List of Indian Issues 8 Mayv

8/2/2019 List of Indian Issues 8 Mayv

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List of Indian Issues of Microfinance and their Explanation and Supporting Studies

Vivek Kumar Tripathi

Institute Research Scholar

School of mangment studies MNNIT,Allahabad

[email protected]

List of Indian Issues ofmicrofinance

Explanations Supporting studies

1. Economys investmentefficiency

It is well argued that the basic root ofpoverty is dearth of asset and inadequateflow of income. Consequently credit andsavings has a crucial role in improvingeconomic conditions of poor people sinceit can handle risky economic environmentand enhance an economys investment

efficiency

(Besley 1995).

2. Product delivery mechanismand supply of credit byconventional financialinstitutions

there was also a divergence between thedemand for credit by the poor peopleparticularly in terms of products andproduct delivery mechanism and supply ofcredit by conventional financialinstitutions (Jindal 2008). A new form ofinstitutional credit innovation,microfinance emerged in late 1970s inBangladesh to bridge the gap in accessingcredit facilities forexcluded sections of people.

(Jindal 2008).

3. Outreach and Sustainability Outreach is perceived goal from social andbusiness point of view. The gloomy part ofthe story looms when the issue ofsustainability of the microfinance programhave come out since it is observed thatonly few percent of the MFIs aresustainable to run operation withoutsubsidies (Hulme and Mosley 1996).Outreach and impact are complementaryin nature in achieving microfinancesustainability.

(Hulme and Mosley1996).

4. Financial sustainability Financial sustainability indicates that

income from the microfinance servicesshould be greater than the cost ofproviding services. Therefore, self-sufficiency is an indication for thefinancial sustainability of the MFIs. As themicrofinance industry matures, thedefinition of the self-sufficiency hascommenced to slender and currentlysustainability refers only two levels

(Ledgerwood 1999:

216-17).


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ofsustainability by the most of the peopleassociated with this industry.

5. Gender disparity Women entrepreneurs who have startedsmall entrepreneurs through SHGs expandthem into large scale units even then alarge number of problems lagging them.

Some researcher observed that microcredit intervention benefited many womenentrepreneurs in terms of shifting fromwage to self-employment , increasedincome, repayment of old debts, purchaseof assets, sending of kids to schooling etc..Micro credit intervention through SHGsalso reduces the gender disparity in accessto institutional credit. A lot of researchstudies reported that gender disparity isgradually narrowing down over the yearsbecause of the promotion of SHGs.

(Sundari, and Geetha,2000)

6. Financial and social capital Micro finance through SHGs also helps inthe promotion of micro enterprise in termsof assets building. It will help people tobuild human, financial and social capitalfor the development of micro business thatwill improve peoples wellbeing.

(Schreiner, 2004).

7. SHG movement whichindirectly affects the balancedregional development issue

which indicates that social problems,entrepreneurial problems, financialproblems and problems related toenvironmental support still persists inIndia and has not changed in last decadeseven the formulation and implementation

of a lot of programmes.Another importantproblem of SHGs in the promotion ofmicro enterprise development in thecountry particularly in NER is the unevengrowth of SHG movement whichindirectly affects the balanced regionaldevelopment issue.

(Centre forMicrofinance &Livelihood, 2009; Pati&Lyngdoh, 2011;Singh, 2009; Meetei,2011; Singh, 2011;

Das, 2011)

8. Assess and availability ofmicro credit through SHGs

has not only resulted in higher incomes ofwomen but also developed betterleadership skills, awareness regardinghealth and education aspects,communication skills, and improved

financial literacy among women in theNorth Eastern region of India.

(Pati &Lyngdoh, 2011;Singh, 2009; Meetei,2011)

9. Gross loan portfolio Gross loan portfolio means the totalamount of money lent by institutes to thecustomers. Above graphs. Clearly depictsthat the loan portfolio of Indian MFIs isincreasing tremendously year on year ascompared to Bangladeshi MFIs. Leaders


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of MFIs in India has shown a high growthin respect of gross loan portfolio as SKSloan portfolio has grown by more than 800times in just four year, Spandana loanportfolio rose to around Rs. 800 millionfrom Rs. 100 million from 2006-09,

similarly Shares loan portfolio hasquadrupled from 100 to around 400million in these year.

