TOC Micro Finance

8/9/2019 TOC Micro Finance

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IInndduussttrryy IInnssiig g hhtt

MMiiccrroo FFiinnaannccee

September 2008

Disclaimer: All information contained in this report has been obtained from sources believed to be accurate by Cygnus Business Consulting &Research Pvt. Ltd. (Cygnus). While reasonable care has been taken in its preparation, Cygnus makes no representation or warranty, express orimplied, as to the accuracy, timeliness or completeness of any such information. The information contained herein may be changed without notice. All information should be considered solely as statements of opinion and Cygnus will not be liable for any loss incurred by users from any use of thepublication or contents

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Industry Insight – Micro Finance

© Cygnus Business Consulting & Research Pvt. Ltd. 2008 2

SYNOPSIS

Indian microfinance sector is expected to grow nearly ten times by 2011 to a size of about

Rs250 billion from the current market size of Rs27 billion, at a compounded annual growth

rate of 76%. Microfinance in India started evolving in the early 1980s with the formation of

informal Self Help Group (SHG) for providing access to financial services to the needy

people who are deprived of credit facilities. National Bank for Agriculture and Rural

Development, the regulator for microfinance sector, and Small Industries Development Bank

of India are devoting their financial resources and time towards the development of

microfinance. Microfinance has enormous growth potential as half the world’s population

earns less than US$2 per day, which is insufficient to meet their basic needs.

One of the fastest growing sectors of India, microfinance is spearheading intense competition

among the largest players. By the end of March 2007, microfinance institutions expanded

their outreach to 50 million households and about 36.8 million borrowers. These institutions

are organised under three models: SHG, Grameen model/Joint liability groups and Individual

banking groups as in cooperatives. As of March 2007, both SHG bank linkage and MFIs have

collectively disbursed US$3.7 billion to the poor.

In view of this scenario, Cygnus is launching a report titled ‘Microfinance in India’.

Comprising five chapters, the report covers the overview of microfinance industry in India

along with global market and trends with a special reference to South Asia. It also discusses

the growth drivers, issues and challenges, profiles of major players and their services and

estimates of the future market. The report will be useful for industry analysts, banks and other

non-banking financial companies, various NGOs and private equity firms.

