2. Financial Inclusion-An Unfinished Agenda..
• Not more than two MFIs can lend to the same borrower.
• Set Rs.100,000 as maximum level indebtedness
• Loan amount is restricted to Rs.60,000 for the first disbursement cycle
• Loans without collaterals, the tenure should not exceed 2 years.
• Processing charges should be less than 1% of gross loan amount.
• Borrower could repay loans in weekly, fortnightly or monthly instalments as per
their choice.
RBI’s Regulation for the MFI industry (as of 2015)
*source: https://www.rbi.org.in
3. • MFI gained popularity, since they are the source of non-collateral debt.
• Indian microfinance is dominated by NBFC with 88% market share( as of
April 2016).
• MFIs also undertake various other services such as financial literacy,
empowerment of community, capacity building etc.
• MFI have reported a 58% jump in average loan size per customer from
FY14 to FY16, as a result of improved raise in Cap of Indebtedness to a
borrower from Rs.50,000 to Rs.1,00,000 (revision done on 2015 by RBI)
• During FY 12-16, GLP of MFIs grew at CAGR of 48% to reach Rs.53230 Cr
and no of clients benefitted crossed 3.25Cr.
*source:[1] ASSOCHAM-EY, 2016. EVOLVING LANDSCAPE OF MICROFINANCE INSTITUTIONS IN INDIA, s.l.: EY.
[2]MFIN, 2016. MICROMETER, s.l.: MFIN.
4. • MFIs gave disbursed around 35% of the total loans extended by MUDRA
Banks(since April 2015).
• Sector was severely impacted by the Andhra Pradesh crisis in 2010.
5. MFI- Shortcomings and Challenges
• Deserving poor are still not reached- The country still has
233m people (more than 19% of population) who are unbanked.
• Regional disparity(coverage of 2.93 per cent in North eastern states ).
• Limited spread in poorer states.
• High interest rates charged to SHG compared to banking
sector(11% to 24% per annum).
• Inability to generate sufficient funds.
*source: http://www.indiainfoline.com/article/news-top-story/role-of-nbfcs-in-financial-sector-
regulatory-challenges-114062400799_1.html
6. • Recent preference of MFIs to urban customers over rural
customers.
• Increase in ticket size loans increases the risks involved.
• Conversion of large MFIs into small banks drives away from
their objectives of serving the underprivileged with increased
complexity in enrolment procedure.
• Financial illiteracy-76% of people are financially illiterate(survey
by standard and poor).
• Preference for the familiar.
MFI- Shortcomings and Challenges
7. Solutions And Recommendations.
• Improved Field supervision.
• Encourage rural penetration by opening new branches.
• Complete range of products- including credit, savings,
remittance, financial advice etc.
• Improved transparency of interest rates.
• Securitization of loans and portfolio Buyouts.
General RecommendationsGeneral Recommendations
8. Solutions for Credit Gaps
Linkages with informal community savings groupLinkages with informal community savings group
• Access to group’s savings record in terms of frequency and amount before
initiating credit relationship.
• Increased penetration among poorer sections without significant cost outlay.
• Low default rates due to ability to monitor group’s savings to credit ratio.
• Real life scenario – The village savings and loan association (VSLA)
microfinance model help reduce poverty by financially empowering poor in Africa
Crowd-funding in MicrofinanceCrowd-funding in Microfinance
• Real life scenario- Crowd-funded KIVO Micro funding platform.
*source : [1]http://indiamicrofinance.com/top-10-mfi-in-india-2015-2016-list.html
[2]http://www.thehindubusinessline.com/economy/there-is-a-credit-gap-of-56-in-the-msme-sector/article6170666.ece
9. • Borrowers are grouped together and given loans sequentially. If one member
defaults, the entire group suffers.
Solutions for Risk Management
Promoting group lendingPromoting group lending
Flexible risk management system should focus on:Flexible risk management system should focus on:
• Decentralization
• Effective support system.
• Culture of training
• Openness and client centered approach.
• Real life Scenario- The Caja Model of Risk Management.
10. Solutions for more Financial Inclusion
Improvement in technologyImprovement in technology
• MFIs can reach rural clients even in the absence of pre-existing network,
resulting in cost savings.
• Reduce variable cost related data management, savings collection,
transaction cost.
Innovative technologies which can be leveraged:Innovative technologies which can be leveraged:
• Mobile devices - In the Taysir Micro finance in Tunisia incoporates 100%
Mobile banking based operating model.
• Personal Digital Assistant – BanGente (Venezuela), Banco Solidario (Ecuador)
introduced Porta Credit Applications for PDAs.
• Biometric – Prodem FFP (Bolivia) introduced combination of biometric and
smart cards in regional languages.
