are
scattered over 11 states. Incidentally the states with a high concentration of MFIs also have a
high concentration of SHGs and substantial credit linkages of these SHGs to the banks. The
southern states are also states with a high banking density. Bihar with 44 MFIs is third in the
states with large presence of MFIs.
Table: Distribution of MFIs by State.
StateNo. of MFIs
Share
Andhra Pradesh 484 62Tamil Nadu 101 13Bihar 44 6West Bengal 30 4Orissa 28 4Karnataka 20 3Kerala 18 2Rajasthan 18 2Maharashtra 15 2Madhya Pradesh 14 2Gujarat 8 1Uttar Pradesh 5 1Jharkhand 1 0
34
Total 786 100
61%
13%
6%
4%
4% 3%2% 2% 2% 2%1% 1%
Andhra PradeshTamil NaduBiharWest BengalOrissaKarnatakaKeralaRajasthanMaharashtraMadhya PradeshGujaratUttar PradeshJharkhand
The MFI sector is highly atomized and decentralized: 95% of MFIs operate in only one
state. Only 36 MFIs operate in more than one state. Only one MFI has a truly wider presence in
most of the less developed states in the country, but also in the southern states. MFIs which have
a pan India presence are necessarily registered as NBFCs and one hardly sees NGO-MFIs
operating in more than one state. There was one NGO-MFI registered as a Society in Andhra
Pradesh which had ambitions to spread to other states in the late 90s but it could not realize its
dreams partly due to its business model.
Table: Geographical Spread of MFI operations in India as on 2011
StateNo of States Serving
Grand Total
12 to
5 6 to 10 >10
Andhra Pradesh 476 6 1 1 484
35
Tamil Nadu 94 7 101Bihar 39 5 44West Bengal 30 30Orissa 27 1 28Karnataka 15 5 20Kerala 15 3 18Rajasthan 16 2 18Maharashtra 14 1 15Madhya Pradesh 14 14Gujarat 7 1 8Uttar Pradesh 2 3 5Jharkhand 1 1Total 750 33 2 1 786Share 95 4 0 0 100
As can be seen from the below table 530 MFIs (68%) operate in only one district. Close
to a quarter of them operate in 2 to 5 districts. 93% MFIs operate in less than 5 districts. Again
MFIs from AP, Bihar and Tamil Nadu have ventured into more districts compared to MFIs from
other states. There is only one MFI that is being operated in more than 250 districts, while no
other MFI from any other state has been doing this. Orissa is the next state to Andhra Pradesh to
operate in more than 51 states. This table is clearly witnessing that the South India is playing
significant role in MFI services.
Table: District wise spread of MFIs in India as on 2011
State
Number of Districts Serving Grand
Total1
2 to 5
6 to 10
11 to 20
21 to 50
51 to 100
> 250
Andhra Pradesh 353 123 2 1 1 2 1 484Tamil Nadu 78 17 3 3 101
36
Bihar 21 20 2 1 44West Bengal 11 15 4 30Orissa 16 7 3 1 1 28Karnataka 7 2 7 4 20Kerala 9 7 1 1 18Rajasthan 14 3 1 18Maharashtra 11 2 1 1 15Madhya Pradesh 8 6 1 14Gujarat 2 4 2 8Uttar Pradesh 2 2 5Jharkhand 1 1Total 530 209 29 10 3 3 1 786Share 68 27 4 1 6 7 8 100
Top MFIs in the list:
During 2009, 20 Indian MFIs made it to the top 100 list of Mix Market, and 15 were in
the top 50. In the Microfinance Information Exchange (MIX) top 100, 2008, only 10 Indian
MFIs had figured. Indian MFIs have posted vigorous growth in a year in which MFIs in other
countries have faced difficulties. The efficiency and profitability of Indian MFIs saw many of
them improve their ranking compared with the previous year.
Table: Indian MFIs in the MIX top 100 lists
MFIRank in
2009 2008Grameen Fin Servies 4 180SKS Microfinace Ltd 7 3Spandana Spoorthy Microfin 8 23BASICS 11 32SHARE 12 26Bandhan 13 5Village Fin Services 15 219Asmitha 18 127
37
Grama Vidiyal 20 -SWAS 23 269Gram Utthan 28 196
(Source: State of Sector Report 2009-10 & www.MixMarketing.org)
Operating Metrics of Top 10 MFIs in India:
Predictably, the top spot in terms of clients and loans was captured by SKS Microfinance
LTd. The top seven MFIs of the last year retained their place. Ujjivan Financial Services entered
the list of top10, displacing BISWA. Equitas moved up from the tenth place to eighth while
Grama Vidiyal slid down one place to ninth (refer to the below table). The list now has seven
MFIs in the million plus customers club, SKDRDP, the odd one in the company of nine Non-
Banking Financial Companies (NBFCs), was placed sixth in terms of number of clients, but in
terms of portfolio outstanding, it was in the seventh place with BASICS having a higher loan
portfolio.