10. Active Clients These graph (Figure.3) reflect that thenumber of active clients of Bangladeshmfis is much higher than that of Indianmfis. Bangladeshi mfis are showingminuscule addition of clients, whereasclientele of Indian mfis are increasing at avery high speed. Because of such a highrate of growth of Indian mfis clientele, thegross loan portfolio is growing

tremendously11. Cost of Borrower Cost per borrower ratio is very important

as it helps to analyse the efficiency of mfisby determining the average cost ofmaintaining an active client. Graph below(figure-5) shows the Cost per borrowerratio of top three mfis in India andBangladesh. It is clear that the cost perborrower of institutes in India isincreasing, while it has shown downturn in2009 in SKS and SHARE.

12. Financial sustainability Industry comparison shows that Indian

mfis are showing steady growth in ROA,thus they are doing every possible effort toeffectively use their assets. WhileBangladesh mfis are undergoing decliningROA although it has increased in 2009 butstill it is much lower when compared toIndian mfis as depicted.

13. Yield on gross portfolio Yield on Portfolio ratio helps to determinethe cost/income on the fundraised/distributed. In context of MFI it iscalculated by dividing cash received frominterest, fee and commission on loan by

gross loan portfolio. Thus it gives theinterest rate at which mfis are lendingloans to people.

14. Return on equity Return on equity is another verysignificant ratio which helps to calculatethe rate of return on average equity for aparticular time period. In context ofmicrofinance institutes ROE ratio is


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generally used as a proxy for commercialviability.

15. Concerns on MultipleBorrowing in Ramanagaram

Reported multiple lending by MFIs inRamanagaram in Karnataka and raisedconcerns regarding a bubble in theIndian microfinance sector. This led to

questions regarding whether theoverstretched institutional capacities ofIndian MFIs were resulting in theweakening of credit discipline andencouraging multiple borrowing bymembers.

Gokhale (2009)(Chen, Rasmussen andReille,2010).

16. Sustainability The first challenge relates to sustainability.It has beenreported in literature that the MFI model iscomparatively costlier interms of delivery of financial services. Ananalysis of 36 leading MFIs1

by Jindal & Sharma shows that 89% MFIssample were subsidydependent and only 9 were able to covermore than 80% of their costs.This is partly explained by the fact thatwhile the cost of supervision ofcredit is high, the loan volumes and loansize is low. It has also beencommented that MFIs pass on the highercost of credit to their clientswho are interest insensitive for smallloans but may not be so as loan

sizes increase.17. Lack of capital The second area of concern for MFIs,

which are on the growth path, is that theyface a paucity of owned funds. This is acritical constraint in their being able toscale up. Many of the MFIs are sociallyoriented institutions and do not haveadequate access to financialcapital. As a result they have high debtequity ratios. Presently, there isno reliable mechanism in the country formeeting the equity requirements of MFIs.

18. Borrowings: In comparison with earlier years, MFIs arenow finding it relatively easier to raiseloan funds from banks. This change cameafter the year 2000, when RBI allowedbanks to lend to MFIs and treat suchlending as part of their priority sector-funding obligations. Private sector bankshave since designed innovative products


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such as the Bank Partnership Model tofund MFIs and have started viewing thesector as a good business proposition.

19. Capacity of MFI It is now recognised that widening anddeepening the outreach of the poor

through MFIs has both social andcommercial dimensions. Since thesustainability of MFIs and their clientscomplement each other, it follows thatbuilding up the capacities ofthe MFIs and their primary stakeholdersare pre-conditions for the successfuldelivery of flexible, client responsive andinnovative microfinance services to thepoor

20. Demand for Savings andInsurance Services:

The demand for savings services is everhigher than for credit. Studies of rural

households in various states in India showthat the poor, particularly women, arelooking for a way to save smallamounts whenever they can. Theirregularity of cash flows and the smallamounts available for savings at one time,deter them from using formal channelssuch as banks.

