According to Sa-Dhans Bharat Microfinance Report

2016,1 the Indian microfinance industry is pegged at Rs.

63,853 crores making it about US$ 10 billion industry. The
industry is beginning to see benefits of scale with reduced
interest for borrowers. The top 10 NBFC-MFIs contributing 80%
of the sectors Gross Loan Portfolio or over Rs. 40,000 crores
have a weighted average interest rate of 23.13%, far below the
26% max cap under PSL guidelines.

Sa-Dhans Bharat Microfinance Report shows that over 36

NBFC-MFI members have reduced rates significantly in the last
financial year itself. The high growth rate continues,
despite Bandhan, which was the largest MFI, becoming a
bank. While as of March 2016, the total loan portfolio of
MFIs has reached an all-time high of over Rs. 63,853 crores
clocking 31% growth, but if Bandhans loan portfolio of Rs.
9,524 crore of 2014-15 is taken out the actual growth rate of the
sector between 2014-15 to 2015-16 is over 60%.

The sector witnessed a healthy growth in client base with over

28 lakhs new members taking the total number of client to over

1Sa-Dhans Bharat Microfinance Report 2016,

http://indiamicrofinance.com/indian-mfi-rs-64000-2016-
2017.html
399 lakhs. But the average loan per borrower of Rs. 11,425 is
less than last years Rs. 13,162.

Speaking about the report, P. Satish, Executive Director

Sa-Dhan, said, Despite Bandhan going out of microfinance
space, the sector witnessed a strong growth. Attaining over 28
lakhs clients is no mean feat. This goes on to show that the
microfinance industry, having reached its inflection point, is
growing steadfastly. However the more than 100 % growth of
13 MFIs does raise some concerns. He further added, MFIs
are finding BC model rather attractive on the credit side.

The year saw a huge growth in the Business Correspondents

(BC) model. With RBI allowing NBFC-MFIs to act as BCs,
managed portfolio has substantially increased. In the last
financial year, the BC Portfolio constituted 13% of total portfolio
and 47% of the managed portfolio of MFIs. The BC portfolio
amounts to Rs. 7,894 crores.

The microfinance industry is showing a steady growth.

Compared to last years client base of 371 lakhs the number of
clients has gone up to 399 lakhs in 2016. The following chart
represents the journey of the industry since 2001.
As per the NSS data of various years, including the latest one of
2013, majority of the population is still dependent largely on
informal and expensive sources, including money lenders to
meet their credit needs. Loan portfolio of the MFIs and its trends
are analyzed below to understand the performance of the
institutions and their contribution to the goal of financial
inclusion.

The share of NBFC-MFIs stood over 88%, followed by Societies

and Trusts at 9%. Nearly 88% of the portfolio is held by MFIs
with a portfolio size above Rs. 500 crores. List of top 10 MFIs in
terms of loan portfolio is indicated below. Among the top 10, six
MFIs have posted a growth between 53% to 191 % in loan
portfolio.
Microfinance is usually related to the rural areas of the country.
According to Bharat Microfinance Report 2016, it is seen that
urban population constitutes a majority of borrowers.

Microfinance Institutions On The Edge

Of Demonetisation

Microfinance Institutions (MFIs) are non-banking financial

institutions involved mainly in service of granting micro-loans
which are repaid on a daily, weekly, fortnightly or monthly basis.
It is a 60,000 crore industry and almost all the transactions
carried out in the microfinance sector are done in cash. In view
of Government of Indias decision to scrap Old High
Denomination (OHD) currency on 8thNovember 2016, the sector
is grappling with a huge drop in collections.

Overnight, more than 80 percent of currency in circulation has

been transformed into mere pieces of colored paper. RBI
guidelines on deposit and exchange of cash is only for
individuals, but on financial institutions it is silent. Microfinance
Institutions Network (MFIN) a self-regulatory organisation for
microfinance sector had asked for clarification to RBI, on
acceptance of OHD currency by MFIs. Recent advisory issued
by MFIN states that Members are advised to cease collection
of loan repayments in 500 and 1000 notes.

On the other hand, MFIs face repayment default or delayed

payment in view of limited supply of tenderable currency in our
economy. Microfinance clients are mainly small business men,
traders, shopkeepers etc. Out of whom, the majority of them are
women. They may suffer from temporary liquidity crisis as a
result of sudden fall in demand. This problem may persist in
short run but in long run it should correct itself with the flow of
newly printed currency into the economy.

Self-Help Groups and the BC model

Number of SHGs linked to credit and bank loan amount to

SHGs has witnessed an increasing trend after 2010-11. The
number of saving linked SHGs has also n increased during the
year.; till date, 103 million families have been covered under the
SBLP program with a total number of 79.03 lakh SHGs with a
saving amount of Rs 13,691 crores. A total of 46 lakh SHGs
have a gross loan outstanding of Rs 57,119 crores. The amount
of savings and the average per SHG savings (Rs 14,662) held
in the banking system are both increasing since 2011-12.
Average loan disbursed per SHG for 2015-16 is reported at Rs
203,526, whe eas average loan outstanding per SHG stood at
Rs122,258

The aggregate NPA of SHG loans remain a concern though it

has declined marginally by 0.59% from 7.4% in 2014-15 to
6.4% in 2015-16. Quality of SHGs, their performance has
emerged as one of the major issues affecting the movement.

Also the fact that NRLM will push for improvement in the SHG
bank linkage with better monitoring, lower rates of interest and a
sharper focus on livelihood generation, would give a greater
fillip to the growth of SHG programme.