Table: Top 10 MFIs by Outreach (Rs. Billion)
MFIOutreach (No.)
Loan o/s
Own Funds
Borrowings
SKS 5795028 29.70 9.70 27.30Spandana 3662846 21.60 4.90 22.20SHARE 2357456 17.20 3.00 20.60Bandhan 2301433 12.10 2.00 13.60AML 1340288 11.00 2.00 14.30SKDRDP 1225570 6.20 0.40 5.90BASICS 1114468 7.90 2.00 9.70Equitas 888600 4.80 2.80 4.40Grameen Vidiyal 772050 4.10 0.70 5.00
38
Ujjivan 566929 3.80 1.10 2.40 (Source: State of Sector Report 2009-10, N.Srinivasan)
Fig: Top MFI by Outreach (Numbers)
SKS
Span
dana
SHARE
Bandhan AML
SKDRDP
BASICS
Equita
s
Grameen
Vidiyal
Ujjivan
0
1000000
2000000
3000000
4000000
5000000
6000000
Comparative Performance of top 5 MFIs in India:
The top five MFIs accounted for 59 per cent of clients and 58 per cent of outstanding
loans (refer to the below table).Bandhan had a noticeable jump in its loan portfolio among MFIs
that had remarkable growth rates as a group. Spandana’s growth rate in loans outstanding seems
moderate at 15 per cent as was SKS’s at 21 per cent. This is more attributable to the
securitization and assignment of debts that had reduced outstanding in the books of MFIs for
raising resources rather than reduction in average loan size. The numbers in MIX database do not
include the assigned/securitized part of the portfolio in the loans outstanding and rightly so. But
the overall numbers of business originated and carried on the balance sheet for a time would not
be available for trend and growth rates analysis. For example, in the case of SKS, when the
outstanding portfolio loans assigned Rs.13.84 billion are taken into account, the growth rate of
outstanding loans increases to 76 per cent.
Table: Comparative Performance metrics of top five MFIs
MFI Clients (million) Loans (Rs. billion)
39
2009 2010Growth
Rate (%)2009 2010
Growth Rate (%)
SKS 3.52 5.80 65.00 24.60 29.70 21.00Spandana 2.43 3.66 51.00 18.70 21.60 15.00SHARE 1.50 2.36 57.00 12.20 17.20 41.00Bandhan 1.45 2.30 59.00 5.30 12.10 128.00AML 0.88 1.34 52.00 7.10 11.00 54.00
(Source: Mix Market, Status of Microfinance India 2009-10, NABARD)
Fig: Comparative Performance Metrics of Top-5 MFIs by No. of clients
SKS Spandana SHARE Bandhan AML0
1
2
3
4
5
6
20092010
40
Fig: Comparative Performance Metrics of Top-5 MFIs by amount of Loans
SKS Spandana SHARE Bandhan AML0
20
40
60
80
100
120
140
20092010Growth Rate (%)
Form-wise distribution of MFIs:
The form-wise distribution of MFIs in the Mix data base has NBFCs as the largest
grouping. The analysis of the market share in terms of the form of organization of MFIs shows
that NBFCs had a very strong hold on the market with a share of 85 per cent of loans. Societies,
the next most popular form had a share of just 6.4 per cent of the market. The market shares of
different forms should be understood in the context of support available from other stakeholders
such as banks, investors, rating agencies and others. Companies are the preferred form as there is
a clearly defined ownership and governance structure, well-laid systems of accounting and audit
and, therefore, accountability for performance to those who invest or lend. Rating agencies
subconsciously raise their ratings a notch when they see a company as the form in MFI as
compared to a trust or society. Investors cannot buy equity in any other form with a potential for
capital appreciation and dividends. The dominant market share of NBFCs has as much as to do
with their abilities as with the supportive framework provided by other stakeholders.
Table: Form-wise distribution of MFIs-Loan portfolio
FormNo. of MFIs
GLP (Rs. Million)
41
NBFC 34 133.67Society 23.0 10.1Section 25 6.0 4.0Trust 4.0 6.4Cooperative Banks 5.0 1.2Others 3.0 1.2Local Area Bank 1.0 0.8
Figure: Form-wise distribution of MFIs-Loan portfolio
85%
6%3%
4%1% 1% 1%
NBFC Society Section 25 TrustCooperative Bank Others Local Area Bank
42
Funding Aspect to MFIs:
On the funding side, more equity funds were available to the sector compared to the
previous year and to a larger number of MFIs. Some smaller MFIs also received equity funding.
