Microfinance India: State of the Sector Report 2009


N. Srinivasan

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    List of Tables, Figures, Boxes, Abbreviations and Annexes

    • 1.1. Client outreach (outstanding accounts) 2
    • 1.2. Estimate of microfinance clients 3
    • 1.3. Concentration of financing in southern states 4
    • 1.4. Indian microfinance—a global comparison 10
    • 2.1. Growth trends in SBLP 23
    • 2.2. Savings performance of SHGs 24
    • 2.3. Regional shares in linkage 25
    • 2.4. Top five states in SHG linkage in 2008–09 25
    • 2.5. Ranking of select states based on MPI and MPPI 27
    • 2.6. Bank loans outstanding against SHGs 28
    • 2.7. Top commercial banks in SHG linkage, March 2008 28
    • 2.8. Top five RRBs in SHG linkage 29
    • 2.9. Top five CCBs in SHG linkage 30
    • 2.10. Range of recovery in SHG loans 32
    • 2.11. Physical progress under SGSY since inception 34
    • 3.1. MFIs in the MIX top 50 list 49
    • 3.2. The top 10 MFIs by outreach (Rs billion) 49
    • 3.3. Comparative performance of top five MFIs 50
    • 3.4. Growth in client outreach—a frequency distribution 50
    • 3.5. Size of institutions and yield on portfolio 52
    • 3.6. Age of institutions and yield on portfolio 52
    • 3.7. Trends in operational cost and age of MFIs 52
    • 3.8. Financial ratios of select MFIs, 2008 53
    • 3.9. Yield and cost ratios by lending model type, 2008 59
    • 3.10. Operational costs under different lending model 59
    • 4.1. Microfinance in Karnataka 72
    • 6.1. Conclusions drawn from Hewitt Salary Increase Survey 2008–09 94
    • 7.1. Insurance density—comparison across select countries 97
    • 7.2. Insurance penetration—comparison across select countries 97
    • 7.3. Micro life insurance 98
    • 7.4. Health insurance schemes 99
    • 8.1. Software solutions—a comparison 110
    • 8.2. Installations by vendors 110
    • 9.1. Savings account usage in different institutions 117
    Appendix Tables
    • A.1. Fact sheet on coverage and growth of SHGs and MFIs, March 2009 131
    • A.2. List of MFIs and other details 132
    • A.3. Outstanding loans of bulk-funders of MFIs 144
    • A.4. Progress under microfinance—bank loans outstanding against SHGs 145
    • A.5. List of microfinance resource agencies/service providers 147
    • A.6. UN Solutions Exchange—members' expectations and guidance on preparation of the state of the sector report 154
    • A.7. List of organisations and persons met 156
    • 1.1. Addition of incremental clients by SBLP and MFIs 2
    • 1.2. Growth in outstanding loans 3
    • 1.3. Growth in outreach and loan volumes 9
    • 1.4. Source of funds—foreign and domestic 9
    • 2.1. Share of different types of banks in number of savings SHGs, March 2009 24
    • 2.2. Share of different types of banks in amounts saved by SHGs, March 2009 24
    • 2.3. Share of different types of banks in SHG credit linkage by number of groups, March 2009 29
    • 2.4. Shares of different types of banks in SHG bank linkage by amount of loans, March 2009 29
    • 3.1. Client outreach by size of MFIs 51
    • 3.2. Share of loan volumes—size wise 51
    • 3.3. Market share of different forms of institutions—loan volumes 51
    • 3.4A. Profit/loss making MFIs—by form of organisation (2009) 51
    • 3.4A Profit/loss making MFIs—size wise classification 52
    • 3.5. Cost and yield trends in select MFIs 54
    • 3.6. Regional shares in client outreach 54
    • 3.7. Regional shares in loans outstanding 54
    • 3.8. Number of deals and total invested (million USD) by quarter 63
    • 3.9. Number of deals by type of investor involved 63
    • 3.10. Share of total invested in Indian microfinance by type of investor 63
    • 5.1. (A) Extent of MFI sector under regulation—by loan volume (%) 82
    • 5.1. (B) Extent of regulation—by institutions supervised (%) 82
    • 6.1. Salary increases in microfinance sector 93
    ABCOAverage Borrowers per Credit Officer
    AICIAgricultural Insurance Company of India Limited
    AKMIAssociation of Karnataka Microfinance Institutions
    ALWA Little World
    AMCAsset Management Company
    AMMACTSActs Mahila Mutually Aided Cooperative Thrift Society
    APAndhra Pradesh
    APGVBAndhra Pradesh Grameen Vikas Bank
    APMACSAndhra Pradesh Mutually Aided Cooperative Societies
    APMASAndhra Pradesh Mahila Abhivruddhi Society
    APRAnnualised Percentage Rate
    ATMAutomated Teller Machine
    BCBusiness Correspondent
    BFBusiness facilitator
    BDSBusiness Development Service
    BIRDBankers Institute of Rural Development
    BIMARUBihar, Madhya Pradesh, Rajasthan, Uttar Pradesh
    BPLBelow Poverty Line
    BPOBusiness Process Outsourcing
    BSEBombay Stock Exchange
    BSSBangalore Software Services
    CABCollege of Agricultural Banking
    CAGRCompound Annual Growth Rate
    CASHECredit and Savings for Household Enterprises
    CASHPORCredit and Savings for the Hard-Core Poor
    CBSCore-Banking Solution
    CCPSCompulsorily Convertible Preference Shares
    CDFCooperative Development Foundation
    CDMACode Division Multiple Access
    CEOChief Executive Officer
    CFOChief Financial Officer
    CSFICentre for the Study of Financial Innovation
    CGAPConsultative Group to Assist the Poor
    CGMChief General Manager
    CIBCredit Information Bureau
    CIRMCentre for Insurance and Risk Management
    CMComputer Munshi
    CMFCentre for Microfinance
    CMF-IFMRCentre for Microfinance-Institute for Financial Management and Research
    CMRCentre for Microfinance Research
    CMRCCommunity Managed Resource Centres
    CRARCapital to Risk (Weighted) Assets Ratio
    CRDCentre for Rural Development
    CSCsCommon Services Centres
    DCDeputy Commissioner
    DCCBDistrict Central Cooperative Bank
    DFIDDepartment for International Development
    DGR-MoDDirectorate-General of Resettlement, Ministry of Defence
    DRDADistrict Rural Development Authority
