Investment in microfinance in India

1
Investment in microfinance in India

• Brij Mohan, ACCESS Development Services, New Delhi

2
The Growth of the Sector

• The microfinance sector has grown at an average
  annual rate of 45
• MFIs promoted by large number of individuals with
  active support of development/commercial banks
• Two models.1) bank to SHG directly, 2)bank to MFI
  to SHG. Total coverage 54 million clients with
  outstanding portfolio of US 4.6 billion as on
  March 2008- 90 women, 25 urban
• Efficient operation with average operating
  expense ratio at 8.5, average OSS at 126
  average PAR-60 at 0.9

3
The Growth of the Sector

• About one third clients borrowing less than US
  100. Less than one-fourth only borrowing more
  than US 200. About 69 socially disadvantaged.
  Coverage of ultra poor only 7
• Strong support structure of apex financial
  institutions, capacity building institutions,
  effective network, three loan wholesalers
  investing in start up/young institutions.
  Microfinance India 2008 lists 52 such agencies

4
Why the MF market so attractive

• Large MF market as 45 Indian adults do not have
  access to formal financial services
• Excellent business for banks giving highest risk
  adjusted yield. Qualifies for priority sector
• Increasingly efficient operation, good repayment
  record of MFIs/Mf clients, Govt. back up, ever
  growing number of institutions including in
  underserved areas.

5
Why the MF market so attractive

• Regular credit ratings of MFIs proving helpful
• A large number of professionals now joining
  microfinance industry
• More formal institutions. NBFCs now account for
  over 65 of MF clients. Leading NBFCs showing
  exponential growth -2 MFIs having more than 2
  million clients, 3 MFIs between 1 2 million,
  10 MFIs between 0.1 1 million. 40 listed with
  EDA Connect for equity/debt

6
Unmet challenges

• Good governance transparency in operation
• Politically acceptable interest rate
• Growing competition multiple lending
• Demand for social security income enhancement
  services
• Absence of regulation. Savings not permitted
• Net owned funds less than 10
• Poor HR technology investments

7
New initiatives

• Increasing focus on interest rate reduction
• New interest in social performance assessment
• Higher business focus on equity investments and
  securitization
• Pilots on health insurance, pension funds, food
  security, education of children
• New awareness on client protection and fair
  practices . Industry code of ethics.

8

• Thank you