Chapter-3: Micro Finance in India

The content in this chapter is categorized into four sections. The overall status of

Microfinance Sector in India has been discussed Section-I. India’s leading microfinance

delivery models viz., SHG Bank Linkage Model and MFI Bank Linkage Model have been

analyzed and discussed in Section – II and Section – III respectively. Section – IV is the

summary of the Microfinance Networks in India.

Section –I: Status of Micro-Finance Sector in India:

The growth of the microfinance sector in alignment with the rest of the economy

continued in the year 2010 but less vigorously than in the previous years. The macroeconomic

environment changed marginally for the better during 2010 as compared to the previous year.

Across the world, reports were of painful and slow recovery from the financial sector meltdown

of the previous year, and there was a continuing flow of bad and some good news. The bailouts

of financial institutions elaborately designed by different governments had run their course and

gave way to a great deal of attention for improving regulation and supervision of the financial

sector, and especially of the conglomerates. Pessimism and distrust gave way to cautious

attention to set things right. The impact, if any, on the microfinance sector had not been overly

negative. Of course, the initial withdrawal of funds-both of equity and of loans-was predictable

knee-jerk reaction of investors to consolidate their liquidity to minimize risks. With the passage

of time, both loan and capital funds have started to flow to the sector but with more

circumspection and caution. It is only a matter of time before the investors return to the

marketplace with full force.

The Indian economic environment recovered from slower growth rate of previous year to

post a GDP growth of 7.4 per cent in 2009-10. Industrial production continued to record double

digit growth with YOY growth at 14 per cent during April-May 2010. Agriculture, plagued by a

deficient monsoon, did not fare as well as the secondary and tertiary sector, and posted a growth

of 0.2 per cent. This prospect of a normal monsoon and heightened initial rainfall activity in the

current year has led to a significant increase in area sown across all major crop categories. The

1

prognosis for the agricultural sector in the current year is positive. However, the inflation

scenario according to the RBI is a cause for concern.

The Indian microfinance sector presents a strong growth story. Its growth performance

was impressively sustained through the liquidity crunch and continued at an increased rate in the

second half of 2009. As of March 2009, the MFIs in India reported a client base of 22.6 million

with an outstanding portfolio of more than $2 billion.7 over the past five years, the sector has

delivered a CAGR of 86% in the number of borrowers and 96% in portfolio outstanding. In the

12 months from March 2008 to March 2009, the microfinance industry experienced a 59%

growth in its client base from 14.2 million to 22.6 million and 52% growth in its portfolio

outstanding which increased from $1.5 billion to $2.3 billion.8 This reflects a 14% increase in

the absolute growth in portfolio outstanding and 33% increase in the absolute growth in the

number of borrowers from 2008 to 2009.

Table: Growth in Indian Microfinance Sector

Particulars 2005-06 2006-07 2007-08 2008-09 2009-10Outstanding Portfolio ($ Million) 496 824 1535 2346  Growth Rate (%) 96.8 66.1 86.3 52.8  No. of Borrowers (Million) 4.9 7.9 14.2 22.6  Growth Rate 113 61.2 79.8 59.2  

(Source: Microfinance Industry in India by Lokpal March, 2010)

Fig: Growth in Indian Microfinance Sector – Outstanding Portfolio

2005-06 2006-07 2007-08 2008-09 2009-100

500

1000

1500

2000

2500

Outstanding Portfolio ($ Million)

2

Fig: Growth in Indian Microfinance Sector – No of borrowers

2005-06 2006-07 2007-08 2008-09 2009-100

5

10

15

20

25

No. of Borrowers (Million)

SBLP seems to have hit a plateau in terms of new group linkage which grew by about 8.5

per cent. The credit growth seems better with an increase of 20 per cent over the previous year.

The number of groups linked at the end of March 2010 stood at 4.58 million and the amount of

loans outstanding at Rs.272.66 billion. As in the case of last year, this data is provisional and

likely to undergo revision. The growth rates have abated and credit disbursal is around the levels

reached last year. New groups formed have not been linked to banks at the vigorous rates

achieved in the last decade. There seems to be credit linkage fatigue setting in among the banks.

On the other hand, the MFIs posted higher growth rates than SHGs but client acquisitions rates

had declined to 19 per cent compared to a high of 60 per cent last year. This is despite some

MFIs having doubled their client’s numbers. Two hundred and sixty MFIs reported a total

clientele of 26.7 millions, which is an increase of 4.1 million over the previous year. Outstanding

loans at Rs.183.44 billion had increased by Rs.66.10 billion, about 56 per cent over the last year.

Clearly, MFIs have also concentrated on increasing their loan size. The total outstanding loans of

SHGs and MFIs constituted 1.40 per cent of total bank credit of Rs.32,447 billion.

3

Table: Client Outreach-Borrowers with Outstanding Accounts (million)

Segment 2006-07 2007-08 2008-09 2009-10Growth

Rate (%)

SBLP 38.02 47.1 54 59.6 5.6MFIs 10.04 14.1 22.6 26.7 4.1Total 48.06 61.2 76.6 86.3 9.7

(Source: State of Sector Report 2009-10)

Fig: Client Outreach-Borrowers with Outstanding Accounts (Millions)

2006-07 2007-08 2008-09 2009-100

10

20

30

40

50

60

70

80

90

SBLPMFIsTotal

One of the features of the current year’s assessment of the numbers of clients is that the

overlap seems considerably higher than previously estimated. During visits to the field, it was

observed that almost every state had stories of high competition and multiple borrowings.

Households borrowed from SHGs and MFIs, and informal sources as well. While overlap

between SHGs and MFIs cold be around 10 per cent, the overlap within MFIs is much higher;

multiple loans in competitive locations could result in a customer to accounts ratio of 2:3, which

means that there are 65 unique customers for every 100 microfinance loans.

4

Table: Client Outreach-Borrowers with Outstanding Accounts (millions)

Segment 2007-08 2008-09 2009-10Growth

(2009-10)

Banking System (SHGs) 47.10 54.00 59.60 5.60MFIs 14.10 22.60 26.70 4.10Total 61.20 76.60 86.30 9.70

Fig: Client Outreach-Borrowers with Outstanding Accounts (millions)

Average Loan Size:

In terms of outstanding loans there was a large gap between SBLP and the MFIs (chart).

But over the last two years, MFIs have been narrowing the gap which is presently Rs.89.22

billion. If the current trends in disbursements and portfolio accretion continue over the next three

years, then MFIs may overhaul the SBLP in terms of loan portfolio as well.

5

Fig: Average Loan Size

In 2010, the average loan sizes increased over the previous year (Table). The average

loan per member in the MFIs has been increased by a large extent than in the case of the SHG

member. The difference in average loan per customer between MFIs and SHGs is widening.

Reports of SHGs splitting and becoming Joint Liability Groups (JLGs) to avail loans from MFIs

are plenty and the increasing loan size of MFIs will accelerate this trend. The all-India averages

should be read with caution on account of inter-state, inter-bank and inter-MFIs differences.

Table: Comparison of Average Loan Size (in Rupees)

TypeAvg. Loan per Customer

Extent of increase in 2009-102008-09 2009-10

SHG Member 4120 4570 450MFI Customer 5190 6060 870

6

Fig: Comparison of Average Loan Size

Estimate of Microfinance Clients:

The broader microfinance sector could be defined as direct customers of banks for small

loans, small and vulnerable members of primary cooperative credit societies, SHG members and

MFI clients. Since there is a time lag in some series of data, the information as on 31 st March,

2009 has been provided in the below table:

Table: Estimation of Microfinance Clients

AgencyClients

Mar-07 Mar-08 Mar-09Commercial Banks (including RRBs) Small Loan Accounts 38.60 41.00 39.20

Primary Cooperative Societies Borrowers (Small, Vulnerable) 26.80 28.50 28.70SHGs - Members 39.90 47.10 54.00MFIs - Clients 14.10 14.10 22.60Total 119.10 130.70 143.90

7

Fig: Estimation of Microfinance Clients

The data represents a mixture of number of accounts and number of clients. In case of

Primary Agricultural Credit Societies (PACs), the number of customers is clearly indicated. In

the case of commercial banks, SHS and MFIs, the data relates to accounts rather than unique

customers. The data shows that there has been an increase of about 10 per cent in the clientele of

microfinance, but the increase in numbers has come entirely from SHGs and MFIs. The absolute

number of small accounts with Scheduled Commercial Banks (SCBs) has registered a decline

while borrowing membership of microfinance customers in PACs has almost remained the same.

On another plane, the reduction number of accounts in commercial banks does not augur well for

financial inclusion. The total amount of loans given and outstanding under the small loan

accounts of the SCBs was of the order of Rs.429.36 billion. This was more than the total loans of

Rs.359.39 billion outstanding under both the SHGs and MFIs that had a combined customer base

of 76.6 million in 2009. The average loan per account in case of banks was Rs.10951, which was

almost double the average loan size of MFIs and SHGs.

Along with increased portfolio in terms of clients and loan volumes, default risks have

tended to increase. Banks have reported higher default rates in case of SHGs. MFIs also have

reported increase incidence of defaults. Portfolio at Risk (PARs) (60 days) increased from 0.9

per cent in 2008 to 1.82 in 2009. Current Repayment Rates declined from 99.1 per cent in 2008

8

to 96.87 per cent in 2009. While the PR ratio still seems small, the real picture possibly remains

hidden by continuing high rates of accretion of customers and creative accounting.

9

Section – II: Overview of SHG Bank Linkage Program in India:

The SBLP is by far the dominant model of microfinance in India, in terms of number of

borrowers and loan outstanding. NABARD is actively involved in promoting SBLP in India.