Mainstream private equity investors outnumbered focused microfinance investors in the Indian
market. One of the watershed events in the recent past has been the successful float of the initial
public offer of equity of SKS microfinance. A less than five year old institution mobilizing
$#350 million from the capital market at a price that is more than six times its book value is a
major milestone in the sector’s journey. There are differing views on the high valuation achieved
and the future difficulties in defending the equity price in an unforgiving marketplace. But it
cannot be denied that the microfinance sector has growth in maturity to a level sufficient to
attract capital market funds. More institutions are expected to follow suit and approach the
bourses in a quest for high enterprise valuation and not necessarily equity funds.
Banks have been cautiously optimistic in continuing to support the sector with bulk loans
and buying out portfolios. Small Industries Development Bank of India (SIDBI) almost doubled
its outstanding microfinance loan portfolio Rs.38 billion. Public sector banks had taken a major
share of new exposures. A larger number of banks are wiling to support MFIs as compared to
couple of years ago. Most private sector and foreign banks have limited their exposure buy and
large to previously existing levels with a few exceptions. The funder’s confront has been derived
from the entry of new, more organized and professional promoters. Then entry of large corporate
houses such as Mahindra and Mahindra, Larsen & Toubro and Reliance has been seen as a
testimony to the inherent strength of business mode of MFI. The banking sector has fewer
reservations in financing MFIs, particularly those in company form, from a business and risk
point of view. However, regulatory concerns would continue to influence credit decisions of
banks especially in current year.
During the year 2009-10, there is a tremendous growth has been recorded in the increase
of bank loans disbursed to MFIs across India. Rs.8062.7 Crores have been disbursed to 691 MFIs
and approximately this is 116 per cent growth when it is compared to 2008-09 which was
Rs.3732.3 Crores. As there is an increase of Bank loans disbursed to MFIs, the growth in the
43
bank loans outstanding is also recorded a significant. The bank loans outstanding as at 31st March
2011 was amounted Rs.10147 Crores against Rs.5009.10 Crores on 31st March 2010. A thorough
analysis has been done on these two parameters since 2006-07 to find out the growth of MFI role
in the MF sector in India. It has been found that the Bank loans disbursement is playing a key
role in the operational activities of MFIs.
Table: Progress of MFI Bank Linkage Program in India
Particulars
2006-07 2007-08 2008-09 2009-10
No. of MFIs
Amount (Rs. in Crores)
No. of MFIs
Amount (Rs. in Crores)
No. of MFIs
Amount (Rs. in Crores)
No. of MFIs
Amount (Rs. in Crores)
Bank Loans disbursed to MFIs during the year 518 1970.2 581 3732.3 691 8062.7
Bank loans outstanding with MFIs as on 31st March 1109 2748.8 1915 5009.1 1513 10147.5
(Source: Status of Microfinance in India 2009-10, 2008-09 by NABARD)
Fig: Progress of MFI Bank Linkage Program in India
No. o
f MFI
s
Amou
nt (R
s. in
Cro
res)
No. o
f MFI
s
Amou
nt (R
s. in
Cro
res)
No. o
f MFI
s
Amou
nt (R
s. in
Cro
res)
No. o
f MFI
s
Amou
nt (R
s. in
Cro
res)
2006-07 2007-08 2008-09 2009-10
0
2000
4000
6000
8000
10000
12000
Bank Loans disbursed to MFIs dur-ing the yearBank loans outstanding with MFIs as on 31st March
44
Key Financial Metrics of top MFIs:
Profitability:
Of the 76 MFIs in the database, six had not reported information relating to profits. Of
the remaining 70 MFIs, 62 had reported positive returns and nine had reported negative return-
on-assets. Of the loss making MFIs, one was in the large category. A Cursory analysis of return-
on-assets offers a surprising revelation that the microfinance sector has a very high profit
potential. Six MFIs had return-on-assets in excess of 7 per cent (refer to the below chart). This
highest return-on –assets reported was 9.41 per cent by a society of MFI. Thirty five institutions
in all had return-on-assets in excess of 2 per cent. In contrast, the ban king system typically had a
range of 1 per cent to 2 per cent return-on-assets. Public sector banks in 2009 had an average
return-on-assets of 0.6 per cent, respectively. A part from a comparison of the return-on-assets
between banks and MFIs, a comparison of their business context is also warranted. Banks do not
deal with poor populations for major parts of t heir business. Banks, though dealing typically
with better off clients that have a capacity pay, are satisfied with low return-on-assets. Poor and
vulnerable customers and high return-on-assets do not get well together. While potential for
profitability in the sector is clearly established in these numbers, justifications for such high
profits buy the concerned MFIs is hard to come by. Some of the explanations are that such profits
are necessary for growth, the profits are ploughed back to shore up capital adequacy, and the
retained earnings significantly facilitate leveraging borrowing form banks.