    DWCDDepartment of Women and Child Development
    EMIEquated Monthly Instalment
    EPEstablished Player
    FDIForeign Direct Investment
    FIFFinancial Inclusion Fund
    FINOFinancial Information Network & Operations Ltd
    FIPBForeign Investment Promotion Board
    FITFFinancial Inclusion Technology Fund
    FLDGFirst Loss Deficiency Guarantee
    FMCGFast Moving Consumer Good
    FOField Officer
    FWWBFriends of Women's World Banking
    GCCGeneral Purpose Credit Cards
    GDPGross Domestic Product
    GPRSGeneral Packet Radio Service
    GDSGramin Dak Sevak
    GSMGlobal System for Mobile
    GTZDeutsche Gesellschaft für Technische Zusammenarbeit
    HDFCHousing Development Finance Corporation
    HDIHuman Development Index
    HRHuman Resources
    HUDCOHousing Urban Development Corporation
    ICICIIndustrial Credit and Investment Corporation of India
    ICTInformation and Communication Technology
    IFADInternational Fund for Agricultural Development
    IFCInternational Finance Corporation
    IGSIndian Grameen Services
    IIMAIndian Institute of Management Ahmedabad
    IKPIndira Kranti Patham
    ILFSInfrastructure Leasing and Financial Services Limited
    ILOInternational Labour Organization
    IOBIndian Overseas Bank
    IPOInitial Public Offering
    IPRIntellectual Property Right
    IRDAInsurance Regulatory and Development Authority
    IRMAInstitute of Rural Management Anand
    ISPIndependent Solution Provider
    ITInformation Technology
    JLGJoint Liability Group
    KBSLABKrishna Bhima Samruddhi Local Area Bank
    KDFSKalanjiam Development and Financial Services
    KFWKreditanstalt für Wiederaufbau
    KGFSKshetriya Gramin Financial Services
    KSMCKarnataka State Minorities Commission
    KYCKnow Your Customer
    LABLocal Area Bank
    LICLife Insurance Corporation of India
    LIFILow-Income Finance Institution
    MACSMutually Aided Cooperative Society
    MBTMutual Benefit Trust
    M–CRILMicro–credit Ratings International Ltd
    MFDCMicrofinance Development Council
    MFDEFMicro Finance Development and Equity Fund
    MFIMicrofinance Institution
    MFOMicrofinance Organisation
    MIAMicro Insurance Academy
    MIFAMicrofinance Initiative for Asia
    MIFOSMicrofinance Open Source
    MISManagement Information System
    MIXMicrofinance Information Exchange
    MMMFMoney Market Mutual Fund
    MPMadhya Pradesh
    MPIMicrofinance Penetration Index
    MPPIMicrofinance Poverty Penetration Index
    MSDFMichael & Susan Dell Foundation
    NABARDNational Bank for Agriculture and Rural Development
    NABFINSNabard Financial Services
    NBFCNon-Banking Financial Company
    NBFC ND-SINon-Banking Financial Company—Non-deposit taking-Systemically Important
    NCAERNational Council for Applied Economic Research
    NeGPNational e-Governance Plan
    NFCNear Field Communication
    NGONon-Governmental Organisation
    NOFNet Owned Fund
    NPANon-Performing Asset
    NREGANational Rural Employment Guarantee Act
    NREGSNational Rural Employment Guarantee Scheme
    NSSONational Sample Survey Organisation
    OEROperating Expense Ratio
    OSSOperating Self Sufficiency
    PACSPrimary Agricultural Credit Societies
    PARPortfolio at Risk
    PCPersonal Computer
    PCOPublic Call Office
    PDAPersonal Digital Assistant
    PDSPublic Distribution System
    PHCPublic Health Centre
    PLRPrime Lending Rate
    PNBPunjab National Bank
    POSPoint of Sale
    POTPoint of Transaction
    PPPPurchasing Power Parity
    PRADANProfessional Assistance for Development Action
    PSLPriority Sector Lending
    PSSPayment and Settlement Systems Act
    RBIReserve Bank of India
    RFARevolving Fund Assistance
    RFIDRadio Frequency Identification Device
    RGVNRashtriya Grameen Vikas Nidhi
    RIDFRural Infrastructure and Development Fund
    RMKRashtriya Mahila Kosh
    ROGLPReturn on Gross Loan Portfolio
    RRBRegional Rural Bank
    RVRoshan Vikas
    SBIState Bank of India
    SBLPSHG-Bank Linkage Programme
    SCScheduled Caste
    SCBState Cooperative Bank
    SEEPSmall Enterprise Education and Promotion
    SERPSociety for Elimination of Rural Poverty
    SEWASelf-Employed Women's Association
    SGSYSwarna Jayanti Gram Swarozgar Yojana
    SHGSelf-Help Group
    SHPASelf Help Promotion Agency
    SHPISelf-Help Promoting Institution
    SIDBISmall Industries Development Bank of India
    SIMSubscriber Identity Module
    SKDRDPShri Kshetra Dharmasthala Rural Development Project
    SMESSmall and Medium Enterprises
    SNFLSarvodaya Nano Finance Limited
    SOCSector's Own Controls
    SPMSocial Performance Management
    SROSelf-regulatory Organisation
    STScheduled Tribe
    STPLSmall Ticket Personal Loan
    STEMSSingle Terminal Enabling Multiple Services
    TNCDWTamil Nadu Corporation for the Development of Women
    UCBUrban Cooperative Bank
    UIAUnited India Insurance
    UNDPUnited Nations Development Programme
    UNSEUnited Nations Solutions Exchange
    UPUttar Pradesh
    USPUnique Selling Proposition
    VOVillage Organisation
    WBWest Bengal
    WGCWorld Gold Council
    • 1.1. Practitioners' Roundtable—Issues Facing the Sector 11
    • 2.1. State-Wise Average Savings and Loans, March 2008 37
    • 2.2. Microfinance Penetration Index and Microfinance Poverty Penetration Index 38
    • 2.3. State-Wise Share of Loans and NPAs 2008 40
    • 2.4. Regional Spread of SHG Federations as on 31 March 2009 41
    • 2.5. Commercial Banks—Outstanding SHG Accounts and Loans, March 2009 47
    • 3.1. MFI Clients and Loans State-Wise 69
    • 4.1. Association of Karnataka Microfinance Institutions (AKMI) 78
    • 7.1. National Health Insurance Scheme—Coverage of Households 102
    • 9.1. Details Regarding Number of BCs Appointed and Accounts Opened by Banks 122
    • 9.2. India Post-Uttaranchal Gramin Bank Tie-Up 123
    • 9.3. A Small Full–Service Institution with Different Concept of Inclusion 124