Since 2006-07, NABARD has been compiling and analyzing the data on progress made in

microfinance sector, based on the returns furnished by Commercial Banks (CBs), Regional Rural

Banks (RRBs) and Cooperative Banks operating in the country. The banks operating, presently,

in the formal financial system comprise Public Sector CBs (27), Private Sector CBs (22), RRBs

(82), State Cooperative Banks (31) and District Central Cooperative Banks (370). Most of the

banks participating in the process of microfinance have reported the progress made under the

programme.

The data presented in this section booklet covers information relating to savings of Self

Help Groups (SHGs) with banks as on 31 March 2010, loans disbursed by banks to SHGs during

the year 2009-10, loans outstanding of the banking system against the SHGs and the details of

Non-Performing Assets (NPAs) and recovery percentage in respect of bank loans provided to

SHGs as on 31 March 2010. The data have been compiled region-wise, State wise and agency-

wise. The booklet also provides details relating to SHGs coming under Swarnjayanti Gram

Swarojgar Yojna (SGSY) and exclusive women groups. In addition, the information relating to

bulk lending provided by Banks and Financial Institutions to Micro Finance Institutions (MFIs)

for on lending to groups and individuals have also been provided. Based on these data and

information, this booklet attempts an assessment of progress on varied dimensions of the

microfinance sector.

The coverage of the SHG-bank linkage program is given in Table 3. While the program

was slow to take off, in recent years it has expanded exponentially. At the end of August 2007,

2.93 million self-help groups, an overwhelming number of SHGS comprising exclusively

women, had been provided credit by the banks. The total amount of outstanding credit is Rs. 181

billion. It is claimed to be currently the largest micro-finance program worldwide.

NABARD's corporate mission is to make available micro-finance services to about 100

10

million rural poor through one million SHGs by the year 2007-08. Though this target has already

been achieved by March 2004 itself there are certain issues that need more attention from the All

India Institutions. There is, at present, a high degree of concentration in the southern states with

just two states, Andhra Pradesh and Tamil Nadu, accounting for more than 58 per cent of the

SHGs linked to banks. These states have a history of women's enterprise, higher levels of literacy

and existence of cooperative institutions. After the Southern region, the SHG program has been

successful in the Western region again because of higher levels of literacy and the existence of a

co-operative movement. The SHG-bank linkage program has not as yet made an impact in the

poverty belt of the northern, central and eastern regions.

The outreach of the SHG-bank linkage may seem to be impressive, but in the context of

the magnitude of poverty in India and the flow of funds for poverty alleviation it represents a

very small intervention, accounting for less than 5 per cent of the banking system's

disbursements for agriculture and allied activities. Thus while the SHG program has made

notable progress in providing loans to largely poor families, it has not made a significant addition

to the credit flow to the rural areas.

Below table indicates the growth and progress of SBLP in India during 2006-07 to 2009-10.

11

Table: Progress of SHG Bank Linkage Program in India

Particulars2006-07 2007-08 2008-09 2009-10

No. of SHGs

Rs. In Crores

No. of SHGs

Rs. In Crores

No. of SHGs

Rs. In Crores

No. of SHGs

Rs. In Crores

Savings of SHGs with bank as on 31st March

Total SHGs

4,160,584 3,512.71 5,009,794 3,785.39 6,121,147 5,545.62 6,953,250 6,198.71

Out of which SGSY

956,317 757.57 1,203,070 809.51 1,505,581 1,563.38 1,693,910 1,292.63

Bank Loans disbursed to SHGs during the year

Total SHGs

1,105,749 6,579.39 1,227,770 8,849.26 1,609,586 12,253.51 1,586,822 14,453.30

Out of which SGSY

188,962 1,411.02 246,649 1,857.74 264,653 2,015.22 267,403 2,198.00

Bank loans outstanding with SHGs during the year

Total SHGs

2,894,505 12,366.49 3,625,94116,999.9

14,224,338 22,679.84 4,851,356 28,038.28

Out of which SGSY

687,212 3,273.03 916,978 4,816.87 976,887 5,861.72 1,245,394 6,251.08

(Source: State of Sector Report – 2006, 2007, 2008, 2009, 2010 and The Status of Microfinance in India by NABARD 2009-10)

12

Growth Trends in SBLP:

The provisional data of NABARD indicates that the SHG growth might be in a declining

trend both in outreach and loan portfolio. The number of SHGs that had outstanding loans was

4.58 millions at the end of March, 2010 which represents 8.5 per cent growth over the last year

of 4.22 million. The volume of outstanding loans was at Rs.272.66 billion representing an

increase of 20 per cent over the previous year of Rs.26.79 billion. The incremental loan

outstanding achieved by SBLP was the order of Rs.45.87 billion. The credit disbursements by the

banks to SHGs are increased by 49 per cent over the last year of Rs.122.53 billion to Rs.183.43

billion. Savings by SHG members increased to Rs.63.58 billion from Rs.55.45 billion. The

numbers of SHGs with savings are increased by 6.12 million to 6.81 million, by 11 per cent. The

average disbursement per group increased by Rs.115000 which was a substantial step up over the

last year Rs.76000 (refer to the below table). While the disbursement had increased impressively,

the same did not strongly reflect outstanding loans. The possible reason is that the loans are short

term compared to the past practice of providing three year loans to SHGs.

Table: Growth Trends in SBLP

Particulars 2006 2007 2008 2009 2010No of SHGs provided with bank loans (in Lakhs)

22.38 29.24 36.25 42.24 45.87

-Southern Region (in Lakhs) 12.14 15.22 18.61 22.83 24.21 -Share of Southern Region (%) 54 52 51 55 53Average loan disbursed per group (Rs.)

37,574 44,343 46,800 74,000 115,820

Outstanding loans (Rs. billion) NA 123.66 169.99 226.79 272.66Incremental Groups (in millions) NA 0.69 0.70 060 0.36Incremental loans outstanding (Rs. Billion)

NA NA 46.33 56.80 45.87

(Source: State of Sector Report, 2010)

13

Fig: Growth Trends in SBLP – No. of SHGs

2006 2007 2008 2009 20100

10

20

30

40

50

60

No of SHGs provided with bank loans (in Lakhss) -Southern Region (in Lakhss) -Share of Southern Region (%)

Fig: Growth Trends in SBLP – Average Loan disbursed per group

2006 2007 2008 2009 20100

20,000

40,000

60,000

80,000

100,000

120,000

Average loan disbursed per group (Rs.)

Regional Spread of SBLP:

There exists no uniformity with regard to its progress across the regions. It has had good

success in Southern Regions whereas in the Northeast and Northern region, its progress is very

low. It is also very low in case of the central region. The growth of the program has been

14

overwhelming in the South. The Southern region continues to lead in terms of share in client

outreach as well as loan disbursement and outstanding. Calculation from the absolute data in

below table shows that the share of the Southern region was 52.03 in 2006-07 per cent and it is

steadily continuing with the same pace over the years till 2009-10.

Table: Regional share in SBLP (Number of Groups Linked)

Region 2006-07Per cent

share2007-08

Per cent

share2008-09

Per cent

share2009-10

Per cent

share

Northern 182018 6.0 134783 3.80 166087 3.9 158829 3.5

Northeastern 91754 3.0 103424 2.90 117609 2.8 85276 1.9

Eastern 525881 18.0 753048 20.80 893126 22.1 985094 21.5

Central 332729 11.0 326763 9.00 326602 7.9 497340 10.8

Western 270447 9.0 446550 12.30 357775 9.3 439199 9.6

Southern152214

4 52.0186137

3 51.30228399

2 54.0242144

0 52.8

All Regions292497

3 100.0362594

1 100.00414519

1 100.0458717

8 100.0(Source: NABARD, 2009-10 Status of Microfinance in India Report)

Fig: Regional Share in SBLP for 2009-10 No. of groups linked

Northern Northeastern Eastern Central Western Southern All Regions0

500000

1000000

1500000

2000000

2500000

3000000

3500000

4000000

4500000

5000000

15

Fig: Regional Share in SBLP for 2009-10 per cent share

NorthernNortheasternEasternCentralWesternSouthernAll Regions

In case of borrowing groups, the region-wise distribution has undergone a moderate

change. The trends seen in the last year of a more decentralized distribution of growth of SHG

credit linkage has continued. North and Northeast regions recorded a decline in absolute number

of groups that had outstanding loans. The reason for this could be that repeat loans are not

available to SHGs after repayment of the earlier loans. Comparatively, in Southern region, there

is considerable pressure from the state authorities for lending to SHGs. Hence, the repeat loan

rations are higher and could account for the higher share. When the groups are initially linked,

banks incur costs of establishing familiarity with the group and completing initial

documentation. To discontinue services to once linked groups is a loss in material terms to the

bank, unless it is for reasons of risk and credit worthiness.

Top States in India in SBLP:

A comparison across states throws up no surprise. Andhra Pradesh had a marginally

higher share of number of groups and loans from banks. It had 29 per cent share of groups and

39 per cent of loans outstanding. In terms of number of SHGs, Andhra Pradesh was followed y

Tamil Nadu (12 per cent), West Bengal (9 per cent), Maharashtra (7 per cent) and Orissa (7 per

cent). Andhra Pradesh had the largest share of SHG loans.

16

NABARD had identified 13 priority states and the northeastern region for giving a fillip

to microfinance activities. In some of the states, the program had paid dividends. The state wise

trends indicate that the YOY variability is too high to come to conclusions that SBLP is maturing

in some of the states outside the southern region. One of the reasons could be the provisional

nature of data, which when finalized, could change the direction of analysis and conclusions. But

it is amply clear that non-traditional states are increasingly participating in SBLP. The direction

of the program over the long-term is positive in most states, through the progress is slow

compared in Southern States.

Table: Top States in SBLP in 2009-10

State RegionGroups

O/S loans

Per cent share

Loans O/S (Rs.