Table: ROA range wise distribution of MFIs
ROA (%) Range
No. of MFIs
Above 7% 64%-7% 142%-4% 151%-2% 120-1% 14
Fig: ROA range wise distribution of MFIs
45
Above 7% 4%-7% 2%-4% 1%-2% 0-1%0
2
4
6
8
10
12
14
16
No. of MFIs
Financial Ratios:
The Side by Side Report 2009 published by Sa-dhan has provided different sectoral
financial rations based on audited information. The year 2009 saw an increase in the return-on-
assets of MFIs to 4.87 per cent compared with 3.78 per cent of the previous year. Return on
equity also increased to 25.88 per cent compared with 22.74 per cent in the previous year.
However, operational self-sufficiency fell from 125.9 per cent in 2008 to 117 per cent in 2009.
There was a spike in the operating cost which was higher at 14.3 per cent rising from 8.5 per cent
in 2008. The increase in operating cost is in part of attributable to a decline in the per field
officer case load which fell from 411 to 367. The Sa-dhan data for 2009 for select MFIs reveals
better operational self-sufficiency, higher portfolio at risk, a stable case load on field officer, a d a
stable operating cost ratio (refer to the below table). Fourteen MFIs were unable to cover their
costs in 2009. Seven of these were in society form and three were in non-profit company form;
three were in company form. This tendency on the part of non-profits to make losses needs
introspection. The increased portfolio at risk (PAR) in the sector from 2 per cent in 2007 to 3 per
cent in 2009 in worrisome as it is a 50 per cent increase in PAR and on a much larger loan
portfolio.
The scope for reducing operating costs should be examined thoroughly. The link between
46
size of loans and operational costs is well known to all professionals across the sector, In a
comparison across several countries, the average outstanding loan size in India is on the lower
side. It is smaller than in Cambodia, Ethiopia and Vietnam, but higher than in Bangladesh. There
are signs this year that loan size in India is increasing, but gradually, the preference in business
growth is on the client side and not on the loan size. The peril in smaller loans is that it leaves the
customer wanting and opens up space for competition, to some extent, multiple borrowing
instincts in the client could be curbed by satisfying her needs adequately. Higher loan sizes
would transact in to lower staff and transactions costs, which in turn could bolster operational
self sufficiency and profits.
Table: Key Financial Ratios of selected MFIs from 2007 to 2010
Ratio2010 2009 2008 2007
Operational Self-Sufficiency 115.4113.
4103.
5Portfolio At Risk (PAR) 3 2.5 2Current Repayment rate 96.9 95.9 94.9Operating Cost Ratio 13.8 13.5 19Total Cost Ratio 24.9 24.8 29.2Active Borrowers Per Credit Officer 406 413 402
(Source: Sa-dhan Side by Side Report 2010)
Yield on Portfolio:
The YOP is one of determinant of incomes and profits. In the absence of a uniform basis
of interest rate disclosure by MFIs, the YOP serves as proxy that is more consistent across
institutions. The normal yield was above 30 per cent for 23 MFIs out of 70 that reported the data.
The highest yield was 41.29 per cent. Sixteen MFIs had yield of less than 20 per cent. The size
wise analysis did not show any significant relationship between size and yield levels. The
hypothesis that MFIs that grow large will reap the economies of scale and drop the interest rates
resulting in lower yields is not borne out. Large MFIs are as likely to have higher yields as are
the medium ones, However, the age-wise analysis does not bring out conclusions that are contra-
intuitive (refer to the below table). MFIs in the initial start-up period are expected to have higher
47
yields and, as they grow older, the yields will decline reflecting the amortization of initial
investments and improved efficiencies from settled systems and processes. But the data on yields
shows that young MFIs in the five to 10 year range of age are more likely to have moderate
yields. The reasons why yield rates are high in mature institutions has to be explored. In some
cases, the yields have increased over the years despite reduction in operation costs. There had
been a conscious pricing strategy to generate higher margins and profits. However, in a customer
focused business, one would have expected that cost reduction would be passed on to customers
in the form reduced interest rates.
Table: Size of Institutions and Yield on Portfolio
Size of MFINo of MFIs with % yield
25% or more 10 to 25 10% or less
Large (Rs.500 mn + Portfolio) 22 15 0
Medium (Rs.50 to 500 mn) 17 11 1
Small (less than Rs.50 mn) 1 2 1 (Source Sa-dhan Side by Side Report, 2010)
The number of institutions that reported increased operational costs is almost the same as
the number who managed to reduce their operational costs. As in the case of yields, more MFIs
that are mature reported an increase in operational costs. While 11 out of 15 young MFIs
reported declining operational costs, only 17 out of 43 older and mature MFIs managed to reduce
operational costs.