    ACCESS was set up in 2006, as a mechanism to consolidate and build on the significant experiences of a successful Department for International Development (DFID) funded project (CASHE). Quite quickly, ACCESS transcended that narrow mandate to do much more. In these 3 years since ACCESS was set up, it has undertaken a few sizeable significant sectoral initiatives. An evaluation of these efforts clearly brings out the fact that ‘Microfinance India—State of the Sector Report’ has been among its biggest contribution to the sector.

    The microfinance sector in India is growing at a blistering pace and is also evolving fast. Each year, new issues, new challenges are thrown up. In 2005, the sector was pleasantly surprised by the problem of plenty. A new set of supply-side players were demonstrating a new aggressive intent to park their excess liquidity in microfinance operations. Owing to this unprecedented phenomenon, many institutions recorded 100 to 200 per cent growth, and managing growth became the issue and the challenge. In 2006, an eyeball-to-eyeball confrontation between government programmes and MFI operations resulted in a precarious impasse that resulted in freezing of all the previous year's aggression, and led to restructuring of strategies among many banks. As an aftermath of the crisis, a strong need for a code of conduct for the sector emerged. The sector's engagement with the ‘microfinance bill’ and diverse opinions on its content, besides the roll out of several ‘financial inclusion’ initiatives, including the business correspondent model, were the headlines for 2007. And in 2008, while the sector breached the 50-million client mark, dark clouds on the sector loomed large due to the global economic meltdown, which, starting with the Microfinance India Summit, was the central discussion point in forums across the world. Did this spell the end of the golden era for the sector? The shadow of the global financial meltdown on the sector will perhaps continue to remain a key focus of 2009. Also, with the MFI channel progressing the way it has, would it be appropriate to continue to call it the ‘alternate’ channel? The recent crisis in Kolar has brought to the fore the need for greater emphasis on and significance of ‘client protection’, ‘responsible finance’ and ‘business ethics’. Each year, there are new issues which require to be understood, analysed and assimilated. The value of the State of the Sector Report is located in its mandate and ability to chronicle all these milestones in the sector's evolution.

    Early this year, while in the US, among others, I had a chance to visit the Consultative Group to Assist the Poor (CGAP) and the MIX Offices in Washington. Steve Rasmussen, Senior Advisor at CGAP, commented that every time he was in India, he would pick a few copies of the report, but they would soon disappear, and he couldn't easily get a copy in the US. At the MIX Office, Elizabeth, who had recently joined as the Asia Manager, said that the State of the Sector Report was the best source for her to understand the complex sectoral scenario in India. On another instance I was very happy to see Simon Desjardins from Shell Foundation, UK walk into our office at New Delhi carrying a copy of the State of the Sector Report. It surprised me to know that he could buy it on Amazon. Each year, prior to the official release of the report, different sections of the media jostle to get its exclusive pre-review rights. Clearly, over the 3 years, State of the Sector Report has emerged as the most comprehensive resource document on Indian microfinance with insightful and analytical narration on the sector's progress. While seemingly it has a huge value among an Indian audience, it has an equal value internationally. Both Ajit at Ford Foundation and Adrian Marti at SDC, the first two core sponsors of the report, were keen that the report should be made as accessible as possible to a larger section of the sector. Conceding the request, ACCESS included the report as a part of the delegate kit for the 1,000 odd participants who attended the Annual Microfinance India Summit in 2008, where traditionally the report is released in addition to hosting it on the web as a downloadable document.

    N. Srinivasan, given his long years at National Bank for Agriculture and Rural Development (NABARD) and his association with a very wide spectrum of apex level issues on access to finance, was able to bring significant new insights in his narration of the sector's progress in the 2008 State of the Sector Report. Several innovations were attempted in 2008 to garner greater information which were continued this year. The United Nations Development Programme's (UNDP) Solutions Exchange was creatively mobilised by Srini to seek information on sectoral innovations. In partnership with RBI's College of Agriculture Banking, a consultation meet was organised for the private sector and multinational banks to understand their plans and strategies for the sector. Several field visits were undertaken; personal interviews with policy makers, regulators, apex institution heads were conducted; small surveys were instituted and consultations with sector leaders were held. Given Srini's influence and respect within the sector, key data from major stakeholders was facilitated. Data from NABARD and Sa-Dhan significantly strengthened the statistical and analytical content of the report. Across the sector, the general view was that the State of the Sector Report was far more comprehensive, had far deeper analysis of trends and progress and contained much more statistical content. The rigour and thoroughness of Srini helped hugely in building the credibility of the report.