Mn)

Per cent share

Andhra Pradesh

Southern 1331596 24.7

105584.9 38.7

Tamil NaduSouthern 562275 12.3 38990 14.3

West Bengal Eastern 506496 9.4 13260.8 4.9Maharashtra North 365540 6.8 10555.5 3.9

OrissaSouthern 357041 6.6 14797.1 5.4

Fig: Per cent Share of Groups with Loans outstanding

24.7%

12.3%

9.4%

6.8%6.6% Andhra

Pradesh

Tamil Nadu

West Bengal

Maharashtra

Orissa

17

Fig: Per cent Share of Loans outstanding

38.7%

14.3%

4.9%

3.9%5.4% Andhra

Pradesh

Tamil Nadu

West Bengal

Maharashtra

Orissa

Savings Performance of SHGs:

One of the redeeming features during the current year was a substantial increase in the

number of SHGs that saved with the banking system. As at the end of 31 st March, 2009,

approximately 6.12 million groups had saved their surpluses with banks. At the end of March,

2010 the number of groups that saved increased to approximately 6.81 million. Savings by SHGs

increased by Rs.81.24 billion, that is by 14.6 per cent over the last year. The continuing growth

in savings over the years a reflection of how this opportunity is valued by the poor.

Table: Savings performance of SHGs (No. of SHGs)

Agency

No. of SHGs Amount saved (Rs. Millions) Avg savings

per SHG in 2010

(Rs.)

2008 2009 2010 2008 2009 2010

CBs 2810750354950

9 4062822 20777.3 27729.9 36812.7 9060

RRBs 1386838162858

8 1646059 11664.9 19897.5 12697.7 7714

18

Coop. Banks 812206 643050 1108870 5411.7 7828.8 14069.8 12688

Total 5009794612114

7 6817751 37853.9 55456.2 63580.2 9325

Figure: Savings Performance of SHGs - No. of SHGs for 2010

58%

20%

22%

CBs

RRBs

Coop. Banks

Fig: Savings performance of SHGs -Amount Saved for 2010

CBsRRBsCoop. BanksTotal

Of the amounts saved, a lion’s share was saved with the commercial banks. 58 per cent of

19

SHGs savings were with commercial banks at an average of Rs.9060 per group. In case of

commercial banks the average per group savings increased by 16 per cent. Regional Rural Banks

(RRBs) had a share of 20 per cent of SHG savings. There is a decline in the average savings per

group in case of RRBs from the last year’s Rs.14,400 to Rs.7,700. Cooperatives put in a good

performance, raising their share of SHGs savings from 14 per cent last year to 22 per cent in the

current year. The average savings per group with cooperatives increased by 50 per cent over last

year’s level of Rs.8020.

As on 31 March 2010, a total of 69.53 Lakhs SHGs were having saving bank accounts

with the banking sector with outstanding savings of Rs.6198.71 Crores as against 61.21 Lakhs

SHGs with savings of Rs.5545.62 Crores as on 31 March 2009, thereby showing a growth rate of

13.6 per cent and 11.8 per cent, respectively. Thus, more than 97 million poor households were

associated with banking agencies under SHG-Bank Linkage Programme. As on 31 March 2010,

the CBs lead with savings accounts of 40.53 Lakhs SHGs (58.3%) with savings amount of

Rs.3673.89 Crores (59.3 %) followed by RRBs having savings bank accounts of 18.21 Lakhs

SHGs (26.2% ) with savings amount of Rs.1299.37 Crores (21.0%) and Cooperative Banks

having savings bank accounts of 10.79 Lakhs SHGs (15.5 %) with savings amount of Rs.1225.44

Crores (19.8%).

Agency wise Distribution of SHGs:

Bank Loans Disbursed to SHGs:

During 2009-10, banks have financed 15.87 Lakhs SHGs, including repeat loan to the

existing SHGs, with bank loans of Rs.14,453.30 Crores as against 16.10 SHGs with bank loans

of Rs.12,253.51 Crores during 2008-09, registering a decline of 1.4 per cent of SHGs but a

growth of 17.9 per cent in bank loans disbursed. Out of the total loans disbursed during 2009-10,

SHGs financed under SGSY accounted for 2.67 Lakhs (16.9%) with bank loan of Rs. 2198.00

Crores (15.2%) as against 2.65 Lakhs SHGs (16.4%) with bank loan of Rs. 2015.22 Crores

(16.4%) during 2008-09. The agency-wise details of loans disbursed by banks to SHGs during

the years 2008-09 and 2009-10 are given in the below table:

20

Table: Bank Loans disbursed to SHGs

YearCommercial Banks RRBs Cooperative BanksNo. of SHGs

Rs. in Crores

No. of SHGs

Rs. in Crores

No. of SHGs

Rs. in Crores

2006-07            2007-08            2008-09 1004587 8060.53 405569 3193.49 199430 999.492009-10 977521 9780.18 376797 3333.2 232504 1339.92

(Source: NABARD, Status of Microfinance in India 2009-10)

It may be observed from the above table that as always, CBs led in disbursement of loans

to SHGs during 2009-10 with 61.6 per cent share followed by RRBs with a share of 23.7 per cent

and Cooperative Banks with a share of 14.7 per cent. During 2009-10, average bank loan

disbursed per SHG was Rs.91,083 as against Rs.76,128 during 2008-09. The average loan per

SHG ranged from of Rs.1,00,050 per SHG by CBs to Rs.57,629 per SHG by Cooperative Banks.

Bank loans outstanding with SHGs:

Commercial Bank’s share of borrowings of SHGs remained the same at 67 per cent as in

the last year. In terms of volume of loans, commercial banks had a proportionately high share of

68 per cent. The RRBs share of groups and loans declined during the year. RRBs lost 1 per cent

share in groups linked and 2 per cent share in loans outstanding compared to 2009. Cooperative

Banks improved their share of SHG lending, with their share of groups increasing by 1 per cent

to 11 per cent in 2010. In case of loans, their share of in 2010 was 11 per cent, an increase 5 per

cent over last year of 6 per cent. In the midst of revamp the increased exposure to low risk loans

to SHGs makes good business sense for cooperatives.

21

Table: Bank Loans outstanding with SHGs

YearCommercial Banks RRBs Cooperative BanksNo. of SHGs

Rs. in Crores

No. of SHGs

Rs. in Crores

No. of SHGs

Rs. in Crores

2006-07 1893016 87638 729255 28017.6 272234 8043.52007-08 2378847 114754.7 875716 44210.4 371378 11300.92008-09 2831334 161494.3 977834 50234.9 415130 130602009-10 3237263 20164.71 1103980 6144.58 510113 1728.99

(Source: NABARD, Status of Microfinance in India 2009-10)

Fig: Bank Loans Outstanding with SHGs – Amount wise

2006-07 2007-08 2008-09 2009-100

500000

1000000

1500000

2000000

2500000

3000000

3500000

Commercial BanksRRBsCooperative Banks

22

Fig: Bank Loans Outstanding with SHGs – No. of SHGs

2006-07 2007-08 2008-09 2009-100

20000

40000

60000

80000

100000

120000

140000

160000

180000

Commercial BanksRRBsCooperative Banks

As on 31 March 2010, total number of 48.51 Lakhs SHGs were having outstanding bank

loans of Rs.28,038.28 Crores as against 42.24 Lakhs SHGs with bank loans of Rs.22,679.85

Crores as on 31 March 2009, representing a growth of 14.8 per cent in number of SHGs and 23.6

per cent in bank loans outstanding against SHGs. The share of SHGs under SGSY was 12.45

Lakhs SHGs (25.7%) with outstanding bank loans of Rs.6,251.07 Crores (22.3%) as against 9.77

Lakhs SHGs (23.1%) with outstanding bank loans of Rs.5,861.72 Crores (25.8%) as on 31

March 2009. The agency-wise position of outstanding bank loans to SHGs for the years 2008-09

and 2009-10 are given in above table. It may be observed from above table, that following the

highest disbursements, CBs also had the maximum share of 66.7 per cent in outstanding bank

loans to SHGs followed by RRBs with a share of 22.8 per cent and Cooperative Banks with a

share of 10.5 per cent. The average bank loan outstanding per SHG had increased from

Rs.53,689 as on 31 March 2009 to Rs.57,795 as on 31 March 2010. It varied between Rs.62,289

per SHG in case of CBs and Rs.33,894 per SHG in case of Co-operative Banks as on 31 March

2010.

23

NABARD’s Promotional Support to SHG Bank Linkage Program:

Micro Finance Equity and Development Fund:

To strengthen the efforts of NABARD towards promotional support for micro finance,

the Government of India in the Union Budget for 2010-11 had further increased the corpus of

Micro Finance Development and Equity Fund (MFDEF) to Rs.400 Crores. Recognizing the need

for up scaling the micro-Finance interventions in the country, the Hon’ble Union Finance

Minister, while presenting the budget for the year 2000-01, had created MFDF with an initial

contribution of Rs.100 Crores, to be funded by Reserve Bank of India, NABARD and

commercial Banks in the ratio of 40:40:20. In the Union Budget for 2005-06, the Government of

India had decided to re-designate the MFDF into MFDEF and raised its corpus from Rs.100

Crores to Rs.200 Crores. The MFDEF is managed and administered by NABARD under the

guidance of an MFDEF Advisory Board. The objective of MFDEF is to facilitate and support the

orderly growth of the microfinance sector through diverse modalities for enlarging the flow of

financial services to the poor, particularly for women and vulnerable sections of society

consistent with sustainability.

Table: MFDEF Sanctions (2009-10)

AgencyOutstanding loans of SHGs

NoAmount (Rs.