Table: Age of Institutions and Yield on Portfolio
Age of MFIsNo of MFIs with % yield
25% or more 10 to 25 10% or less < 5years 14 4 15 to 10 years 9 14 0> 10 years 17 9 1
(Source Sa-dhan Side by Side Report, 2010)
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Table: Age of MFI and Operational Cost
Age of MFI
No of MFIs with
Reduced Operationa
l Cost
Increased Operationa
l Cost
< 5years 11 45 to 10 years 10 12> 10 years 7 14
< 5years 5 to 10 years > 10 years0
2
4
6
8
10
12
14
No of MFIs with Reduced Opeational CostNo of MFIs with Increased Opeational Cost
Products and Services:
In general the MFIs have restricted themselves to the weekly repayment installment
products. The product is easy for MFIs t market, process to recover. It requires a simple software
application to monitor and simple training to staff. While there are new labels introduced in the
product profile of several MFIs, the basic loan remains the same. However some MFIs have
come out fresh ideas on products that balance traditional microfinance with the specific needs of
the poor. The design of the loan product is always a challenge. Designing a product to provide
flexibility to the customer in the repayment of loans to suit their income flows is rare. South
Indian Federation of Fishermen Societies (SIFFS) in Tiruananthapuram has a portfolio of
products with flexible repayments that are aligned to the nature o livelihoods of its customers.
Such innovative products to cater to real requirements of customers are few and not
49
commonly found in use. With loan sizes increasing and in some cases being adequate to support
a significant part of livelihood activities, there has been no move towards either increasing the
turnover of loans to a longer period or changing the repayment installments to suit the cash flows
that might arise from the livelihoods. The reluctance to change the loan product features can
provide to be an impediment to portfolio expansion. Single product companies carry
considerable risk potential and this more than any other factor is likely to impact MFIs in the
near future.
Governance:
Governance of MFIs had improved over the last few years, as was also commented in the
last year’s report. The NBFC MFIs, in particular, have brought in professionals to their boards.
Audit committees, executive compensation committees and the like have been set u. The annual
report disclosures indicate the hard work put in by these committees. Ujjivan’s annual report
contained the results of a comprehensive pilot impact evaluation study, which was commendable
exercise. It carried a study of about 3000 clients that measured their progress out of poverty and
reported the results transparently. After the failure of Satyam Computers, the independent
directors on boards have turned wary. The vicarious liability fixed on independent directors in
the infamous Union carbide Case has done little to allay apprehensions of directors on company
boards. It is reported that it is becoming increasingly difficult to find independent directors. The
result is that some professional in the sector have to be on several boards, raising conflict of
interest.
The promoter group actions in configuring the equity holdings and especially at the time
of transformation of NGOs in the NBFC MFIs have been les than transparent. Some of the large
MFIs have been accused of mal-governance at material points of time in a bid to retain control
over the MFI after transformation. The creation of Mutual Benefit Trust (MBT) and their
governance has come under server criticism. Whether the trustees of MBTs took decisions in the
best interest of beneficiaries is a question that is repeatedly posed. While all the required legal
and ethical issues might have been satisfactorily attended to the lack of information in the public
domain and non-availability of facts when required create a negative opinion of concerned
50
institutions in the public eye.
INVESTMENT PROFILE IN MFIs:
Microfinance is the sub-sector of choice in the financial sector for investment bankers.
The main investment sources for MFIs are equity shares, bonds and loans from banks and
financial institutions. The deluge of liquidity with Microfinance Investment Vehicle (NIV) and
investment bankers made it easy for Microfinance Institutions (MFIs) I India to access equity.
Investments by private equity (PE) investors in India continue to grow ever since Sequoia
Capital India invested in SKS. The US$ 32 million investment was soon followed by other PE
investors, among them Unitus, Bellwether, Treeline and Developing World Markets. According
to the venture Intelligence, Cash-for-equity investments in India-based companies by PE/Venture
capital (VC) firms accounted for 40 per cent of all PE deals in the past 18 months. There were 11
PE deals worth US$ 178 million during the calendar year 2009, compared to three deals worth
US$ 52 million in 2008, according to Venture Intelligence.
Sequoia capital India was the first traditional VC firm to invest in the space with US$11.5
million investment in Hyderabad based SKS Microfinance in 2007. US based Sandstone Capital
became the largest VC investor in an MFI by leading a US$ 75 million round in SKS
Microfinance in November, 2008. However, for most small MFIs, equity from external
investors was a distant dream until recently. All the new PE deals in Indian MFIs were
predominantly for the top tier MFIs. The deals were large but very few. However, the situation
has been changing. In the year 2009-10, there were 29 equity deals worth US$213 million.
Thirteen MFIs in the top 10 lit got more equity investments. In the first quarter of 2011, six deals
worth more than US$66 million were concluded in which four smaller MFIs received equity
apart from two large MFIs (refer to the below table). Investors are thus willing to take up equity
positions in start up MFIs, for the capital appreciation potential they offer. The International
Finance Corporation (IFC), the investment arm of the World Bank, has invested US$300000 in
Utkarsh Micro Finance Private Limited, a microfinance start-up providing loans in Northern
India.