    While the author of the report rightfully takes the maximum credit, there are several others who need to be thanked for making the report possible. Foremost, I would like to thank the key supporters of the report, viz. Ford Foundation, UNDP, International Finance Corporation (IFC) and Citi Foundation. While Ajit has been a great resource to the report on a personal basis, Ford Foundation remains the strongest and most steadfast supporter of the report. Several rounds of discussions with Prema at UNDP and her spirited commitment added significant value to the report. Both IFC and Citi Foundation are the new co-sponsors of the document. Given their long-term commitment to the sector, their association with the report will strengthen its credibility. I'd like thank Alok Prasad and Aloka at Citi and Swapnil at IFC for their support. I would also like to acknowledge the very positive response to all our requests by Sandip Ghose and subsequently Kamala Rajan, Principal, College of Agriculture Banking, who helped to organise the Round Tables of Bankers. Navin Anand's enthusiastic offer of support by UNDP's Solutions Exchange helped to broaden participation of the sector in inputs for the report. This year, in association with Bankers Institute of Rural Development (BIRD), Solutions Exchange and UNDP also organised a stakeholder consultation for the report. I'm thankful to Anand Kumar, Navin, Ratnesh and S.K. Chatterjee, Director, BIRD, for their support. Thanks are due to Mathew Titus for the useful data provided by Sa-Dhan; it contributed immensely to the analysis of the report. As always Justin and his team at Centre for Microfinance (CMF), Chennai provided significant support to the report with findings from research and studies carried out at CMF. Lastly, I'd like to thank Vijay Mahajan, who was generous in organising a consultation with MFI representatives at the BASIX office, which helped to provide perspectives on the sector from a MFI standpoint. Vijay can always be counted upon for any sectoral contribution. Finally, I would also like to thank the Group of Advisors to the Microfinance India Summit who have been closely and actively associated with the full process of the writing of the Report, providing constructive suggestions on content and coverage. Particularly, Brijmohan, ACCESS Chairman, had several rounds with the author on fine details—forever a perfectionist. This incredible support from different stakeholders has been a huge positive factor in bringing together the diverse details of the sector's growth during the year.

    Most importantly, I owe very much to my team at ACCESS for their adroit alacrity in supporting the report writing process. Yeshu Bansal from my team at ACCESS, as always, played the anchor role in supporting the process. Yeshu coordinated with the author, with the publisher, with different stakeholders, organised important stakeholder meetings, helped to access key information, collate data—all critical tasks that were performed with élan. This year, Yeshu was ably supported by Jaipooja who joined us this year at ACCESS. Pooja helped with key Sa-Dhan and NABARD data, the Karnataka visit and supporting the author with fine details. I'm also thankful to Lalitha who helped with all the travel and logistic support to the author, making his criss-crossing the country an effortless affair. It's a matter of great pride that a large task like this could be accomplished through a well-coordinated process by a small team.

    I hope the State of the Sector Report 2009 will have similar value for the sector as in the past and will also be of the same high quality in its narration and analysis.

    VipinSharma CEO, ACCESS Development Services, New Delhi


    Very quickly one year has passed since the last report. It had been a tough year, not only for the sector, but for the report too: information was very late coming—Sa-Dhan data coming out at the end of June, a month later than last year; NABARD had more provisional data but it became available in the last week of August. Nevertheless, the cooperation received from the sector was unbelievable. Many willingly gave their time, spared resources and more importantly information for the report. The ownership of this report within the sector made it easy to get information. I have a lot of persons and institutions to thank. My thanks are due to CMF, Chennai, UNSE, CAB and BASIX for making the extra effort for the purpose of this report. I should thank Justin Oliver and his colleagues for providing full access to their studies and facilitating a visit to Kolar. Shreyas Gopinath from CMF did a review of software solutions for the purpose of this report. As in the last year Doug Johnson of CMF provided inputs on the equity and debt markets. Vijay Mahajan of BASIX hosted a roundtable of leading professionals to discuss sector trends specifically for the purpose of carrying it in this report. UN Solutions Exchange ran a query on practitioners' expectations from the report and information on innovations. The answers were followed up with a brainstorming meet of practitioners at BIRD, Lucknow in the last week of August which provided several leads for the report. I owe Anand Kumar, Navin and Ratnesh a lot for this. Sandip Ghose and later Kamala Rajan of CAB, RBI readily co-hosted along with ACCESS an experience-sharing workshop of Private and Foreign Banks that was rich with lenders' perspectives. Ganesh Rangaswami of Unitus provided inputs on a variety of aspects. Marie Haberberger, GTZ provided the preliminary draft of the inventorisation study of microfinance organisations (MFOs) among other inputs. C.S. Reddy provided information on federations from Andhra Pradesh Mahila Abhivruddhi Society (APMAS). I cannot thank all of them enough for sparing information, time and other resources.

    The Chairman of NABARD, U.C. Sarangi, in the midst of a very busy day found time for this report; as did N.K. Maini, Executive director of SIDBI, sparing more time than he originally agreed to. Tarun Bajaj, Joint Secretary, Insurance shared his perspective on the micro-insurance market.

    The roundtable at Hyderabad was organised with very little notice. Still, Vijay found time to chair the meet. Suresh Krishna, CEO, Grameen Koota, P.N. Vasudevan, MD, Equitas Microfinance, Dilli Raj, CFO, SKS Microfinance, Sankar Datta, CEO, The Livelihood School participated in the lively discussions which the readers will enjoy in the report. Graham Wright, MicroSave and Mathew Titus, Sa-Dhan could not attend the meet, but participated by providing written responses to the questions discussed. I thank all of them for their ready participation in the discussions.

    There are several orgnisations and people that I had visited personally: Gouri Sankar, Manohara Raj, R.M. Nair, B.B. Mohanty, Kamala Rajan, S.K. Chatterjee, Anna Somos Krishnan, Vikash Kumar, Abhay Kanjikar, Raja Menon, Bani Saraswathi, P.N. Vasudevan, Gopal Ghosh, Madhuri Ghosh, Niraj Verma, Achla Savyasaachi, Dr Sudarshan, J.L. Samudre, Manab Chakraborty, Rukmini Parthasarathy, Nand Kishor Agrawal, Dr Y.S.P. Thorat, Dr Nachiket Mor, Sanjay Sinha, Ralf Radermacher, Alok Sinha, Rani Nair, R. Sowmithri, Navin Anand, Monika Khanna, Ratnesh, Rupalee Ruchimishta, V. Tagat, M.V. Patro, Royston Braganza, Sashi Srivastava and many others that I am unable to name for want of space. There are some who helped by sending information—Ajit Kanitkar, Oliver Schmidt, S.G. Anil, Rahul Tandon, Ramesh Bellamkonda, Bhalchander Vishwanath. I am thankful to them for their keen interest in the report. I seek forgiveness from those whose names might have been left out; their contributions have been no less.