Lakhs)No. of SHGs

Cooperative Banks 7 63.23 5230RRBs 4 40.14 3395NGOs 306 2620.1 53393Farmer's club IRVs 2 154.7 9250Total 319 2878.17 71268

Fig: MFDEF Sanctions – Amount wise

24

Cooperative BanksRRBsNGOsFarmer's club IRVsTotal

Fig: MFDEF Sanctions–No. of SHGs

Cooperative BanksRRBsNGOsFarmer's club IRVsTotal

NABARD’s role in the SHG movement had been hailed in the past for the vision,

strategies and an innovative spirit. NABARD had embarked upon this journey of mobilizing

poor people into groups and harnessing their power in groups to set up a financial architecture

that reached the hinterland in the rural areas. For the current year, according to U.C Sargani,

Chairman of NABARD will concentrate ‘on maintaining and improving the quality of their

graduation to micro enterprises’. Apart from capacity building support, NABARD has provided

long term liquidity to banks (refinance) to incentivize their lending to SHGs. During the last

year, the Microfinance Development and Equity Fund (MFDEF) available with NABAD has

25

been utilized to the extent of Rs.809.1 million during 2010 which also included Rs.600 million

given as loans to MFIs (Refer to the below table). Last year’s sanctions were mostly to NGOs

and banks for the Individual Rural Volunteers (IRVs) to fund formation and maintenance of

SHGs.

Refinance support to Banks:

The refinance provided by NABARD to banks was Rs.31.73 billion, an increase of 21 per

cent in 2010. The share of SHG refinance in the annual disbursement was 26 per cent, the second

higher share for any subsector. NABARD has backed up its thought leadership with finance to b

banks. But one cannot escape the feeling that over the last four or five years, the enthusiasm on

the part of the NABARD towards SHGs is on the wane. The loss of enthusiasm is inexplicable as

NABARD has everything to gain as an apex development agency from a fully functional rural

financial architecture that could marry the informality required for the rural clients with the

formalities associated with high finance.

Training and Capacity Building Programs:

NABARD continued to organize/ sponsor training programmes and exposure visits for

the benefit of officials of banks, NGOs, SHGs and government agencies to enhance their

effectiveness in the field of microfinance. Training supplements and materials were supplied to

banks and other agencies. Best practices and innovations of partner agencies were widely

circulated among government agencies, banks and NGOs. During the year 2009-10, fund support

of Rs.9.93 Crores was provided for capacity building, exposure visits and awareness-building as

against Rs.6.10 Crores during 2008-09. The cumulative fund support for the purpose as on 31

March 2010 stood at Rs.45.02 Crores. During 2009-10, 6,804 training/capacity building

programmes were conducted covering 2,53,868 participants. The progress under training and

capacity building during the year 2009-10 is given in the below Table.

26

Table: Training and Capacity Building Programs conducted during 2009-10

Program No. of

Programs conducted

No. of participants

Awareness creation and capacity building programmes organised for SHG members in association with identified resource NGOs, covering participants to inculcate skills for managing thrift and credit 1991 83131

Awareness-cum-refresher programmes conducted for NGOs, including CEOs 1130 35648

Training programmes conducted for bankers covering officials of Commercial banks,RRBs and Co-operative Banks 462 14945

Exposure visits for bank officials / NGOs to agencies pioneering in Microfinance(MF) initiatives 14 387

Field visits of Block Level Bankers' Committee (BLBC) members to nearby SHGs 227 5880

Programmes for the elected members of Panchayati Raj Institutions (PRIs) to createawareness among them about the MF initiatives 80 2799

Training & exposure programmes for government officials 79 3385

Other training programmes for microfinance sector 1181 65029

Micro Enterprises Development Programme (MEDP) 1530 38313

Micro Enterprise Promotional Agency 36 1000

Meetings and Seminars (Bankers, NGO officials, etc.) 74 3351 (Source: NABARD, Status of Microfinance in India, 2009-10)

27

Micro Enterprise Development Program (MEDP) for Skills Development:

MEDP was launched by NABARD in March, 2006 with the basic objective to enhance

the capacities of the members of matured SHGs to take up micro enterprises through appropriate

skill up gradation / development in the existing or new livelihood activities both in farm and non-

farm sectors by way of enriching knowledge of participants on enterprise management, business

dynamics and rural markets.

In 2009-10, a total of 1530 MEDPs, both under Farm and Non-farm activities, were

conducted across the country covering 38313 members of the matured SHGs. Cumulatively, total

2837 MEDPs have been conducted so far covering 93777 participants. The dominant activities in

agriculture and allied sector covered under MEDPs were animal husbandry, bee-keeping,

mushroom cultivation, vermi-compost/organic manure, horticulture, floriculture, etc. whereas

predominant non-farm activities taken up under MEDPs were readymade garments, Agarbatti

making, embroidery, bamboo-craft, beauty parlous, etc.

Grant support to Partner Agencies for Promotion and Nurture of SHGs:

NABARD continued its efforts in the formation and nurturing of quality SHGs by means

of promotional grant support to NGOs, RRBs, DCCBs, and Individual Rural Volunteers (IRVs)

and by facilitating capacity building of various partners, which has brought impressive results in

the promotion and credit linkage of SHGs. Further, the number of partner institutions/individuals

functioning as Self-Help Promoting Institutions (SHPIs) over the years has increased to 2911

which has resulted in the expansion of the programme throughout the country. The cumulative

sanctions made by NABARD to various agencies from 2007-08 to 2009-10 are given in the

below table:

Table: Grant support to various agencies (Cumulative Sanctions)

Agency 2007-08 2008-09 2009-10

28

No.Rs. in Lakhs

No. of SHGs

No.Rs. in Lakhs

No. of SHGs

No.Rs. in Lakhs

No. of SHGs

NGOs 2007 4841.42 245276 2318 6405.17 291780 2624 9025.81 345173

RRBs 111 368.6 43790 113 389.3 44590 117 429.44 47975

Cooperatives 83 426.21 44410 85 563.13 53875 102 626.36 59105

IRVs 59 483.14 28643 66 529.76 31233 68 684.46 40483

Fig: Grant Support to NGOs – Amount wise

2007-08 2008-09 2009-100

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

Fig: Grant Support to RRBs – Amount wise

29

2007-08 2008-09 2009-10330

340

350

360

370

380

390

400

410

420

430

Fig: Grant Support to Cooperatives – Amount wise

2007-08 2008-09 2009-100

100

200

300

400

500

600

700

Fig: Grant Support to IRVs – Amount wise

30

2007-08 2008-09 2009-100

100

200

300

400

500

600

700

Pilot Project on SHG-Post office Linkage Program (SPOLP):

The Pilot Project for SHG-Post Office Linkage programme was initially launched in five

select districts of Tamil Nadu, viz., Sivaganga, Pudukottai, Tiruvannamalai, Thanjavur and

Tiruvarur. The initial results have been encouraging. Thus, NABARD has sanctioned an

additional Revolving Fund Assistance (RFA) of Rs.200 Lakhs to India Post for on-lending to the

SHGs, taking the total RFA sanctioned to Rs.500 Lakhs. As on 31 March 2010, 2,828 SHGs

have opened zero interest savings accounts with select Post Offices in Tamil Nadu and 1195

SHGs have been credit linked with loans amounting to Rs.321.25 Lakhs. NABARD has

sanctioned RFA of Rs.5 Lakhs to Post Offices in Meghalaya for on-lending to 50 SHGs in East

Khasi Hills.

Special initiative for scaling up SHGs/ SHG Federations:

31

NABARD has been associated with Rajiv Gandhi Charitable Trust (RGCT) for

promotion, credit linkage and formation of SHG Federations in select districts of Uttar Pradesh.

The project envisages promotion and credit linkage of 22,000 SHGs, 1,100 cluster-level

associations and 44 block-level associations in collaboration with participating banks and

implementing NGOs. The project would cover 15 and 29 blocks under Phase I and II

respectively in 12 districts of Uttar Pradesh viz. Sultanpur, Rae Bareli, Barabanki, Pratapgarh,

Lucknow, Unnao, Fatehpur, Jhansi, Lalitpur, Bahraich, Shravasti and Banda. NABARD and

RGCT have designed the project with technical assistance from Society for Elimination of Rural

Poverty (SERP), Government of Andhra Pradesh. As at the end of 31 March 2010, 21,868 SHGs

have been promoted, of which 12,749 SHGs have been credit linked. In addition, 676 Village

Level and 15 Block Level SHG Federations were formed under Phase I and Phase II.

Other support services:

Apart from the above, NABARD is providing some other services like financing Joint

Liability Groups (JLGs), financial support to Activity Based Groups (ABGs), financial assistance

to SHG Federations and specific support to Arunachala Pradesh and Tripura.

Based on the studies conducted by NABARD, it was found that financing of Joint

Liability Groups (JLGs) is a good business proposition. It needs simplified documentation, group

dynamics, timely repayment culture and prospects of credit enhancement to quality clients.

Keeping in view the need and findings of the studies, NABARD has issued comprehensive

guidelines on JLGs to Banks focusing on small and marginal farmers, oral lessees, tenant farmers

engaged in farm sector and other clients under nonfarm activities.

Recognizing the emerging role of the SHGs’ Federations in nurturing of SHGs,

enhancing the bargaining powers of group members and livelihood promotion, NABARD

introduced during 2007-08, a flexible scheme to support such Federations, irrespective of their

model.

32

Arunachala Pradesh: During 2008-09, an amount of Rs.39.15 Lakhs was sanctioned by

NABARD for implementing the project ‘Micro Finance Vision 2011’ by the Govt. of Arunachal

Pradesh. Further, an amount of Rs. 33.66 Lakhs was sanctioned to the Essom Foundation Trust

for setting up a Resource Centre at Itanagar for providing policy, operational inputs, capacity

building support and marketing linkages among the groups. NABARD has released Rs.5.452

Lakhs to the trust up to 31 March 2010.

Tripura: NABARD continued to provide technical support to the State support project on

SHGs being implemented by the Government of Tripura for credit linkage of 11,500 existing

SHGs, forming and credit linking 35,000 new SHGs and promoting livelihood activities among

the 3 Lakhs members up to 2012.

Section-III: Microfinance Institution (MFI) Program:

During the last few yeas, there has been an increase in the number of MFIs in India,

promoted by government, NGOs and individuals. The different organizations in this field can be

classified as Mainstream Micro Finance Institutions and Alternative Micro Finance Institutions.

