Indian Microfinance: The Challenges of Rapid Growth is a comprehensive account of various components of the Indian microfinance sector, the largest in the world. After reviewing the main challenges facing the sector, it analyzes the progress of the two main delivery models, issues relating to the emerging microfinance services of micro-insurance and money transfers, ongoing efforts in training and capacity building, opportunities facing commercial financers such as bankers and social venture capitalists, the remaining need for development financing, and ongoing research in the sector. Apart from containing extensive original material, the book draws extensively on the findings of other recent studies and reports. It also identifies various requirements for policy and regulatory changes by the central and state governments and the central bank, a contribution which is particularly timely in view of the new microfinance bill under active consideration of the central government.
The main challenge facing the sector is identified as the need to enhance borrower, public, and regulatory support and understanding, by increasing transparency in dealings with borrowers, and by ‘educating’ the public on why microfinance interest rates have to higher than bank lending rates if microfinance institutions are to recover costs and attain viability. Failures in both these areas led to a highly publicized attack in 2006 on the sector by the state government of Andhra Pradesh. While the sector weathered the storm, it needs to take serious note of the lessons, which are analyzed in a separate chapter. The book will be of interest to various players in the sector including practitioners, bankers, insurance companies, venture capitalists, regulators, donors and academics. Given heightened interest in the sector with the Nobel prize awarded to Muhammad Yunus and the Grameen Bank, it will be of even greater interest than before to the intelligent layman and the development community generally.
Chapter 3: Progress under the Microfinance Institution (MFI) Model
Progress under the Microfinance Institution (MFI) Model
The Microfinance Institution (MFI) model is growing rapidly in India,1 has good portfolio quality and is highly efficient. Although on the average, Indian MFI interest rates are slightly higher than the average for South Asian countries, the South Asian region has the lowest average rates among all regions in the world. Large MFIs have attained operational sustainability, many medium MFIs are close to attaining it, and a number of small MFIs are progressing towards it rapidly as they grow. Major challenges before the MFI model are the need to improve financial transparency through higher standards and better performance on disclosure and reporting; and to improve transparency in its dealings with borrowers (see ...