    Sa-Dhan had provided a considerable amount of information from their database and studies. Their consent for using the material in the preparation of the report has been invaluable. NABARD had made available the provisional information much earlier than in the previous years. The data flowing from these two streams forms the basis of the trends discussed in the report. The advisory group of Microfinance India comprising Sitaram Rao, Y.C. Nanda, Brij Mohan, Malcolm Harper, Vijayalakshmi Das, Moumita Sen Sharma, Justin Oliver, Achla Sabyasaachi, Alok Prasad, Malini Thadani, Manoj Sharma, Marie Luise Haberberger, Vishal Mehta and Vipin Sharma was very helpful in keeping me on course with sound advice. The loss of Sitaram Rao was no doubt a blow to the sector, it was a personal loss for me; he was available at any moment for a discussion and for providing escape routes from impossible situations.

    I thank the donors—UNDP, Ford Foundation, IFC and Citi Foundation—for offering total support and the freedom to decide the editorial policy. I thank CMF-IFMR and UNSE for being the research partner and knowledge partner respectively. Yeshu Bansal untiringly anchored my work from ACCESS. Jaipooja Shah ensured that I meet the right people and get the correct information in time. She was of immense help in processing most of the data presented in the report. Without Lalitha, I would have run into logistical nightmares. Vipin Sharma has the knack of finding easy solutions for difficult problems. My gratitude to Vipin for letting me do this task (which has a difficult process but an enjoyable result) for the second year running.

    Pravin Shinde did the typing of the initial draft from voice files this year too. Girija Srinivasan reviewed a part of the report and provided critical inputs for which I am very grateful.

    Prabhu Ghate is to be commended for his foresighted structuring of this report format in 2006. This year's report carries a lesser number of chapters, but hopefully more information. We do not have separate coverage on social performance, urban microfinance, competition, major institutions and business correspondents. These have been integrated into the relevant chapters. A topical addition is a chapter relating to the adverse developments in Karnataka. Financial inclusion and human resources warranted a closer look through separate chapters. I have not been able to fulfil all expectations on coverage on account of the constraint of space and time. I hope that the readers will forgive and find the presented information interesting and useful.

    My thanks to many over there who had read the report last year and communicated their appreciation and expectations. If this report in any way informs, influences and makes a difference, it has done its job. With all humility let me say that the views in the report are all personal and as such I alone am responsible for errors of omission, commission and interpretation.

    I value reader feedback and hope to receive it from many of you.