While both public and private ownership are found in case of mainstream financial institutions

offering microfinance service, the alternative microfinance institutions are mainly in the private

sector. These come up to fill the gap between the demand and supply for microfinance. These

can be classified as MFIs and Community Based Organizations. These MFIs are operating under

various legal forms. The “For Profit” MFIs, apart from the traditional credit services, are

providing composite services to the poor. The recent time period, MFIs have been experiencing

high growth rate with coverage and loan outstanding. Despite reported problems and concerns

arising from rising default rates and attention of the wrong kind from some state authorities, the

sector has posted good growth. The growth rates have been modest compared to the last year but

33

far ahead of any other sector in the Indian Economy. As per provisional data made available by

Sa-dhan, MFIs achieved a client outreach of 26.7 million and loan portfolio of Rs.1863.44

billion, which is 18 per cent growth in loan portfolio over 2009. In terms of vibrancy and future

potential, the sector seemed to be the best among the investor community. A poll of 50

investment banking firms/companies brought out that the microfinance is the top ranked

destination for investments in financial sector today. Of those who voted, more than 80 per cent

rated microfinance as the best sector for investments. The continuing acceleration of client

acquisition and business volumes on a very large expanded base indicates strong demand and the

inadequate supply to meet the needs of vulnerable people.

Geographical Distribution of MFIs in India:

There is a high geographic concentration with 75% of MFIs in two states only: Andhra

Pradesh 62% and Tamil Nadu 13% (refer to the below table), while the remaining 25% are

scattered over 11 states. Incidentally the states with a high concentration of MFIs also have a

high concentration of SHGs and substantial credit linkages of these SHGs to the banks. The

southern states are also states with a high banking density. Bihar with 44 MFIs is third in the

states with large presence of MFIs.

Table: Distribution of MFIs by State.

StateNo. of MFIs

Share

Andhra Pradesh 484 62Tamil Nadu 101 13Bihar 44 6West Bengal 30 4Orissa 28 4Karnataka 20 3Kerala 18 2Rajasthan 18 2Maharashtra 15 2Madhya Pradesh 14 2Gujarat 8 1Uttar Pradesh 5 1Jharkhand 1 0

34

 Total 786 100

61%

13%

6%

4%

4% 3%2% 2% 2% 2%1% 1%

Andhra PradeshTamil NaduBiharWest BengalOrissaKarnatakaKeralaRajasthanMaharashtraMadhya PradeshGujaratUttar PradeshJharkhand

The MFI sector is highly atomized and decentralized: 95% of MFIs operate in only one

state. Only 36 MFIs operate in more than one state. Only one MFI has a truly wider presence in

most of the less developed states in the country, but also in the southern states. MFIs which have

a pan India presence are necessarily registered as NBFCs and one hardly sees NGO-MFIs

operating in more than one state. There was one NGO-MFI registered as a Society in Andhra

Pradesh which had ambitions to spread to other states in the late 90s but it could not realize its

dreams partly due to its business model.

Table: Geographical Spread of MFI operations in India as on 2011

StateNo of States Serving

Grand Total

12 to

5 6 to 10 >10

Andhra Pradesh 476 6 1 1 484

35

Tamil Nadu 94 7     101Bihar 39 5     44West Bengal 30       30Orissa 27   1   28Karnataka 15 5     20Kerala 15 3     18Rajasthan 16 2     18Maharashtra 14 1     15Madhya Pradesh 14       14Gujarat 7 1     8Uttar Pradesh 2 3     5Jharkhand 1       1Total 750 33 2 1 786Share 95 4 0 0 100

As can be seen from the below table 530 MFIs (68%) operate in only one district. Close

to a quarter of them operate in 2 to 5 districts. 93% MFIs operate in less than 5 districts. Again

MFIs from AP, Bihar and Tamil Nadu have ventured into more districts compared to MFIs from

other states. There is only one MFI that is being operated in more than 250 districts, while no

other MFI from any other state has been doing this. Orissa is the next state to Andhra Pradesh to

operate in more than 51 states. This table is clearly witnessing that the South India is playing

significant role in MFI services.

Table: District wise spread of MFIs in India as on 2011

State

Number of Districts Serving Grand

Total1

2 to 5

6 to 10

11 to 20

21 to 50

51 to 100

> 250

Andhra Pradesh 353 123 2 1 1 2 1 484Tamil Nadu 78 17 3 3       101

36

Bihar 21 20 2   1     44West Bengal 11 15 4         30Orissa 16 7 3   1 1   28Karnataka 7 2 7 4       20Kerala 9 7 1 1       18Rajasthan 14 3 1         18Maharashtra 11 2 1 1       15Madhya Pradesh 8 6 1         14Gujarat 2 4 2         8Uttar Pradesh   2 2         5Jharkhand   1           1Total 530 209 29 10 3 3 1 786Share 68 27 4 1 6 7 8 100

Top MFIs in the list:

During 2009, 20 Indian MFIs made it to the top 100 list of Mix Market, and 15 were in

the top 50. In the Microfinance Information Exchange (MIX) top 100, 2008, only 10 Indian

MFIs had figured. Indian MFIs have posted vigorous growth in a year in which MFIs in other

countries have faced difficulties. The efficiency and profitability of Indian MFIs saw many of

them improve their ranking compared with the previous year.

Table: Indian MFIs in the MIX top 100 lists

MFIRank in

2009 2008Grameen Fin Servies 4 180SKS Microfinace Ltd 7 3Spandana Spoorthy Microfin 8 23BASICS 11 32SHARE 12 26Bandhan 13 5Village Fin Services 15 219Asmitha 18 127

37

Grama Vidiyal 20 -SWAS 23 269Gram Utthan 28 196

(Source: State of Sector Report 2009-10 & www.MixMarketing.org)

Operating Metrics of Top 10 MFIs in India:

Predictably, the top spot in terms of clients and loans was captured by SKS Microfinance

LTd. The top seven MFIs of the last year retained their place. Ujjivan Financial Services entered

the list of top10, displacing BISWA. Equitas moved up from the tenth place to eighth while

Grama Vidiyal slid down one place to ninth (refer to the below table). The list now has seven

MFIs in the million plus customers club, SKDRDP, the odd one in the company of nine Non-

Banking Financial Companies (NBFCs), was placed sixth in terms of number of clients, but in

terms of portfolio outstanding, it was in the seventh place with BASICS having a higher loan

portfolio.

Table: Top 10 MFIs by Outreach (Rs. Billion)

MFIOutreach (No.)

Loan o/s

Own Funds

Borrowings

SKS 5795028 29.70 9.70 27.30Spandana 3662846 21.60 4.90 22.20SHARE 2357456 17.20 3.00 20.60Bandhan 2301433 12.10 2.00 13.60AML 1340288 11.00 2.00 14.30SKDRDP 1225570 6.20 0.40 5.90BASICS 1114468 7.90 2.00 9.70Equitas 888600 4.80 2.80 4.40Grameen Vidiyal 772050 4.10 0.70 5.00

38

Ujjivan 566929 3.80 1.10 2.40 (Source: State of Sector Report 2009-10, N.Srinivasan)

Fig: Top MFI by Outreach (Numbers)

SKS

Span

dana

SHARE

Bandhan AML

SKDRDP

BASICS

Equita

s

Grameen

Vidiyal

Ujjivan

0

1000000

2000000

3000000

4000000

5000000

6000000

Comparative Performance of top 5 MFIs in India:

The top five MFIs accounted for 59 per cent of clients and 58 per cent of outstanding

loans (refer to the below table).Bandhan had a noticeable jump in its loan portfolio among MFIs

that had remarkable growth rates as a group. Spandana’s growth rate in loans outstanding seems

moderate at 15 per cent as was SKS’s at 21 per cent. This is more attributable to the

securitization and assignment of debts that had reduced outstanding in the books of MFIs for

raising resources rather than reduction in average loan size. The numbers in MIX database do not

include the assigned/securitized part of the portfolio in the loans outstanding and rightly so. But

the overall numbers of business originated and carried on the balance sheet for a time would not

be available for trend and growth rates analysis. For example, in the case of SKS, when the

outstanding portfolio loans assigned Rs.13.84 billion are taken into account, the growth rate of

outstanding loans increases to 76 per cent.

Table: Comparative Performance metrics of top five MFIs

MFI Clients (million) Loans (Rs. billion)

39

2009 2010Growth

Rate (%)2009 2010

Growth Rate (%)

SKS 3.52 5.80 65.00 24.60 29.70 21.00Spandana 2.43 3.66 51.00 18.70 21.60 15.00SHARE 1.50 2.36 57.00 12.20 17.20 41.00Bandhan 1.45 2.30 59.00 5.30 12.10 128.00AML 0.88 1.34 52.00 7.10 11.00 54.00

(Source: Mix Market, Status of Microfinance India 2009-10, NABARD)

Fig: Comparative Performance Metrics of Top-5 MFIs by No. of clients

SKS Spandana SHARE Bandhan AML0

1

2

3

4

5

6

20092010

40

Fig: Comparative Performance Metrics of Top-5 MFIs by amount of Loans

SKS Spandana SHARE Bandhan AML0

20

40

60

80

100

120

140

20092010Growth Rate (%)

Form-wise distribution of MFIs:

The form-wise distribution of MFIs in the Mix data base has NBFCs as the largest

grouping. The analysis of the market share in terms of the form of organization of MFIs shows

that NBFCs had a very strong hold on the market with a share of 85 per cent of loans. Societies,

the next most popular form had a share of just 6.4 per cent of the market. The market shares of

different forms should be understood in the context of support available from other stakeholders

such as banks, investors, rating agencies and others. Companies are the preferred form as there is

a clearly defined ownership and governance structure, well-laid systems of accounting and audit

and, therefore, accountability for performance to those who invest or lend. Rating agencies

subconsciously raise their ratings a notch when they see a company as the form in MFI as

compared to a trust or society. Investors cannot buy equity in any other form with a potential for

capital appreciation and dividends. The dominant market share of NBFCs has as much as to do

with their abilities as with the supportive framework provided by other stakeholders.