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Table: Equity deals in Indian MFIs
Financial Year
US$ Million
No. of Deals
2007-08 52 32008-09 178 112009-10 209 292010-Q1 66 6
Fig: Equity Deals in Indian MFIs during 2010-11 by amount wise
2007-08 2008-09 2009-10 2010-Q10
50
100
150
200
250
The number of equity investment deals in Indian MFIs has been increasing over the last
three years. There was a significant increase in the number of investments made in the financial
year 2009-10. Though increase in the amount invested was only 18 per cent, the increase in the
number of deals done was 163 per cent, reflecting better access to equity for more MFIs and
smaller average investment.
Investors:
With active investment interest in the Indian Market, different types of investors have
entered the space. The early interest in MFI equity came from investors abroad. Several foreign
investment firms operate in India and more new ones are in process of entry. Domestic investors
have also made equity investments, often accompanying the international investors. Domestic
52
equity die not get invested in MFIs on account of a weak venture capital culture and the
unfamiliarity with the sector. The entry of foreign capital in the sector has raised awareness of
domestic investors to the opportunities in microfinance. From the global funders, there was a
steady flow of funds through the investment cycles turned a little longer due to credit crisis. The
IFC committed Rs.350 million in Rajasthan based NBFC, AU Financiers Private Limited.
Entering India for the first time, Incofin, a Belgium based microfinance company, has recently
picked up a 34 per cent stake (Rs.80 million) in Asomi Finance Private Limited. Other
institutions like Belwether, Microvest, Temasek, ACCION gateway, Tree Line Fund (Singapore)
and Blue Orchard (Switzerland) also invested in various MFIs for the year ending 2010 (refer to
the below table). The number of international players is growing in the sector. Domestic interest
intensified with the entry of new investors such as Bajaj Allianz Life Insurance and Catamaran
Venture Fund.
Table: Listing of Investors based on domicile
National Investors International InvestorsLok Capital International Finance Corp (IFC)
Aavishkaar Goodwell Sequoia CapitalIndia Microfinance Development Co
Incofin
Bajaj Allianz Life Insurance Microvet Capital FundsSIDBI Temasek HoldingsCatamaran Venture Fund Blue Orchad Private EquityBellwether MF Fund P Ltd ACCION Gateway FundsDia Vikas Capital Micro Ventures SpASVB India Capital DWM Investment Ltd.,
NMI Frontier Fund, Tree Line Asia Master
FundMatrix Partners Unitus Equity Fund,
Elevar Equity Advisors, Microvest, CLSA Capital, Triodos Bank
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The initial investors in the sector were microfinance focused funds that entered a riskier
market and prepared the field for broader entry of others. With the maturing of the market, more
mainstream investors have gained entry. This year saw more investments from mainstream
investors than MFI focused funds. IFC, with investments of more than US$ 57 million, led the
pak of mainstream investors (refer to the below table). Mainstream investors had a share of 72.8
per cent of equity invested during the year. The coming to maturity of Indian microfinance sector
is apparent from the equity investments from mainstream players that lead the others by a ratio of
3:1.
Table: Equity Deals in 2009-10 by class of investors
Mainstream Investors Microfinance InvestorsName Amount US$ Name Amount US$
Temasek 50000000 Dia Vikas 3150000Blue Orchad 10334849 Bellwether 479581Sequoia 9400000 Microinvest Capital 4500000Treeline Asia 10000000 Accion Gateway 500000Individuals 319006 Microventures SpA 34649Catamaran Venture 6099783 DWM Investment 20845986IFC 57800000 Unitus Equity 4250000Aavishaar Goodwell 930521 Incofin 1804522Bajaj Allianz 10000000 Lok Capital 15000000 India Microfin Dev Co 10000000 SIDBI 10727311
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Total 154884159 Total 71292049Share 72.8 per cent Share 28.2 per cent
The equity market will continue to be active with the capital to Risk (weighted) Assets
Ratio (CARR) increasing to 15 per cent of risk weighted assets, and the growth in gross assets of
the MFIs, more equity will be needed. Lok Capital had estimated that there would be “an annual
equity need of approximately $200 million of the top ten MFIs until fiscal year 2013. The loan
portfolio growth shown by the sector had been Rs.57 billion and Rs.66 billion in years 2009 to
2010, respectively. If future loan portfolio growth is around Rs.70 billion per annum, incremental
equity of Rs.10 billion might be required every year till growth in absolute terms decline.
Borrowings:
MFIs ramped up their loan portfolio in India from US$ 252 million to US$ billion
between 2005 and 2010. The funding for this expansion came from several sources apart from
equity funding. Bulk loans from banks are the most important source of funds. In recent years,
quasi-equity, mezzanine funding, non-convertible debentures, debt assignments and sale of
securitized debt have all emerged as other means of raising resources.