No of pages: 100 No of figures: 15 No of tables: 7





CONTENTS

EXECUTIVE SUMMARY...........................................................................................8

HIGHLIGHTS........................................................................................................ 11

1. MICROFINANCE - AN OVERVIEW....................................................................13

1.1 Microfinance - A Short Background...................................................................13

1.2 Global Developments in Microfinance ...............................................................14

1.2.1 Penetration in South Asia...........................................................................18

1.3 Micro-Finance in India .....................................................................................21

1.3.1 Models practiced in Indian Microfinance Industry ..........................................22

1.3.1.1 MFI Model .........................................................................................22

1.3.1.2 Self Help Group Bank Linkage Model .....................................................22

1.3.2 MFI and SHG Bank Linkage Credit Supply ....................................................23

1.3.3 Role of Central Banks................................................................................26

1.3.4 Role of Women........................................................................................29

1.3.5 Microfinance & Poverty Alleviation ..............................................................30

1.4 Urban Microfinance.........................................................................................34

1.5 Rating of Microfinance Institutions ....................................................................37

1.5.1 Indicators for rating...................................................................................38

2 MARKET SCENARIO .........................................................................................39

2.1 Market Size and Growth ..................................................................................39

2.2 MF Institutions ...............................................................................................48

2.2.1 SKS Microfinance ......................................................................................49

2.2.1.1 Introduction .......................................................................................49

2.2.1.2 Business Activity/Products and Services .................................................49

2.2.1.3 Business Strategy ................................................................................49

2.2.1.4 Outlook ............................................................................................51

2.2.2 SHARE Microfin Limited ............................................................................51

2.2.2.1 Introduction .......................................................................................51



2.2.2.4 Outlook ............................................................................................52

2.2.3 BASIX.....................................................................................................52

2.2.3.1 An Introduction ..................................................................................52







2.2.3.4 Outlook ............................................................................................54

2.3 Role of NGOs in microfinance .........................................................................54

2.3.1 SEWA .....................................................................................................55

2.3.1.1 Introduction .......................................................................................55

2.3.1.2 Business Activity /Products and Services ................................................56


2.3.1.4 Outlook ............................................................................................59

2.3.2 Mysore Resettlement and Development Agency ...........................................59

2.3.2.1 Introduction: ......................................................................................59

2.3.2.2 Business Activity / Products and Services ...............................................59


2.3.2.4 Outlook ............................................................................................62

2.3.3 PRADAN.................................................................................................62

2.3.3.1 Introduction: ......................................................................................62



2.3.3.4 Outlook ............................................................................................65

2.3.4 Society for the Promotion of Area Resource Centres....................................65

2.3.4.1 Introduction: ......................................................................................65

2.3.4.2 Business Activities/Products and Services ...............................................65


2.3.4.4 Outlook ............................................................................................67

2.4 Private Banks .................................................................................................67

2.4.1 ICICI Bank ...............................................................................................67

2.4.1.1 Introduction: ......................................................................................67



2.4.1.4 Outlook ............................................................................................69

2.4.2 ABN Amro Bank ......................................................................................69

2.4.2.1 Introduction: ......................................................................................69


2.4.2.3 Business Strategy................................................................................70

2.4.2.4 Outlook ............................................................................................71





2.5 Commercial Banks ..........................................................................................71

2.5.1 State Bank of India ....................................................................................71

2.5.1.1 Introduction: ......................................................................................71



2.5.1.4 Outlook ............................................................................................73

2.5.2 National Bank for Agriculture and Rural Development...................................73

2.5.2.1 Introduction: ......................................................................................73



2.5.2.4 Outlook ............................................................................................75

2.5.3 Small Industries and Development Bank of India............................................75

2.5.3.1 Introduction: ......................................................................................75



2.5.3.4 Outlook ............................................................................................76

3. GROWTH DRIVERS ..........................................................................................77

3.1 Need for Bank Credit by Unprivileged Class ......................................................77

3.2 Availability of Finance ......................................................................................78

3.3 Government Policy and Support .......................................................................79

3.4 Consolidation in the Industry ...........................................................................79

3.5 Growing Migration and Urbanisation .................................................................80

3. 6 Human Resource Capacities............................................................................81

4. ISSUES & CHALLENGES ...................................................................................82

4.1 Literacy & Skill Levels of Clientele.....................................................................82

4.2 High Transaction and Service Cost....................................................................83

4.3 Credit Risk ....................................................................................................85

4.4 Skewed Regional Distribution of Microfinance ....................................................86

4.5 Diversion of Funds to Unproductive Activities ....................................................86

4.6 Regulatory Issues ............................................................................................87

4.7 Irregular Flow of Income due to Seasonality .......................................................87

4.8 Uncertainty of Market Conditions.....................................................................88

4.9 Lack of Tangible Proof for Assessment of Income ...............................................88





4.10 Need for Information Sharing & Better Technology ...........................................89

5. OUTLOOK....................................................................................................... 90

5.1 Size and Growth.............................................................................................91

5.2 Penetration of Microfinance in Future and Role of Private Sector Investment..........92

5.3 Sustainability of Microfinance............................................................................94

5.3.1 Policy Environment ...................................................................................94

5.3.2 Financial Infrastructure ..............................................................................94

5.3.3 Developing Viable Microfinance Institutions ..................................................95

5.3.4 Pro-poor Innovations ................................................................................95

5.3.5 Social Intermediation .................................................................................96

5.4 Scalability of Microfinance in Future ..................................................................96

ANNEXURE - BIBILOGRAPHY................................................................................ 98





LIST OF FIGURES

Fig.1.1 Savings by Region

Fig.1.2 Savings by Region 953 MFIs Reporting, July 2007 61 Million Savers

Fig.1.3 MFI's by region, Based on a sample of 2,207 MFIs in 2007

Fig 1.4 Direct Financing Model

Fig 1.5 SHG Bank linkage Model

Fig 1.6 Growth in borrowers under MFI channel (2003-2007)

Fig 1.7 Growth in outstanding loan portfolio under MFI channel (2003-2007)

Fig 1.8 Estimated loan outstanding under SHG bank linkage channel ( 2003-2007)

Fig 1.9 Share of bank linkage SHG and MFIs in microfinance disbursement (2003)

Fig 1.10 Share of bank linkage SHG and MFIs in microfinance disbursement (2007)

Fig 1.11 Growth in cumulative disbursements by SHGs and MFIs channels (2003-2007)

Fig 1.12 Instituitional flow of microfinance

Fig 2.1 Major market players in rural credit

Fig 2.2 Growth in client outreach by MFI’s

Fig 2.3 Classification of activities – Micro credit loan being taken

LIST OF TABLES

Table 2.1 Growth of SHG Linked in 13 Priority sectors

Table 2.2 Growth of SHG’s in Regions

Table 2.3 MFI Outreach State-wise

Table 2.4 Top 40 MFI Institutions and their Active Borrowers (2007)

Table 2.5 Top Microfinance Institution Performance in the year 2007

Table 2.6 Top 20 Districts by MFI Penetration (2007)Table 2.7 Earnings of the poor in the developing countries from the micro-enterprises may

vary from 29% - 236% (2008)

Documents

TOC Micro Finance