Table: Form-wise distribution of MFIs-Loan portfolio

FormNo. of MFIs

GLP (Rs. Million)

41

NBFC 34 133.67Society 23.0 10.1Section 25 6.0 4.0Trust 4.0 6.4Cooperative Banks 5.0 1.2Others 3.0 1.2Local Area Bank 1.0 0.8

Figure: Form-wise distribution of MFIs-Loan portfolio

85%

6%3%

4%1% 1% 1%

NBFC Society Section 25 TrustCooperative Bank Others Local Area Bank

42

Funding Aspect to MFIs:

On the funding side, more equity funds were available to the sector compared to the

previous year and to a larger number of MFIs. Some smaller MFIs also received equity funding.

Mainstream private equity investors outnumbered focused microfinance investors in the Indian

market. One of the watershed events in the recent past has been the successful float of the initial

public offer of equity of SKS microfinance. A less than five year old institution mobilizing

$#350 million from the capital market at a price that is more than six times its book value is a

major milestone in the sector’s journey. There are differing views on the high valuation achieved

and the future difficulties in defending the equity price in an unforgiving marketplace. But it

cannot be denied that the microfinance sector has growth in maturity to a level sufficient to

attract capital market funds. More institutions are expected to follow suit and approach the

bourses in a quest for high enterprise valuation and not necessarily equity funds.

Banks have been cautiously optimistic in continuing to support the sector with bulk loans

and buying out portfolios. Small Industries Development Bank of India (SIDBI) almost doubled

its outstanding microfinance loan portfolio Rs.38 billion. Public sector banks had taken a major

share of new exposures. A larger number of banks are wiling to support MFIs as compared to

couple of years ago. Most private sector and foreign banks have limited their exposure buy and

large to previously existing levels with a few exceptions. The funder’s confront has been derived

from the entry of new, more organized and professional promoters. Then entry of large corporate

houses such as Mahindra and Mahindra, Larsen & Toubro and Reliance has been seen as a

testimony to the inherent strength of business mode of MFI. The banking sector has fewer

reservations in financing MFIs, particularly those in company form, from a business and risk

point of view. However, regulatory concerns would continue to influence credit decisions of

banks especially in current year.

During the year 2009-10, there is a tremendous growth has been recorded in the increase

of bank loans disbursed to MFIs across India. Rs.8062.7 Crores have been disbursed to 691 MFIs

and approximately this is 116 per cent growth when it is compared to 2008-09 which was

Rs.3732.3 Crores. As there is an increase of Bank loans disbursed to MFIs, the growth in the

43

bank loans outstanding is also recorded a significant. The bank loans outstanding as at 31st March

2011 was amounted Rs.10147 Crores against Rs.5009.10 Crores on 31st March 2010. A thorough

analysis has been done on these two parameters since 2006-07 to find out the growth of MFI role

in the MF sector in India. It has been found that the Bank loans disbursement is playing a key

role in the operational activities of MFIs.

Table: Progress of MFI Bank Linkage Program in India

Particulars

2006-07 2007-08 2008-09 2009-10

No. of MFIs

Amount (Rs. in Crores)

No. of MFIs

Amount (Rs. in Crores)

No. of MFIs

Amount (Rs. in Crores)

No. of MFIs

Amount (Rs. in Crores)

Bank Loans disbursed to MFIs during the year     518 1970.2 581 3732.3 691 8062.7

Bank loans outstanding with MFIs as on 31st March     1109 2748.8 1915 5009.1 1513 10147.5

(Source: Status of Microfinance in India 2009-10, 2008-09 by NABARD)

Fig: Progress of MFI Bank Linkage Program in India

No. o

f MFI

s

Amou

nt (R

s. in

Cro

res)

No. o

f MFI

s

Amou

nt (R

s. in

Cro

res)

No. o

f MFI

s

Amou

nt (R

s. in

Cro

res)

No. o

f MFI

s

Amou

nt (R

s. in

Cro

res)

2006-07 2007-08 2008-09 2009-10

0

2000

4000

6000

8000

10000

12000

Bank Loans disbursed to MFIs dur-ing the yearBank loans outstanding with MFIs as on 31st March

44

Key Financial Metrics of top MFIs:

Profitability:

Of the 76 MFIs in the database, six had not reported information relating to profits. Of

the remaining 70 MFIs, 62 had reported positive returns and nine had reported negative return-

on-assets. Of the loss making MFIs, one was in the large category. A Cursory analysis of return-

on-assets offers a surprising revelation that the microfinance sector has a very high profit

potential. Six MFIs had return-on-assets in excess of 7 per cent (refer to the below chart). This

highest return-on –assets reported was 9.41 per cent by a society of MFI. Thirty five institutions

in all had return-on-assets in excess of 2 per cent. In contrast, the ban king system typically had a

range of 1 per cent to 2 per cent return-on-assets. Public sector banks in 2009 had an average

return-on-assets of 0.6 per cent, respectively. A part from a comparison of the return-on-assets

between banks and MFIs, a comparison of their business context is also warranted. Banks do not

deal with poor populations for major parts of t heir business. Banks, though dealing typically

with better off clients that have a capacity pay, are satisfied with low return-on-assets. Poor and

vulnerable customers and high return-on-assets do not get well together. While potential for

profitability in the sector is clearly established in these numbers, justifications for such high

profits buy the concerned MFIs is hard to come by. Some of the explanations are that such profits

are necessary for growth, the profits are ploughed back to shore up capital adequacy, and the

retained earnings significantly facilitate leveraging borrowing form banks.

Table: ROA range wise distribution of MFIs

ROA (%) Range

No. of MFIs

Above 7% 64%-7% 142%-4% 151%-2% 120-1% 14

Fig: ROA range wise distribution of MFIs

45

Above 7% 4%-7% 2%-4% 1%-2% 0-1%0

2

4

6

8

10

12

14

16

No. of MFIs

Financial Ratios:

The Side by Side Report 2009 published by Sa-dhan has provided different sectoral

financial rations based on audited information. The year 2009 saw an increase in the return-on-

assets of MFIs to 4.87 per cent compared with 3.78 per cent of the previous year. Return on

equity also increased to 25.88 per cent compared with 22.74 per cent in the previous year.

However, operational self-sufficiency fell from 125.9 per cent in 2008 to 117 per cent in 2009.

There was a spike in the operating cost which was higher at 14.3 per cent rising from 8.5 per cent

in 2008. The increase in operating cost is in part of attributable to a decline in the per field

officer case load which fell from 411 to 367. The Sa-dhan data for 2009 for select MFIs reveals

better operational self-sufficiency, higher portfolio at risk, a stable case load on field officer, a d a

stable operating cost ratio (refer to the below table). Fourteen MFIs were unable to cover their

costs in 2009. Seven of these were in society form and three were in non-profit company form;

three were in company form. This tendency on the part of non-profits to make losses needs

introspection. The increased portfolio at risk (PAR) in the sector from 2 per cent in 2007 to 3 per

cent in 2009 in worrisome as it is a 50 per cent increase in PAR and on a much larger loan

portfolio.

The scope for reducing operating costs should be examined thoroughly. The link between

46

size of loans and operational costs is well known to all professionals across the sector, In a

comparison across several countries, the average outstanding loan size in India is on the lower

side. It is smaller than in Cambodia, Ethiopia and Vietnam, but higher than in Bangladesh. There

are signs this year that loan size in India is increasing, but gradually, the preference in business

growth is on the client side and not on the loan size. The peril in smaller loans is that it leaves the

customer wanting and opens up space for competition, to some extent, multiple borrowing

instincts in the client could be curbed by satisfying her needs adequately. Higher loan sizes

would transact in to lower staff and transactions costs, which in turn could bolster operational

self sufficiency and profits.

Table: Key Financial Ratios of selected MFIs from 2007 to 2010

Ratio2010 2009 2008 2007

Operational Self-Sufficiency   115.4113.

4103.

5Portfolio At Risk (PAR)   3 2.5 2Current Repayment rate   96.9 95.9 94.9Operating Cost Ratio   13.8 13.5 19Total Cost Ratio   24.9 24.8 29.2Active Borrowers Per Credit Officer   406 413 402

(Source: Sa-dhan Side by Side Report 2010)

Yield on Portfolio:

The YOP is one of determinant of incomes and profits. In the absence of a uniform basis

of interest rate disclosure by MFIs, the YOP serves as proxy that is more consistent across

institutions. The normal yield was above 30 per cent for 23 MFIs out of 70 that reported the data.

The highest yield was 41.29 per cent. Sixteen MFIs had yield of less than 20 per cent. The size

wise analysis did not show any significant relationship between size and yield levels. The

hypothesis that MFIs that grow large will reap the economies of scale and drop the interest rates

resulting in lower yields is not borne out. Large MFIs are as likely to have higher yields as are

the medium ones, However, the age-wise analysis does not bring out conclusions that are contra-

intuitive (refer to the below table). MFIs in the initial start-up period are expected to have higher

47

yields and, as they grow older, the yields will decline reflecting the amortization of initial

investments and improved efficiencies from settled systems and processes. But the data on yields

shows that young MFIs in the five to 10 year range of age are more likely to have moderate

yields. The reasons why yield rates are high in mature institutions has to be explored. In some

cases, the yields have increased over the years despite reduction in operation costs. There had

been a conscious pricing strategy to generate higher margins and profits. However, in a customer

focused business, one would have expected that cost reduction would be passed on to customers

in the form reduced interest rates.