Non-convertible Debentures:
In an attempt to create new avenues to raise funds, Non-convertible Debentures (NCDs)
were used by MFIs. The country’s first ever NCD issue that was listed on the stock exchange
was by Hyderabad based SKS Microfinance. It had raised Rs.75 Crores at a coupon rate of 10
per cent in May 2009, which was son followed by another issue of SKS and Grameen Koota.
MFIs have increasingly been tapping on NCD route to create a diversified lender base. For
investors, NCDs are a good option given the fixed income and lower risk. NCDs are also more
attractive as the companies offer higher returns than the fixed deposits. Below table gives the
major deals in NCD for this year:
Table: Major NCD deals during 2011
MFI Amt in US $Spandana Spoorthy Microfinance 17000000
55
Grameen Koota 4270000SKS Microfinance 15800000
Securitization:
A recent development in Indian micro-finance is securitization. Securitization in micro-
finance means that part of the loan portfolio of a micro-finance institution is transferred to a trust
or a special purpose vehicle (or other legal entity). The entity issues notes to investors who earn a
yield that is repaid from the future payment flows to this pool of micro-finance receivables. The
capital raised by the sale is used to fund additional micro-credit activities of the MFI Many
commercial banks buy the securitized assets in order to satisfy the requirement to direct 40% of
their total lending to the 'priority sector'.
A recent micro-loan securitization, completed by IFMR Capital and Equitas Micro
Finance, has enabled the first ever mutual fund investment into the Indian Microfinance sector.
The Rs.480 million (US$ 10.4 million) transaction is backed by over 55000 micro-loans
organized by Equitas Micro Finance (refer to the below table). Micro-loan securitization
provides banks a profitable way to increase their investment in the microfinance sector through
rated and tradable securities.
Table: Major Securitization deals in 2009-10
Originator (Rs. In Crores)
SKS Microfinance 100.0Bandhan 75.0Grameen Koota 31.1Equitas Microfinance 48.2
Sahayata Microfinance, Asirvad Sonata, Satin Creditcare 30.9Spandana 25.0Gramen Financial Services 29.4Janalakshmi Fin Services 24.8Share 70.0Grameen Koota 24.8SKS Microfinance 137.4
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Sahayata Microfinance, Asirvad Sonata, Satin Creditcare 27.3SKS Microfinance 107.6Share 49.2Equitas Microfinance 42.2Equitas Microfinance 15.7
The securitization process, which allows MFIs to pool the receivables from loans and sell
the same to third parties like banks, mutual funds and insurance companies, could perhaps be
another big opportunity for MFIs to increase their funding sources, IFMR Capital, a Chennai
based NBFC expects more than Rs.1000 Crores worth of securitization transactions to take place
in the Indian Microfinance sector for the financial year 2010-11. Securitization enables lower
costs to originating MFIs, quality assets to buyers, and a means of participation for insurance
companies, mutual funds and potentially even pension funds.
RBI has proposed refinement of securitization guidelines in order to revamp the market p
practice and avoid high risks associated with very limited period holding of such paper in hands
of investors. It has proposed under the draft guidelines a minimum holding period (MHP) and a
minimum retention (MR) in the hands of originator.
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SECTION – IV: MICROFINANCE NETWORKS IN INDIA
MICRO FINANCE INSTITUTIONS NETWORK
Micro Finance Institutions Network (MFIN) is the self-regulatory organization (SRO) for
the Indian Microfinance industry. It was established in October 2009 with the sole purpose of
promoting the key objectives of Microfinance in India and establishing guidelines for responsible
lending and client protection in the Microfinance industry.
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MFIN seeks to work closely with regulators and other key stakeholders to achieve larger
financial inclusions goals through microfinance. Currently MFIN member organizations consist
of 46 of the leading NBFC/MFIs whose combined business constitutes over 80% of the Indian
microfinance sector.
As a step towards more stringent self-regulation, MFIN has defined a code of conduct for
its members, which focus on fair practices with borrowers and among member organizations.
The MFIN code of conduct establishes limits on overall lending at the client level, establishes
guidelines for fair collection practices promoting transparency, and standardized recruitment and
training practices for member MFIs. The code of conduct encourages data sharing among
members, and has established mechanisms for promoting transparency in the industry, such as
setting up helplines and formulating a whistle blowing mechanism.
Vision
To be an engine of Inclusive Growth for India.
Mission
To provide inclusive financial services to 100 million low income households by the year 2020,
in a responsible and transparent manner, thereby helping them build sustainable livelihoods.
Micro Finance Institutions Network (MFIN) is the premier Industry Association for the
microfinance sector in India and its member organizations constitute the leading Microfinance
institutions in the country. MFIN was created to promote the key objectives of microfinance,
which is to help economically underserved communities achieve greater financial independence
and build sustainable livelihoods. MFIN seeks to work closely with regulators and other key
stakeholders to achieve larger financial inclusions goals through microfinance.
