Micro Finance Industry

Overview

The microfinance industry is regarded as one of the most important industries that cater to the needs some of the most vulnerable sections of the Indian society. MFI’s (Microfinance Institutions) currently operate in 28 States, 5 Union Territories and 568 districts in India. The reported 156 MFI’s with a branch network of 12,221 have reached out to an all-time high of 37 million clients with an outstanding loan portfolio of Rs 48,882 Crore. This includes a managed portfolio of INR 9854 crore. The average loan outstanding per borrower stood at Rs 13,162 and 80% of loans were used for income generation purposes.

 

The amount of savings and the average per SHG (Self Help Groups) savings (Rs 14,662) held in the banking system are both increasing since 2011-12. Average loan disbursed per SHG for 2014-15 is reported at Rs 184,551, whereas average loan outstanding per SHG stood at Rs 115,295.

 

Industry Segmentation

Domestic and Global Outlook

As compared to the year 2014, outreach has grown by 13% and loan outstanding has grown by 33% in 2015. The share of both outreach and loans outstanding is lead by the Southern Zone, followed by the East. However growth rates are higher in the north-eastern and central regions. Outreach proportion of urban clientele is increasing year on year as against the rural population. The proportion of urban clientele which was 44% in 2013-14 increased to 67% in 2014-15. Women constitute 97% of the total clientele of MFI’s, SC/ST borrowers constitute 28% and minorities 18%. This highlights one of the most important features of the MFI’s in India, which is the large scale of operations conducted and various levels of society that they cater to.

 

The figures above therefore, can be perceived in two ways-

1) the wide presence of poverty has created a fertile ground for publicly traded and for-profit MFI’s to thrive or

2) Given the large amount of poverty in India, the presence of MFI’s is absolutely essential for supporting the poor and for creating a society that encourages financial inclusion. This has always been a hot topic of discussion and the sustainability of such institutions has been questioned on moral grounds.

 

This being said, MFI sector employs more than 94,500 personnel, out of which 16% are women and 64% are field staff. Active borrowers Per Credit Officer (ABCO) is 419, which is lower than the previous year indicating higher focus on client services and new recruitments.

 

NBFC-MFI’s contribute to 85% of clients outreach and 88% of outstanding portfolio, while NGO MFI’s contribute to the remaining. MFI’s with portfolio size of more than Rs 500 crore contribute significantly to the total outreach (82%) and loan outstanding (85%) of the sector.

 

Coming to the hurdles faced by this sector, NPAs are one of the biggest cause of concern. The aggregate NPA of has increased marginally by 0.6% from 6.8% in 2013-14 to 7.4% in 2014-15. Quality of SHG’s and their performance have emerged as the major issues affecting the industry.

Future Potential

Potential for micro-finance in India is large given the large number of people that live below poverty line. The lack of financial literacy among the poor is another important fact and adds to this potential. The lack of collateral and the easy availability of micro-finance have made it immensely popular and have resulted in the growth of several entrepreneurs and small businesses in rural areas.

 

While India does grow at a robust rate of over 7% per annum, there still lies the question of whether this development has reached the most vulnerable sections of society or whether it is the typical case of ‘the rich getting richer and the poor getting poorer’. Microfinance institutions therefore, are instrumental in reducing this gap and are trying to uplift more and more people, thereby contributing to the increase in national income. Also, the yield of the sector for the year was 23.8%, which was the highest for NBFC-MFI’s (24.2%) and lowest for the Co-Operatives (20.2%), making this industry profitable and altruistic at the same time.

 

Despite the wide reach of microfinance institutions, there are still several areas in India that don’t have access to it and therefore serve has a big opportunity to this industry.

What this report contains:

  • A detailed overview of the industry

  • Structure of the industry from both, domestic and international perspectives

  • Related industries that this industry has inter-dependencies with and their understanding

  • Detailed analysis of industry segments in terms of the value and depth of corresponding market

  • Analysis & insights about the elements and critical success factors of this industry using strategic models

  • A forecast on the state of this industry in 2021, predicting the growth and movement patterns for 2016 - 2021

  • Our professional analysis on the future of the industry based on strategic actions adopted by major industry participants analysis and their key strategic initiatives

  • Quantitative estimates and forecasts of the growth prospects of the industry using revenue and financial forecasting models and Valuations of major players of the market

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