Table: Size of Institutions and Yield on Portfolio

Size of MFINo of MFIs with % yield

25% or more 10 to 25 10% or less

Large (Rs.500 mn + Portfolio) 22 15 0

Medium (Rs.50 to 500 mn) 17 11 1

Small (less than Rs.50 mn) 1 2 1 (Source Sa-dhan Side by Side Report, 2010)

The number of institutions that reported increased operational costs is almost the same as

the number who managed to reduce their operational costs. As in the case of yields, more MFIs

that are mature reported an increase in operational costs. While 11 out of 15 young MFIs

reported declining operational costs, only 17 out of 43 older and mature MFIs managed to reduce

operational costs.

Table: Age of Institutions and Yield on Portfolio

Age of MFIsNo of MFIs with % yield

25% or more 10 to 25 10% or less < 5years 14 4 15 to 10 years 9 14 0> 10 years 17 9 1

(Source Sa-dhan Side by Side Report, 2010)

48

Table: Age of MFI and Operational Cost

Age of MFI

No of MFIs with

Reduced Operationa

l Cost

Increased Operationa

l Cost

< 5years 11 45 to 10 years 10 12> 10 years 7 14

< 5years 5 to 10 years > 10 years0

2

4

6

8

10

12

14

No of MFIs with Reduced Opeational CostNo of MFIs with Increased Opeational Cost

Products and Services:

In general the MFIs have restricted themselves to the weekly repayment installment

products. The product is easy for MFIs t market, process to recover. It requires a simple software

application to monitor and simple training to staff. While there are new labels introduced in the

product profile of several MFIs, the basic loan remains the same. However some MFIs have

come out fresh ideas on products that balance traditional microfinance with the specific needs of

the poor. The design of the loan product is always a challenge. Designing a product to provide

flexibility to the customer in the repayment of loans to suit their income flows is rare. South

Indian Federation of Fishermen Societies (SIFFS) in Tiruananthapuram has a portfolio of

products with flexible repayments that are aligned to the nature o livelihoods of its customers.

Such innovative products to cater to real requirements of customers are few and not

49

commonly found in use. With loan sizes increasing and in some cases being adequate to support

a significant part of livelihood activities, there has been no move towards either increasing the

turnover of loans to a longer period or changing the repayment installments to suit the cash flows

that might arise from the livelihoods. The reluctance to change the loan product features can

provide to be an impediment to portfolio expansion. Single product companies carry

considerable risk potential and this more than any other factor is likely to impact MFIs in the

near future.

Governance:

Governance of MFIs had improved over the last few years, as was also commented in the

last year’s report. The NBFC MFIs, in particular, have brought in professionals to their boards.

Audit committees, executive compensation committees and the like have been set u. The annual

report disclosures indicate the hard work put in by these committees. Ujjivan’s annual report

contained the results of a comprehensive pilot impact evaluation study, which was commendable

exercise. It carried a study of about 3000 clients that measured their progress out of poverty and

reported the results transparently. After the failure of Satyam Computers, the independent

directors on boards have turned wary. The vicarious liability fixed on independent directors in

the infamous Union carbide Case has done little to allay apprehensions of directors on company

boards. It is reported that it is becoming increasingly difficult to find independent directors. The

result is that some professional in the sector have to be on several boards, raising conflict of

interest.

The promoter group actions in configuring the equity holdings and especially at the time

of transformation of NGOs in the NBFC MFIs have been les than transparent. Some of the large

MFIs have been accused of mal-governance at material points of time in a bid to retain control

over the MFI after transformation. The creation of Mutual Benefit Trust (MBT) and their

governance has come under server criticism. Whether the trustees of MBTs took decisions in the

best interest of beneficiaries is a question that is repeatedly posed. While all the required legal

and ethical issues might have been satisfactorily attended to the lack of information in the public

domain and non-availability of facts when required create a negative opinion of concerned

50

institutions in the public eye.

INVESTMENT PROFILE IN MFIs:

Microfinance is the sub-sector of choice in the financial sector for investment bankers.

The main investment sources for MFIs are equity shares, bonds and loans from banks and

financial institutions. The deluge of liquidity with Microfinance Investment Vehicle (NIV) and

investment bankers made it easy for Microfinance Institutions (MFIs) I India to access equity.

Investments by private equity (PE) investors in India continue to grow ever since Sequoia

Capital India invested in SKS. The US$ 32 million investment was soon followed by other PE

investors, among them Unitus, Bellwether, Treeline and Developing World Markets. According

to the venture Intelligence, Cash-for-equity investments in India-based companies by PE/Venture

capital (VC) firms accounted for 40 per cent of all PE deals in the past 18 months. There were 11

PE deals worth US$ 178 million during the calendar year 2009, compared to three deals worth

US$ 52 million in 2008, according to Venture Intelligence.

Sequoia capital India was the first traditional VC firm to invest in the space with US$11.5

million investment in Hyderabad based SKS Microfinance in 2007. US based Sandstone Capital

became the largest VC investor in an MFI by leading a US$ 75 million round in SKS

Microfinance in November, 2008. However, for most small MFIs, equity from external

investors was a distant dream until recently. All the new PE deals in Indian MFIs were

predominantly for the top tier MFIs. The deals were large but very few. However, the situation

has been changing. In the year 2009-10, there were 29 equity deals worth US$213 million.

Thirteen MFIs in the top 10 lit got more equity investments. In the first quarter of 2011, six deals

worth more than US$66 million were concluded in which four smaller MFIs received equity

apart from two large MFIs (refer to the below table). Investors are thus willing to take up equity

positions in start up MFIs, for the capital appreciation potential they offer. The International

Finance Corporation (IFC), the investment arm of the World Bank, has invested US$300000 in

Utkarsh Micro Finance Private Limited, a microfinance start-up providing loans in Northern

India.

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Table: Equity deals in Indian MFIs

Financial Year

US$ Million

No. of Deals

2007-08 52 32008-09 178 112009-10 209 292010-Q1 66 6

Fig: Equity Deals in Indian MFIs during 2010-11 by amount wise

2007-08 2008-09 2009-10 2010-Q10

50

100

150

200

250

The number of equity investment deals in Indian MFIs has been increasing over the last

three years. There was a significant increase in the number of investments made in the financial

year 2009-10. Though increase in the amount invested was only 18 per cent, the increase in the

number of deals done was 163 per cent, reflecting better access to equity for more MFIs and

smaller average investment.

Investors:

With active investment interest in the Indian Market, different types of investors have

entered the space. The early interest in MFI equity came from investors abroad. Several foreign

investment firms operate in India and more new ones are in process of entry. Domestic investors

have also made equity investments, often accompanying the international investors. Domestic

52

equity die not get invested in MFIs on account of a weak venture capital culture and the

unfamiliarity with the sector. The entry of foreign capital in the sector has raised awareness of

domestic investors to the opportunities in microfinance. From the global funders, there was a

steady flow of funds through the investment cycles turned a little longer due to credit crisis. The

IFC committed Rs.350 million in Rajasthan based NBFC, AU Financiers Private Limited.

Entering India for the first time, Incofin, a Belgium based microfinance company, has recently

picked up a 34 per cent stake (Rs.80 million) in Asomi Finance Private Limited. Other

institutions like Belwether, Microvest, Temasek, ACCION gateway, Tree Line Fund (Singapore)

and Blue Orchard (Switzerland) also invested in various MFIs for the year ending 2010 (refer to

the below table). The number of international players is growing in the sector. Domestic interest

intensified with the entry of new investors such as Bajaj Allianz Life Insurance and Catamaran

Venture Fund.

Table: Listing of Investors based on domicile

National Investors International InvestorsLok Capital International Finance Corp (IFC)

Aavishkaar Goodwell Sequoia CapitalIndia Microfinance Development Co

Incofin

Bajaj Allianz Life Insurance Microvet Capital FundsSIDBI Temasek HoldingsCatamaran Venture Fund Blue Orchad Private EquityBellwether MF Fund P Ltd ACCION Gateway FundsDia Vikas Capital Micro Ventures SpASVB India Capital DWM Investment Ltd.,

NMI Frontier Fund, Tree Line Asia Master

FundMatrix Partners Unitus Equity Fund,

Elevar Equity Advisors, Microvest, CLSA Capital, Triodos Bank

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The initial investors in the sector were microfinance focused funds that entered a riskier

market and prepared the field for broader entry of others. With the maturing of the market, more

mainstream investors have gained entry. This year saw more investments from mainstream

investors than MFI focused funds. IFC, with investments of more than US$ 57 million, led the

pak of mainstream investors (refer to the below table). Mainstream investors had a share of 72.8

per cent of equity invested during the year. The coming to maturity of Indian microfinance sector

is apparent from the equity investments from mainstream players that lead the others by a ratio of

3:1.

Table: Equity Deals in 2009-10 by class of investors

Mainstream Investors Microfinance InvestorsName Amount US$ Name Amount US$

Temasek 50000000 Dia Vikas 3150000Blue Orchad 10334849 Bellwether 479581Sequoia 9400000 Microinvest Capital 4500000Treeline Asia 10000000 Accion Gateway 500000Individuals 319006 Microventures SpA 34649Catamaran Venture 6099783 DWM Investment 20845986IFC 57800000 Unitus Equity 4250000Aavishaar Goodwell 930521 Incofin 1804522Bajaj Allianz 10000000 Lok Capital 15000000    India Microfin Dev Co 10000000    SIDBI 10727311       

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Total 154884159 Total 71292049Share 72.8 per cent Share 28.2 per cent

The equity market will continue to be active with the capital to Risk (weighted) Assets

Ratio (CARR) increasing to 15 per cent of risk weighted assets, and the growth in gross assets of

the MFIs, more equity will be needed. Lok Capital had estimated that there would be “an annual

equity need of approximately $200 million of the top ten MFIs until fiscal year 2013. The loan

portfolio growth shown by the sector had been Rs.57 billion and Rs.66 billion in years 2009 to

2010, respectively. If future loan portfolio growth is around Rs.70 billion per annum, incremental

equity of Rs.10 billion might be required every year till growth in absolute terms decline.