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Currently MFIN member organizations consist of 46 of the leading NBFC/MFIs whose
combined business constitutes over 80% of the Indian microfinance sector.
Current Projects and Initiatives from MFIN:
Credit Bureau
In an effort to improve credit risk management within the microfinance sector and to check
multiple borrowings and over indebtedness of clients, MFIN is working with the leading Credit
Bureaus in the country to set-up a Credit Bureau for microfinance clients. Information on about
25 million loan accounts has already been submitted to these Bureaus and fully functional Credit
Bureaus for the microfinance industry are expected to be operational by April, 2011.
Helpline for Clients
MFIN has started to put in place a ‘Helpline’ for microfinance clients. This will function as an
independent client grievance redressal mechanism. The ‘Helpline’ for Andhra region shall
become operational within this month. Similar helplines in other states are also in the pipeline.
State/Regional Chapters
MFIN has set-up State/Regional Chapters to provide a common forum to MFIs to resolve State
level operational issues and deal with local matters relevant to the industry.
Transparent Pricing of Interest Rates
MFIN has co-sponsored the “Transparency pricing initiative in India” for Microfinance
Transparency. Under this study, effective interest rates of all MFIN member organizations will
be calculated and made available in the public domain. The effective rates will be communicated
60
to MFI clients as well and will be mentioned in loan documents and passbooks. Be Part of the
Transparent Pricing Initiative.
MFIN has also commissioned a pan-India study with National Council of Applied Economic
Research, India to assess effective cost of borrowing from various formal and informal sources
for clients.
Sa-Dhan
Sa-Dhan's mission is to "build the field of community development finance in India, to help its
member and associate institutions to better serve low income households, particularly women, in
61
both rural and urban India, in their quest for establishing stable livelihoods and improving their
quality of life." Sa-Dhan membership stands at 220 including 169 MFIs. The others are Capacity
Builders, Bulk Lenders etc. Sa-Dhan member MFIs represent over 80% of client outreach and
portfolio outstanding of India's "MF sector". Membership in Sa-Dhan though is categorized
around operational features of organizations. Four types of organizations qualify to become its
member: Category A: Capacity Building Organizations (CBOs) who promote self-help groups
and provide capacity building inputs, or, Technical Service Providers (TSPs) who provide
technical support to NGO-MFIs Category B: Organizations not purely structured as financial
intermediaries, but either provide micro-credit to groups/individuals or provide bulk credit to
MFIs for micro-credit Category C: Organizations purely structured as financial institutions
Category D: Formal or Informal Networks/Channels for both support and capacity building. Any
of the above can apply for associate membership, admission is ultimately decided by the board.
Membership is to be renewed annually upon due payment of membership fee and compliance
with Sa-Dhan code of conduct. After three years, associate members are eligible for primary
membership.
Mission of Sa-Dhan:
"To build the field of Community Development Finance Institutions, help members and associate
institutions in rendering better services to low income households, particularly women, both in
rural and urban India, in their quest for establishing a stable livelihood for improving the quality
of their life."
Sa-Dhan spearheaded the advocacy-campaign that informed the RBI-circular "Micro Credit" in
February 2000. One of the most significant changes following on that circular was the
recognition of bank-lending to MFIs under norms. PSL require- sector lending (PSL). PSL
requirements have been essential in fueling growth of the Bharat Microfinance. The lion's share
of MFIs' borrowing (over Rs. 5,500 Crores in 2007-08) and SHG-bank linkage falls into the
realm of PSL.
Sa-Dhan first conceived a framework for “Micro finance legislation”. Consequently, a bill
named as “Micro Financial Sector (Development and Regulation) Bill-2007”, was introduced to
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the 14th Lok Sabha. It was referred to the Standing Committee of Finance, which was still
considering it when the Lok Sabha completed its constitutional term. As long as a legal vacuum
persists, confusions about shape of microfinance the nature, purpose and operations arise
constantly among local or regional administrators, political and/or community leaders. Sa-Dhan
through its experience and reputation has time and again convinced them of the developmental
relevance of MFI operations and thus preserved the overall growth path of the sector. Sa-Dhan
introduced a Voluntary mutual code that lays down the principles of fairness, reliability and
transparency. Sa-Dhan through its Bharat Microfinance Reports also makes transparent MFI
performance and outreach. Because of Sa-Dhan, India is the first country to have ever issued
authoritative Accounting Standards for microfinance through ICAI in 2008.
Sa-Dhan organizes regular exposure programmes, both nationally and internationally, that add to
its members' staff training. Furthermore, Sa-Dhan together with IIBF in 2008 introduced the
Diploma Examination for Microfinance Practitioners which offers a graduate degree not only to
college students but also to undergraduates with working experience in microfinance.
63