MFIs are finding the BC model increasingly attractive to carry

out their activities on the credit side and to spread it to deposit
taking activities 51MFIs had an exposure to a BC loan portfolio
of Rs 7,191 crores through linkage to 25 banks. Apart from this
13 MFIs were undertaking deposit related activities for 13
banks. The deposit portfolio of BCs amounted to Rs 871 crores.

Another successful microfinance intervention initiated by

NABARD is the Self Help Group Bank Linkage Program (SHG-
BLP)2. More than 55 million households are part of the SHG
movement. Are SHGs affected by Demonetisation? According
to Ms. Sumita Chanda, founder of M.M. Nagar Craft Centre,
a SHPI of Medinipur, West Bengal, impact of Demonetisation on
SHGs is minimal, as they do not hold much cash with them.
However, they face trouble in getting payment from other
parties.

SHGs are facing problem in getting new loans and opening of

account as banks are not providing these services for the time-
being. During this period, a huge line can be observed at all
the banks and banks have set up dedicated counters to deal
with demonetisation related work, this has affected the
functioning of other financial services offered by banks she
said.

2 http://indiamicrofinance.com/microfinance-demonetisation.html
While speaking to SHGs of Nayagram in Paschim Medinipur,
the clients claimed that banks usually grant fresh loans to SHGs
during the months of March and September. Thus, in the month
of November there is a little demand for new loans. Ms. Alpona
Maity, President of Badchara Progressive Cultural Forum, said
that people in the village do not need much money for their
domestic requirements, most of them grow their own crops and
vegetables and with 200 in pocket they can manage for two
weeks. Some well-off families might have problem but not us,
she added.

Nevertheless, we cannot ignore the fact that Demonetisation

scheme is putting aam aadmi in trouble, like standing in long
queue for their hard earned money, unavailability of other
banking services apart from deposit, withdrawal and exchange
difficulties. Citizens have so far given a mixed reaction. They
are worried that a lot of time is being wasted while standing in
queue. At the same time they are happy that the people who
earned money unethically i.e. hoarders, corrupt officials,
unethical business houses are being penalized.
According to Sa-Dhans Bharat Microfinance Report
20153, MFIs (microfinance institutions) total loan portfolio stood
at over Rs. 48,882 crore. The net loan portfolio or owned
portfolio on the books of the MFIs stood at over Rs. 39,028
crore, which is an increase of 33% over the last year. The share
of NBFC-MFIs stood at 88%, followed by Societies and Trusts
at 9%. Nearly 85% of the portfolio is held by MFIs with a
portfolio size above Rs. 500 crore. The top 10 MFIs contribute
Rs 34, 298 cr. which is 70% of the total sector.The sector
witnessed growth of average loan per borrower to Rs.
13,162 from the previous years Rs. 10,079.

Of the total 250 million households

of the country, credit from
3 http://indiamicrofinance.com/microfinance-portfolio-in-india-pegged-at-rs-50000-
crore.html
microfinance sector, through MFI
and SHG routes, reaches nearly 100
million households. This is no mean
achievement for these non-
mainstream financial institutions.
For MFIs, the year has seen a 33 %
growth in loan portfolio with the
urban portion outstripping rural for
the first time.This shows that MFIs
are catering to migrants,
slumdwellers and unorganised
sector in cities and towns.
Proportion of SC/ST and Minority
clientele increased from 33 % last
year to 46 % this year which shows
that for the marginalised and
vulnerable, MFIs are the first touch
point for credit. Growth rates for
Northeastern region are higher
indicating MFIs expanding in
remoter and difficult terrains

MFI industry has reached an

inflection point. With small finance
banks and payment banks coming
into existence, the microfinance
industry will witness a sea-change.
He also added that while this is the
best of times for the industry, the
players should also tread with
caution as these are rapidly
changing times. Yet, the sector
should continue to mainstreaming
the marginalised into financial
inclusion.
The total number of clients served by MFIs stood at 371 lakh as
on 31 March, 2015. Client outreach of MFIs had grown
substantially from 2005 to 2011 reaching 317 million. This trend
slowed down during 2012 and 2013 and the number of clients
slumped to 275 lakh. The trend reversed in 2014 with a growth
and reached a level of 330 lakhs. This trend continues in 2015
with an astounding rise in clients/ borrowers to an all time high
of 371 lakh. Majority of these clients are being served by NBFC-
MFIs (85.18%), primarily the larger ones. MFIs with outstanding
portfolio above Rs. 500 crore are responsible for reaching out to
82.21% of the clients in the industry. The below chart shows
Outreach to Borrowers: Yearly Trend and Category wise
Breakup for 2015:
Out of the total client base of 371 lakh, South alone contributes
to 39% followed by 25% in East. Central region and West have
15% and 11% of total outreach respectively. North-East and
North have the least client outreach numbers with 6% and 4%
respectively. Share in outreach has expanded only in case of
Central and North-East regions from 13 to 15 % and 5 to 6 %
respectively
According to the Bharat Microfinance Report 2015, 2014-15
can described as watershed year as far as the rural-urban
divide in Indian microfinance is concerned. A very interesting
trend is seen in the rural-urban focus of MFIs. The share of rural
clientele which was 69 % in 2012 decreased to 56 % in 2014
and has drastically come down to 33 %. The proportion of rural
to urban clients for the year 2014-15 is 33% to 67%. For the first
time urban clientele has outstripped the rural clientele of MFIs.
Elaborating on the role of National Financial Inclusion
Conference, HR Khan, Dy. Governor RBI emphasized
on the relevance of the theme of the conference, reaching the
un-banked through the digital revolution for the future
growth of the sector. The microfinance and financial inclusion
movement in India is at an in-flexion point, with significant
developments and churning in the recent past, at the same time
there is uncertainty on the future course of these developments.