  • Appendix

    Table A.1 Fact sheet on coverage and growth of SHGs and MFIs, March 2009

    Table A.2 List of MFIs and other details

    Table A.3 Outstanding loans of bulk-funders of MFIs

    Table A.4 Progress under microfinance—bank loans outstanding against SHGs

    Table A.5 List of microfinance resource agencies/service providers

    Table A.6 UN Solutions Exchange—members' expectations and guidance on preparation of the state of the sector report
    A query was raised on the solutions exchange, microfinance and poverty community requesting members for their views on the structure, content and presentation of SOS 2009 as well innovations and interesting examples at work. The replies received from 28 members had been consolidated by the moderator and his team. Following the query and responses, UNSE and UNDP arranged a roundtable of practitioners to discuss the issues on 29 August 2009. The author was invited to moderate the roundtable which produced a rich harvest of information. The information and the discussions have been taken into the report at appropriate places. While the views and information provided by the members have been made use of in different parts of the report the consolidated reply is produced here.
    Members appreciated this year's theme, ‘Doing Good and Doing Well: The Need for Balance’, and provided wide-ranging suggestions for strengthening the report. Members highlighted that microfinance is not only a financial instrument, but a powerful tool to address the multiple dimensions of poverty. Moreover, microfinance has emerged as a means to achieve the Millennium Development Goals.
    Responding to the issues, thematic areas and structure of the report, members suggested that there is a need to assess the demand and supply of microfinance so that year to year growth can be tracked. In this respect they realised the importance of measuring the performance of the schemes that have a focus on the SHGs like SGSY and utilisation of various funds—Microfinance Development and Equity Fund, Financial Inclusion Fund and Financial Inclusion Technology Fund. They also mentioned that the report could capture the statistical abstract on SHG-bank linkage programme (SBLP) and number of MFIs working in different states to track the regional balance. Further, members suggested including the following points in the report:
    • RBI/NABARD circulars issued on microfinance during the period of the report;
    • voices of the poor from the field and sharing the perception of the clients on the current microfinance delivery practices;
    • interview of successful people/practitioners in addition to the regulators and apex institutions;
    • an exclusive chapter on ‘Microfinance and Gender’, focusing on the role of microfinance in empowerment of women;
    • impact of mass loan waiver by the government on microfinance operations and repayments under SHGs and MFI lending;
    • policy, standards and governance issues of the MFIs;
    • a separate chapter on the transparency issues of the microfinance, financial and social performance of the MFIs and net cost of borrowing to the poor;
    • role of public-private partnership in context of microfinance and
    • sectoral contribution by the apex banks like RBI, NABARD, SIDBI and by various networks and resource organisations.
    Referring to the importance of moving beyond credit-only approach and adoption of ‘innovative microfinance models’ by various organisations, members suggested including a new chapter on innovations. Moreover, they suggested highlighting innovative, cost-effective enterprises/services and convergence of microfinance services for improving livelihoods. Further, report could focus on the new approaches and innovative models adopted by various organisations—Housing Microfinance, Health Financing, Micro Pensions and MF and Skill Development. Members also highlighted the important role played by the Internet based investment marketplace platforms like Rang De and DhanaX. They also shared that many organisations like Sanghamitra, Hand in Hand Microfinance, RASS, SKS, Bandhan, Asmita, Sarvodaya Nano Finance, Sewa Bank, MYRADA and Margdarshak have done a commendable work and their microfinance interventions could be included in the report as case studies.
    Highlighting the importance of the ‘community initiatives’ in the microfinance sector, members informed the establishment of a Section 25 Company set up by an organisation involved in catalysing social security for the unorganised. Referring to the importance of the regulatory and supervisory systems developed by the SHGs and federations members shared the pilot in AP. Moreover, they also shared about INFOS, a network of Microfinance SHG federations with 40 SHG federations as network members across the nation.
    Members viewed that financial inclusion has been a priority and many steps have been taken to realise this. Branchless banking, business correspondent (BC) and business facilitator model are few such initiatives. However, referring to a national study, members shared their concerns on the viability of the BC model. Members suggested highlighting the problems faced by the BCs and recommended changes in the current policy guidelines.
    Sharing about the announcements that have an impact on the microfinance sector, members informed that the corpus of Rashtriya Mahila Kosh has been hiked from 100 to 500 crores. Also, 4,000 crores from Rural Infrastructure and Development Fund (RIDF) would be channelised for refinancing the loans to micro and small enterprise sector. Moreover, Government of Andhra Pradesh has introduced a pension scheme for the SHG members, with an in-built mechanism of insurance in it.
    Sharing the concern over the growing commercialisation, members were interested in knowing whether MFIs are client focused and are sensitive to the need of the borrowers. Referring to the current economic downturn members viewed that there is a need for the MFIs to reflect their business portfolio, consolidate their business and review their carrying capacity. They also viewed that there is a need to study the changes of migration pattern, loss of opportunity in household work and loss of jobs in export-oriented sectors and accordingly design the microfinance services and products.
    Members viewed that for the upliftment of the poor, credit-only approach won't be sufficient. For doing well it is important that the report should highlight the innovative and cost-effective enterprises that are working along with providing the financial services to the clients. Moreover, members also highlighted the need of including the strategies for strengthening the equity base of the MFIs, to avoid the risk of taking over of good MFIs by other companies for purely commercial purposes.
    In a nutshell, members viewed that over the years microfinance has became a commercialised activity. They also suggested that we cannot afford to lose sight of basic objectives of microfinance to include the poor as well. It is important that microfinance sector have a proper balance between profitability and serving the poor. Members stressed that the report could highlight the new microfinance products and services introduced by the organisations and mechanisms to reach people with special needs.
    (The consolidated report was prepared by Navin Anand, Moderator and Monika Khanna, Research Associate of the UN Solutions Exchange Microfinance and poverty community of practice. The following members contributed to the discussions:
    Akhil K. Srivastava, Antardrishti, Agra, UP, Rahul Mittra, Margdarshak, Lucknow, N. Jeyaseelan, Helping Hand Micro Finance Services, Tamil Nadu, Ram Kumar Atri, Bharat Shodh, New Delhi, Prabhat Labh, CARE USA, Tanzania, Santanu Sengupta, Study & Jobs Worldwide (SJW), Kolkata, Supriti, Consultant, Bangalore, Vivek Kaul, New Delhi, Suman K. Apparusu, University of East Anglia, Hyderabad, Pradeep Mohapatra, UDYAMA, Bhubaneswar, Baladeb Sen, Consultant, Chennai (Response 1; Response 2), Smita Premchander, Sampark, Bangalore, Subhash Wadhwa, International Consultant, Microfinance and Livelihoods, Mumbai, J.S. Tomar, Cashpor Micro Credit, Varanasi, UP, Milroy Paul, Habitat for Humanity India, Chennai, T. Balasubramanian, Mudhal Inclusive Growth Foundation, Chennai, Islam Hussain, PAHAL, Nainital, Uttaranchal, P. Rajarethinam, JORA Development Support Services Pvt. Ltd., Chennai, Hemantha Kumar Pamarthy, Hand in Hand Micro Finance Limited, Chennai, K.P. Soma, Gender and Development Consultant, New Delhi, Raj Kumar Pandey, GoI-UN Joint Program for Convergence, UNICEF, Lucknow, C.S. Reddy, Andhra Pradesh Mahila Abhivruddhi Society (APMAS), Hyderabad, Sameer Kochhar, Skoch Development Foundation, Gurgaon, Kumar Shailabh, Uplift India Association, Pune, Arabinda Mitra, Ghoragacha Swanirvar Samiti, WB, Debraj Bhattacharya, Institute of Social Sciences, New Delhi, T. Narendran, INFOS, Madurai, G.K. Agrawal, Rural and Microfinance Consultant, Mumbai, Oliver Schmidt, Sa-Dhan, Hyderabad).
    Table A.7 List of organisations and persons met
    NABARD, Mumbai—U.C. Sarangi, Chairman, B.B. Mohanty, CGM, A.K. Srivastava, CGM
    SIDBI, Lucknow—N.K. Maini, ED, Mr Sahu, CGM, Bhavana Srivastava, AGM
    SIDBI, Chennai—R.M. Nair, GM
    GTZ—Marie Luise Haberberger
    KFW—Rukmini Parthasarathy; Nand Kishor Agrawal
    Ministry of Finance—Tarun Bajaj (Joint Secretary, Banking & Insurance)
    MIA—Ralf Radermacher
    World Bank—Niraj Verma
    UNDP—Ratnesh; Navin Anand
    Sa-Dhan—Achla Savyasaachi
    IFC—Anil Sinha
    M-CRIL—Sanjay Sinha
    PFRDA—Ms Rani S. Nair
    CAB—Sandip Ghose, CGM, Kamala Rajan, CGM
    Grameen Capital Services—Royston Braganza, Shashi Shrivastava
    Planet Finance—Anna Somos Krishnan, Executive Director; Saheba Sahni, Programme Manager
    NABARD, Bangalore—M.V. Tagat, Chief General Manager, M.V. Patro, GM, R. Sundar, GM, C.P. Mohan, GM
    NABARD-DDM, Kolar—Jayprakash L. Samudre
    BSS—Abhay Kanjikar
    Grameen Koota—Suresh Krishna, MD
    Unitus—Ganesh Rengaswamy, CEO, India; Shubha Gupta, HR Specialist, Jhunjunwala, IT expert
    Microfinance Focus—Vikash Kumar, Naagesh Naaraayana Karuna Trust—Dr Sudarshan
    IFMR, Bangalore—Shreyas Gopinath, Veena Jayaram
    RORES—Kolar field officers
    Grameen Koota—Kolar field officers
    Stanchart—Gouri Sankar
    Sarvodaya NanoFinance—R. Sowmithri, CEO
    CMF-IFMR—Justin Oliver, Doug Johnson, Minakshi Ramji and others
    CIRM-IFMR—Rupalee Ruchimishta
    Equitas—P.N. Vasudevan, MD
    ICICI Foundation—Nachiket Mor, President
    HDFC Bank—Manohara Raj, Michael Andarde, Vimal Tripathi, Raja Menon
    Sreema Seva Samithy—Bani Saraswathi
    Bagnan Mahila Bikash Cooperative Credit Society—Gopal Ghosh, Madhuri Ghosh
    List of SOS-Specific Activities
    Experience sharing workshop of private sector and foreign banks at CAB, Pune done jointly with ACCESS Development Services on 18 July 2008
    Roundtable of microfinance practitioners at Basix, Hyderabad jointly by ACCESS Development Services, Basix and Alpha Microfinance Consultants on 10 August 2009
    Brainstorming Roundtable of UNSE microfinance and poverty community members—arranged by UNSE and UNDP at BIRD, Lucknow on 29 August 2009
    Query on the UNSE platform in the microfinance and poverty community—asking members to share their views on structure, content and presentation of SOS 2009 and also information on new models, innovations and experiments. The query elicited 28 responses.