Borrowings:

MFIs ramped up their loan portfolio in India from US$ 252 million to US$ billion

between 2005 and 2010. The funding for this expansion came from several sources apart from

equity funding. Bulk loans from banks are the most important source of funds. In recent years,

quasi-equity, mezzanine funding, non-convertible debentures, debt assignments and sale of

securitized debt have all emerged as other means of raising resources.

Non-convertible Debentures:

In an attempt to create new avenues to raise funds, Non-convertible Debentures (NCDs)

were used by MFIs. The country’s first ever NCD issue that was listed on the stock exchange

was by Hyderabad based SKS Microfinance. It had raised Rs.75 Crores at a coupon rate of 10

per cent in May 2009, which was son followed by another issue of SKS and Grameen Koota.

MFIs have increasingly been tapping on NCD route to create a diversified lender base. For

investors, NCDs are a good option given the fixed income and lower risk. NCDs are also more

attractive as the companies offer higher returns than the fixed deposits. Below table gives the

major deals in NCD for this year:

Table: Major NCD deals during 2011

MFI Amt in US $Spandana Spoorthy Microfinance 17000000

55

Grameen Koota 4270000SKS Microfinance 15800000

Securitization:

A recent development in Indian micro-finance is securitization. Securitization in micro-

finance means that part of the loan portfolio of a micro-finance institution is transferred to a trust

or a special purpose vehicle (or other legal entity). The entity issues notes to investors who earn a

yield that is repaid from the future payment flows to this pool of micro-finance receivables. The

capital raised by the sale is used to fund additional micro-credit activities of the MFI Many

commercial banks buy the securitized assets in order to satisfy the requirement to direct 40% of

their total lending to the 'priority sector'.

A recent micro-loan securitization, completed by IFMR Capital and Equitas Micro

Finance, has enabled the first ever mutual fund investment into the Indian Microfinance sector.

The Rs.480 million (US$ 10.4 million) transaction is backed by over 55000 micro-loans

organized by Equitas Micro Finance (refer to the below table). Micro-loan securitization

provides banks a profitable way to increase their investment in the microfinance sector through

rated and tradable securities.

Table: Major Securitization deals in 2009-10

Originator (Rs. In Crores)

SKS Microfinance 100.0Bandhan 75.0Grameen Koota 31.1Equitas Microfinance 48.2

Sahayata Microfinance, Asirvad Sonata, Satin Creditcare 30.9Spandana 25.0Gramen Financial Services 29.4Janalakshmi Fin Services 24.8Share 70.0Grameen Koota 24.8SKS Microfinance 137.4

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Sahayata Microfinance, Asirvad Sonata, Satin Creditcare 27.3SKS Microfinance 107.6Share 49.2Equitas Microfinance 42.2Equitas Microfinance 15.7

The securitization process, which allows MFIs to pool the receivables from loans and sell

the same to third parties like banks, mutual funds and insurance companies, could perhaps be

another big opportunity for MFIs to increase their funding sources, IFMR Capital, a Chennai

based NBFC expects more than Rs.1000 Crores worth of securitization transactions to take place

in the Indian Microfinance sector for the financial year 2010-11. Securitization enables lower

costs to originating MFIs, quality assets to buyers, and a means of participation for insurance

companies, mutual funds and potentially even pension funds.

RBI has proposed refinement of securitization guidelines in order to revamp the market p

practice and avoid high risks associated with very limited period holding of such paper in hands

of investors. It has proposed under the draft guidelines a minimum holding period (MHP) and a

minimum retention (MR) in the hands of originator.

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SECTION – IV: MICROFINANCE NETWORKS IN INDIA

MICRO FINANCE INSTITUTIONS NETWORK

Micro Finance Institutions Network (MFIN) is the self-regulatory organization (SRO) for

the Indian Microfinance industry. It was established in October 2009 with the sole purpose of

promoting the key objectives of Microfinance in India and establishing guidelines for responsible

lending and client protection in the Microfinance industry.

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MFIN seeks to work closely with regulators and other key stakeholders to achieve larger

financial inclusions goals through microfinance.  Currently MFIN member organizations consist

of 46 of the leading NBFC/MFIs whose combined business constitutes over 80% of the Indian

microfinance sector.

As a step towards more stringent self-regulation, MFIN has defined a code of conduct for

its members, which focus on fair practices with borrowers and among member organizations.

The MFIN code of conduct establishes limits on overall lending at the client level, establishes

guidelines for fair collection practices promoting transparency,  and standardized recruitment and

training practices  for member MFIs. The code of conduct encourages data sharing among

members, and has established mechanisms for promoting transparency in the industry, such as

setting up helplines and formulating a whistle blowing mechanism.

 Vision

To be an engine of Inclusive Growth for India.

Mission

To provide inclusive financial services to 100 million low income households by the year 2020,

in a responsible and transparent manner, thereby helping them build sustainable livelihoods.

Micro Finance Institutions Network (MFIN) is the premier Industry Association for the

microfinance sector in India and its member organizations constitute the leading Microfinance

institutions in the country. MFIN was created to promote the key objectives of microfinance,

which is to help economically underserved communities achieve greater financial independence

and build sustainable livelihoods. MFIN seeks to work closely with regulators and other key

stakeholders to achieve larger financial inclusions goals through microfinance.

59

Currently MFIN member organizations consist of 46 of the leading NBFC/MFIs whose

combined business constitutes over 80% of the Indian microfinance sector.

Current Projects and Initiatives from MFIN:

Credit Bureau

In an effort to improve credit risk management within the microfinance sector and to check

multiple borrowings and over indebtedness of clients, MFIN is working with the leading Credit

Bureaus in the country to set-up a Credit Bureau for microfinance clients. Information on about

25 million loan accounts has already been submitted to these Bureaus and fully functional Credit

Bureaus for the microfinance industry are expected to be operational by April, 2011.

 

Helpline for Clients

MFIN has started to put in place a ‘Helpline’ for microfinance clients. This will function as an

independent client grievance redressal mechanism. The ‘Helpline’ for Andhra region shall

become operational within this month. Similar helplines in other states are also in the pipeline.

 

State/Regional Chapters

MFIN has set-up State/Regional Chapters to provide a common forum to MFIs to resolve State

level operational issues and deal with local matters relevant to the industry.

 

Transparent Pricing of Interest Rates

MFIN has co-sponsored the “Transparency pricing initiative in India” for Microfinance

Transparency. Under this study, effective interest rates of all MFIN member organizations will

be calculated and made available in the public domain. The effective rates will be communicated

60

to MFI clients as well and will be mentioned in loan documents and passbooks. Be Part of the

Transparent Pricing Initiative.

MFIN has also commissioned a pan-India study with National Council of Applied Economic

Research, India to assess effective cost of borrowing from various formal and informal sources

for clients. 

Sa-Dhan

Sa-Dhan's mission is to "build the field of community development finance in India, to help its

member and associate institutions to better serve low income households, particularly women, in

61

both rural and urban India, in their quest for establishing stable livelihoods and improving their

quality of life." Sa-Dhan membership stands at 220 including 169 MFIs. The others are Capacity

Builders, Bulk Lenders etc. Sa-Dhan member MFIs represent over 80% of client outreach and

portfolio outstanding of India's "MF sector". Membership in Sa-Dhan though is categorized

around operational features of organizations. Four types of organizations qualify to become its

member: Category A: Capacity Building Organizations (CBOs) who promote self-help groups

and provide capacity building inputs, or, Technical Service Providers (TSPs) who provide

technical support to NGO-MFIs Category B: Organizations not purely structured as financial

intermediaries, but either provide micro-credit to groups/individuals or provide bulk credit to

MFIs for micro-credit Category C: Organizations purely structured as financial institutions

Category D: Formal or Informal Networks/Channels for both support and capacity building. Any

of the above can apply for associate membership, admission is ultimately decided by the board.

Membership is to be renewed annually upon due payment of membership fee and compliance

with Sa-Dhan code of conduct. After three years, associate members are eligible for primary

membership.

Mission of Sa-Dhan:

"To build the field of Community Development Finance Institutions, help members and associate

institutions in rendering better services to low income households, particularly women, both in

rural and urban India, in their quest for establishing a stable livelihood for improving the quality

of their life."

Sa-Dhan spearheaded the advocacy-campaign that informed the RBI-circular "Micro Credit" in

February 2000. One of the most significant changes following on that circular was the

recognition of bank-lending to MFIs under norms. PSL require- sector lending (PSL). PSL

requirements have been essential in fueling growth of the Bharat Microfinance. The lion's share

of MFIs' borrowing (over Rs. 5,500 Crores in 2007-08) and SHG-bank linkage falls into the

realm of PSL.

Sa-Dhan first conceived a framework for “Micro finance legislation”. Consequently, a bill

named as “Micro Financial Sector (Development and Regulation) Bill-2007”, was introduced to

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the 14th Lok Sabha. It was referred to the Standing Committee of Finance, which was still

considering it when the Lok Sabha completed its constitutional term. As long as a legal vacuum

persists, confusions about shape of microfinance the nature, purpose and operations arise

constantly among local or regional administrators, political and/or community leaders. Sa-Dhan

through its experience and reputation has time and again convinced them of the developmental

relevance of MFI operations and thus preserved the overall growth path of the sector. Sa-Dhan

introduced a Voluntary mutual code that lays down the principles of fairness, reliability and

transparency. Sa-Dhan through its Bharat Microfinance Reports also makes transparent MFI

performance and outreach. Because of Sa-Dhan, India is the first country to have ever issued

authoritative Accounting Standards for microfinance through ICAI in 2008.

Sa-Dhan organizes regular exposure programmes, both nationally and internationally, that add to

its members' staff training. Furthermore, Sa-Dhan together with IIBF in 2008 introduced the

Diploma Examination for Microfinance Practitioners which offers a graduate degree not only to

college students but also to undergraduates with working experience in microfinance.

63