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 7: Financing: Commercial
A. Lending to Microfinance Institutions (MFIs) by the Commercial Banks
Microfinance Institution (MFI) managers used to devote most of their energies in dealing with the uncertainty of where the next loan for on-lending funds would come from. Except for the smaller MFIs, this is no longer the case. The rapid expansion of the MFI model in the last few years has been driven by the private commercial banks. The extent of dependence on borrowing sets Indian microfinance apart from most other countries. Indian MFIs are the most highly leveraged in the world, and because their borrowings come at commercial rates from the banks, their financial cost ratio is also among the highest in the world (Chapter 3).
From 1993, Friends of Women's World Banking ...