State of the Sector

Microfinance India 2009

N.Srinivasan

26 October 2009

Trends

• High growth rates continue

• MFIs added more new clients than SBLP

• New banks enter bulk finding

• New instruments for resource raising

• Meltdown impacts smaller institutions

• Some states outside south zone showing signs of growth in SBLP and MFI segments

• Inclusion gathering pace

Client Outreach and loan volumes

No of clients (millions)

Loan outstanding (Rs billions)

Segment 2007-8 2008-9 March 08 March 09

Banking system (SHGs)

47.1 54.0 170.00 241.96

MFIs 14.1 22.6 59.50 117.34

Total 61.2 76.6 229.50 359.20

Comparison of annual accretion of clients

MFIs increased outreach faster last year

Snapshot of SHG linkage• Top five States in SHG loan accounts -

Andhra Pradesh, Tamil Nadu, West Bengal, Maharashtra, Karnataka

Agency Banks with more than 95% recovery

Comm banks 18 of 33

RRBs 22 of 70

Coop banks 113 of 226

5.99 mn SHGs saved Rs 54.4 bn;Average loan disbursed per SHG Rs 74000

Agency wise share in SHG linkage

MFIs performance

• Growth 60% in outreach; 97% in loans

• 122 MFIs increased outreach – 53 contracted

• 11.5% MFIs (large) had 88% of loans 60% MFIs (small) had 1% of loans.

• Small MFIs, Society and Trust forms - more prone to losses

• Large MFIs targeted higher yields

• High concentration in southern states – In Karnataka and AP competition is severe

Clients Mn

2008

2009

Growth

rate %

Loans Rs

bn

2008

2009

Growt

h rate

%

SKS 1.88 3.52 87 7.81 24.6 214

Spandana 1.19 2.43 104 5.95 18.7 214

Share 1.29 1.50 16 7.28 12.2 67

Bandhan 0.76 1.45 91 2.78 5.3 91

Asmita 0.70 0.88 26 3.36 7.1 111

Top five MFIs in outreach

Quality of coverage

• SBLP shows signs of deepening

• Savings growth vigorous in SBLP

• MFIs cover 234 out of 331 poor districts

• 80% SHGs and 93% clients of MFIs were women

• Increase in average loan size: Rs 5200 in MFIs, 4500 in SHGs

• More micro-insurance products available

Quality of coverage

• Poor are not clients of choice

• Interest rates remain high even when costs decline

• Expansion and profits prioritised over consolidation and customer comfort

• Not much diversification in products

• Institutional sustainability comes first

Positive developments• More mainstream funds flowed in to MFIs–

despite meltdown

• Bank loans to SHGs increased by Rs 74 billion -

• Equity flows continue to be strong – tier II MFIs able to get equity investments

• More professionals attracted to MF sector

• New generation MFIs have good business models

Not–so–positive developments• Competition impairs quality and discipline

• Multiple lending erodes customer protection

• Some states either combative or apathetic

• Transformation takes a long time

• Training arrangements deficient in quality and capacity

K2 lessons• Mf can result in over-indebtedness• Space for entry of external actors provided by

negligence of MFIs• Competition affects customers – not only MFIs• Relook in to products and processes necessary• Being near the customer is not the same as

understanding the customer• Staff incentives to be redesigned• Internal controls to be strengthened• Customer protection mechanisms needed

Policy environment• More developments in inclusion

• MF bill to be introduced in winter session

• Two working groups of RBI have made positive recommendations on inclusion

• BC guidelines set to undergo radical change?

• Policy yet to recognise role of MFIs, SHGs, Cooperatives and Post office in inclusion

Future…• Deepening of MF is critical – customers to

be focus

• Fair practice code for competition needed

• Introduction of lenders liability code and customer protection measures imperative

• Last resort refinance facility for tier II and III MFIs

• MF bill needs significant modifications

• Inclusion to move beyond superficiality

• Clarity on Rural finance architecture ?

Thanks to all those who made this report possible