    Inventorization of MFOs—Draft Report, 2009 (unpublished), GTZ.
    The Union Budget, 2009–10, Government of India.
    The Economic Survey, 2009, MoF, GoI.
    Annual Monetary Policy Statement of RBI, 2009–10.
    Committee on Financial Inclusion, 2007 (http://www.nabard.org).
    Bharat Microfinance, Quick Report on MFIs, 2009, Sa-Dhan.
    Microfinance Banana Skins, 2009, Centre for the Study of Financial Innovation.
    Effective Microfinance Services—Side by Side Report, 2008, Sa-Dhan.
    Performance of Swakrushi Thrift Cooperatives (TCs) at a Glance: 31.12.2008, (http://www.cdf-sahavikasa.net).
    The Action Taken Report of Ministry of Finance, 2009, GoI.
    National Rural Poverty Elimination Programme, Ministry of Rural Development, GoI.
    Compensation Forum Study Results, April 2009, Microfinance Institutions—Hewitt Associates for Unitus
    Annual Report, 2008–09, RBI.
    Trend and Progress of Banking, 2007–08, RBI.
    Report on Currency and Finance, 2007–08, RBI.
    Report of the Working Group to Review the Business Correspondent Model, August 2009, RBI.
    Chaudhary, Nitin and SuyashRai, 2009, MFI Pricing and Valuation—An Analysis of Key Drivers, Discussion Note, IFMR Trust.
    Ramji, Minakshi, January 2009, Financial Inclusion in Gulbarga: Finding Usage in Access, CMF-IFMR.
    Datta, Shankar and VipinSharma, 2008, Civil Society Initiatives—Girija Srinivasan—The State of India's livelihoods: The 4P Report, ACCESS and The Livelihood School.
    2008 MIX Global 100 Composite: Rankings of Microfinance Institutions, December 2008, Microfinance Information Exchange.
    The Microbanking Bulletin No. 18, Spring 2009, Microfinance Information Exchange.
    Microfinance Focus, July 2009 (http://www.microfinancefocus.com).
    Report of the Committee on Credit Related Issues Under SGSY, February 2009, Chairman Prof. Radhakrishna, Ministry of Rural Development, Government of India.
    Agrawal, Anurag, July-August 2009, ‘The Driving Factor for MFI Valuations in India’, Microfinance Insights.
    Khalaf, Rauf, KathrinHaerdle and N.Srinivasan, 2008, The India Microfinance Diagnostic, Frankfurt School of Economics and Finance for KFW-IFC.
    O'Donohoe, Nick, Frederic Rozeira deMariz, ElizabethLittlefield, XavierReille and ChristophKneiding, February 2009, Microfinance—Shedding Light on Microfinance Equity Valuation: Past and Present, JP Morgan and CGAP.
    A Healthy Change—Community Health Insurance, 2005, Karuna Trust and UNDP.
    Microfinance—Testing its Resilience to the Global Financial Crisis, January 2009, Fitch Ratings– (http://www.fitchratings.com).
    Schmidt, Oliver, Unpublished, Ten Years of Sa-Dhan—A Critique, GTZ.
    Journey of a Decade: Building the Sector of Community Development Finance, 2009, Sa-Dhan.
    Subudhi, Abhijit, 20 August 2009, Open Letter to Sa-Dhan, Dhanei KGFS (http://www.indianmicrofinance.com).
    Bansal, Sarika, May-June 2009, ‘Altruism Reloaded: Seeking Work with Impact’, Microfinance Insights.
    A Quick Guide to Management Information Systems for MFI-Managers, 2008, Sa-Dhan.
    Mobile based Loan Disbursement and Collection (m Collections) Solution for MFI, February 2009, Atom Technologies.
    Survey on Technology in Microfinance, September-October 2008, Microfinance Insights.
    Kochhar, Sameer, 2009, Speeding Financial Inclusion, Skoch Development Foundation.
    Making Insurance Markets Work for the Poor: Microinsurance Policy, Regulation and Supervision, January 2009, Sanjay Sinha, Swetan Sagar of M-CRIL, IDRC, GTZ et al.
    Microinsurance Innovation Facility Annual Report, 2008, ILO.
    Thaygarajan, S. and JayramVenkatesh, 2009, Cost-Benefit and Usage Behaviour Analysis of No Frills Accounts: Study Report on Cuddalore District, CMF-IFMR.
    Srinivasan, N., 2009, Customer Protection in Branchless Banking—India Background Paper, CGAP.
    Bansal, Yeshu and N.Srinivasan, April-June 2009, ‘Business Correspondents and Facilitators: The Story so Far’, CAB Calling.
    Saxena, Amitabh, August 2009, Microinsurance—An Update, Actuary India.
    Cole, Shawn and XavierGine, August 2009, ‘Barriers to Household Risk Management’, Working Paper 29, CMF-IFMR.
    Technology in Microinsurance, April 2009, Microinsurance Journal.
    Sahu, Sweta, May 2009, Microinsurance in India—Pespective Paper 6, Sa-Dhan.
    Titus, Mathew, MFIs and Micro Insurance: Observations and Opportunities, IRDA Journal.
    Consolidated Reply on Query: State of Sector Report 2009 for Microfinance—Experiences, August 2009, Examples Compiled by Navin Anand, Resource Person and Monika Khanna, UN Solutions Exchange.
    Consolidated Reply on Query: Microfinance through Post Offices for Financial Inclusion; Compiled by Navin Anand, Resource Person and Monika Khanna, UN Solutions Exchange.
    Pushing Financial Inclusion—Issues, Challenges and the Way Forward, Presentation by Dr K.C. Chakrabarty, Deputy Governor at Skoch Summit.
