Outreach of Microfinance Services in India By: Rajni Kumari MBA From Alliance Business Academy, Bangalore University

Introduction: Micro finance has become one of the most discussed subjects in the last two decades all over the world. Today micro finance programs and institutions have become increasingly important components of strategies to reduce poverty or promote micro and small enterprise development. Microfinance, a financial innovation, originated in Bangladesh when Prof. Mohd. Yunus changed the lives of millions of Bangladeshis by creating the concept of micro loans. The idea came to his mind by involving himself in fighting poverty during the 1947 famine in Bangladesh. Besides teaching through the traditional methods, he wanted to understand the real life economies also. He gave $27 as the first loan from his pocket to a villager living near to his university campus and discovered that villagers are quickly repaying the money by selling their goods in the market; and there evolved the concept of microfinance with the establishment of Grameen Bank in 1976. Prof. Yunus earned a Nobel Peace Prize in 2006 for his most valuable credit to the financial system for the poor. Astonishing growth rates in Bangladesh, particularly during 1990s created a new dimension for microfinance worldwide as microfinance institutions grew to include millions of clients. In India, a substantial microfinance system based on Self-Help Groups (SHGs) progressed during 90s. Microfinance is a financial model specially designed for serving the poor. Microfinance programs provide tiny loans to poor people for self-employment projects. Definition of Microfinance: In India, Microfinance has been defined by The National Microfinance Taskforce, 1999 as

provision of thrift, credit and other financial services and products of very small amounts to the poor in rural, semi-urban or urban areas for enabling them to raise their income levels and improve living standards. Profile of Microfinance in India: India is said to be the home of one third of the worlds poor. About 87 percent of the poorest households do not have access to credit. Annual credit demand by the poor in the country is estimated to be about Rs 60,000 crores. Four-fifth of which is met by informal finance or money lenders. A cumulative disbursement under all micro finance programmes is only about Rs. 5000 crores. Only about 5% of rural poor have access to micro finance.

The non poor comprise of 29% of the outreach. There are no firm estimates, but the Indian commercial banks, which are the main source of funds for microfinance institutions (MFIs), have about $2bn in loans outstanding.

Research Design:
Type of Research: Descriptive Need for study: Microfinance Institutions(MFIs) are emerging as social businesses catering to an untapped market segment while creating value for their shareholders. This paper connects the dots of the MFI industry scenario and their outreach with other key economic and political factors playing out in the country. Objective of Study: To understand the outreach of microfinance services in India

Sampling Plan: Sampling Method: Judgmental Sampling Sampling Units: For the purpose of studying microfinance practices in India, Five major microfinance institutions are taken which is based on judgmental sampling. These include: SKS microfinance Bandhan BASIX Spandana Cashpor microcredit For analysis purpose, data for last 5 years are taken. Limitations of Study: Since microfinance sector is so wide that it is not possible to cover all the financial institutions operating in the sector. Some of the issues are relating to few microfinance institutions only.

Analysis:
Mix Market Data on Microfinance Total Total MFIs Gross loan Portfolio No of Borrowers 1936 65 billion USD Indias Share 153 4.3 billion USD

91.7 million

26 million (active borrowers) 215.3 million USD

Deposits

26.9 billionUSD

Outreach of 5 MAJOR Micro Finance Institutions

Gross Loan Portfolio (USD) as on 31st Dec 2011 SKS Microfinance Spandana Bandhan BASIX Cashpor Micro credit 1124.83 million 787.304 523.3 million 361.54million 46.903million

No. of Active Borrowers

Deposits (USD) as on 31st Dec. 2010

6.66million 3.66million 3.009 million 1.722million 0.43million

88.42 million -

Major Findings:
Microfinance institutions serve an estimated 91.7 million clients in the world. Indias share is nearly 26 million. Gross Loan portfolio: 4.3 billion USD Gender is a part of the microfinance strategy in India. Most MFIs target only women. There is a huge demand and supply gap, in the money demanded by the poor and supply by the MFIs. The microfinance penetration Index shows that still the gaps exit in Bihar, Madhya Pradesh, Rajasthan, Uttar Pradesh (BIMARU states). MFIs have not spread to some of the states in North Eastern states such as Nagaland, Arunachal Pradesh and Mizoram. There is a concentration of financing in southern region especially in Andhra Pradesh( 20 million clients with Rs123 billion).

Suggestions:
1) Potential Convergence between Banks and MFIs: Advantages to MFIs: MFIs can significantly lower their cost of funds and remove potential hazards of dependence on institutional liquidity through conversion to a banking model; Advantage to bank: Banks can get into the financial inclusion game through best practices from MFIs. 2) Partnership with RRBs: Partnership with MFIs could be one of the routes which could be explored by RRBs to have better access to similar client base and to fulfill their mandate of financial inclusion. 3) Consolidation within MFIs

Bibliography:
Publication: State of the Sector Report 2009, 2010 Newspapers: Business Standard, Economic Times Websites: a) www.muhammadyunus.org b) www.mixmarket.org/mfi/country/India c) www.indiamicrofinance.com d) www.fino.co.in e) Websites of particular microfinance institutions