    Welfare Services Ernakulam, MFI Grading Report, October 2007, CRISIL.
    Microfinance India—State of the Sector Report2008.
    RBI Banking Statistics, 2008.
    Draft Outline of Corporate Plan for India Post, 2009, Department of Posts, Government of India.
    NABARD Annual Report, 2008–09.
    India Post Annual Report, 2007–08.
    IRDA Annual Report, 2007–08.
    Status of Microfinance in India, 2007–08, NABARD.
    Progress of Primary Agricultural Credit Societies, 2007–08, National Federation of State Cooperative Banks.
    Annual Report, 2008–09, State Bank of India.
    Annul Report, 2008–09, ICICI Bank.
    Annual Report, 2008–09, Ministry of Finance, Government of India.
    Access—Newsletter of IFMR Trust and Partners, July-September 2009, the 61st round of NSSO survey, MOSPI, GoI.
    Report on Financial Literacy and Credit Counselling Centres, April 2008, RBI.
    Swarna Jayanti Gram Swarozgar Yojna: A Blueprint for Revolutionize of the Program, June 2009, NNRO-APMAS.
    Financial Institutions with a ‘Double Bottom Line’: Implications for the Future of Microfinance, Occassional Paper No. 8, July 2004, CGAP.
    Mehrotraa, Nirupam, V.Pughazendi, et al., 2009, Financial Inclusion—An Overview, Occassional Paper No. 48, NABARD.
    Baland, Marie, RohiniSomanathan and LoreVandewalle, 2007.
    Krishnan, Aparna, MinakshiRamji and YusukeTaishi, 2007, Challenges and Opportunities for Microfinance for Habitat for Humanity India, CMF, IFMR.
    Micro-finance Lifespans: A Study of Attrition and Exclusion in Self-Help Groups in India, Jean
    Impact and Sustainability of SHG Bank Linkage Programme, 2007, carried out by National Council of Applied Economic Research, supported by GTZ and NABARD.
    Towards an Inclusive Financial System, Financial Services Demand and Utilisation by India's Low Income Workforce, 2007, IIMS Dataworks Research Report.
    Inverting the Pyramid—The Changing Face of Indian Microfinance, 2007, Intellecap (http://www.fwwbindia.org).
    The Lights and Shades, A Study of SHGs in India, 2006, EDA Rural Systems and APMAS.
    Revisiting Bank Linked Self-Help Groups—A Study of Rajasthan State, RBI, Occassional Paper, Monsoon 2007, by NavinBhatia, DGM, RBI.
    How India Earns, Spends and Saves, 2008, by NCAER for Max Newyork Life.
    From Strength to Strength, SEWA Insurance, by ShaliniSinha for ILO, SEWA and Plan International.
    Building Security for the Poor, 2007, UNDP.
    Beyond Good Intentions: Measuring the Social Performance of Microfinance Institutions, 2007, Focus Note Number 41, C-GAP.
    Hirschland, Madeline (ed.), Savings Services for the Poor. Bloomfield: Kumarian Press.
    Rutherford, Stuart, ‘Member Savings’, MicroSave Briefing Notes on Grameen II # 2, MicroSave.
    State of the Sector 2006, Prabhu Ghate.
    State of the Sector 2007, Prabhu Ghate.
    India Microfinance Review2007–2008, M-CRIL.
    Survey of Small Borrowal Accounts, June 2008–09–09, RBI Bulletin.
    List of RBI Circulars on Microfinance and Financial Inclusion
    DBOD No BL.BC.35/22.01.009/2008–09
    Use of Business Correspondents Section 25 companies, dated 27 August 2008.
    DBOD No BL.BC.36/22.01.009/2008–09
    Use of Business Correspondents—Appointment of Sub agents by BCs, dated 27 August 2008.
    DBOD BP.BC.83/21.01.002/2008–09
    Provisioning for Standard Assets and Risk Weights for Exposure to Corporates, Commercial Real Estate and NBFC–ND –SI, dated 15 November 2008.
    Guidelines on Financial Inclusion for Banks, dated 22 January 2009.
    Financial Literacy and Credit Counselling Centres (FLCCs)—Model Scheme, dated 4 February 2009. DBOD No. BL.BC.129/22.01.009/2008–09
    Use of Business Correspondents—Extension of Distance Criteria, dated 24 April 2009.
    RBI/2008–09/ 458 DPSS.CO.PD.No.1873/02.14.06/2008–09
    Policy Guidelines for Issuance and Operation of Prepaid Payment Instruments, dated 27 April 2009.
    RBI/2008–09/491DNBS (PD) CC.No. 141/03.10.001/2008–09
    Applicability of NBFCs-ND-SI Regulations, dated 4 June 2009.
    RBI/2009–10/123 DPSS.CO.PD.No.344/02.14.06/2009–10
    Issue of Mobile Phone Based Semi–closed System Pre–paid Payment Instruments, dated 14 August 2009.

    About the Author

    N. Srinivasan has been involved with the Development Finance and Rural Development sectors for three decades. He has been associated with several policy and strategy initiatives during his tenure with the RBI and NABARD, of which he was Chief General Manager for seven years. He also authored Microfinance India: State of the Sector Report 2008 brought out by ACCESS Development Services and published by SAGE. He is presently a leading consultant engaged with the World Bank, CGAP, IFAD, ADB, UNDP, UNOPS, GTZ, Microsave and the Government of India. As an advisor he is on the boards of institutions in the microfinance sector in India and abroad in various capacities such as trustee and director.

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