21. Demand for Credit: In terms of demand for micro-credit, thereare three segments: At the very bottom interms of income and assets, and mostnumerous, are those who are landless and

are engaged in agricultural work on aseasonal basis, and manual labourers inforestry, mining, household industries,construction and transport. This segmentrequires, first and foremost,consumptioncredit during those months when they donot get labour work, and for contingenciessuchas illness.

22. Sustainability such asrepayment of loans, financialself sustainability or

operational self sustainabilityand cost-control or efficientuse of resources.

Michael Tenikue and

Julie Sureda (2007)

23. Sustainability of microfinanceinstitutions

This paper studies the various players inthe microfinance sector which range fromnot-for-profit organizations which worktowards a developmental objective tocommercial banks which view

Pankaj K Agarwal andS.K.Sinha (2010)5


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microfinance as a good source of depositswith sound banking and as a measure toreach their priority lending targets.

24. Gender Effect inMicrofinance

Gender issue has always been very criticalin Indian society whether itis in context of any social issues or

economic issues. Still, women the worldover suffer from various types ofinequities and discriminatory practices,though they are considered to be better inthrift and credit utilization (NABARD,1992). Various studies have shown thatwomen are the better microfinance clientsas compared to men.

Pitt, Khandker (1998)

25. Financial Awareness andCustomersPerceptions

One of the major reasons for preferringinformal sources of finance instead of theformal ones found to have been the lack ofawareness about the micro financing

services

Pandey (2008)(Tiwari, Khandelwal,Ramji 2008).

26. Repayment frequency on loan the effect of repayment frequency on loandefault and delinquency. The generalperception of the MF provider has been touse greater frequency ofrepayment i.e. through weeklyinstallments to avoid default in repayment

by maintaining the users habit to saveregularly

Field, Pande (2007)

27. Efficiency and outreach ofmicro financing schemes

Default and delinquency. The generalperception of the MF provider has been touse greater frequency of repayment i.e.

through weekly installments to avoiddefault in repayment by maintaining theusers habit to save regularly.

llanto (1996)

28. Offerings Made by MFIs It is important to note that the termmicrofinance has replaced microcredit inthe last two decades as it truly reflects theall encompassing efforts to bank the poor.This change is due to anunderlying shift in the financial inclusionoutlook. There is widespreadrecognition that the poor require a basketof financial instruments like

savings, insurance and asset transfers justlike the non-poor.

(Collins, Morduch,Rutherford andRuthven, 2009).

29. Outreach The outreach of SHG Bank Linkage,however, remains limited, reaching onlyabout 12 million women and theirhouseholds (in a country where 460million people live on less than $/day).The outstandings of the SHG program in

(Mahajan and Ramola,2003).


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March 2003 were around Rs10 billion(US$217 million), thus catering to 2.2% to6.6% of the estimated demand.

30. Overcoming geographicconcentration in microfinance

Another issue of concern is thatmicrofinance in India continues to beskewed in its geographical

distribution. The underlying causes for thisinclude the general malaise in theeconomy of thecentral, eastern and north eastern states,with very little resultant demand for creditamong thesubsistence poor, and the absence (forhistorical reasons) of good quality NGOs,that are willingto initiate microfinance programs in thesestates (there are a large number of smallNGOs but all

of them with limited experience andoutreach)

(Mahajan and Ramola,2003).

31

.

Credit allocation,highertransction cost,high defaultrates

The microfinance sector is based on theconcept that poor households are affectedby lack of access to,and inadequate ofprovision of financial services.this attemptto reduce the rate of financial exclusionamong the poor was seen as alternativesolution for the failures in agriculturelending and rural credit assistance .

(Arun et al.,2005)

32. Micro-finance has beenhailed as a new age solutionto alleviate poverty and bringeconomic prosperity to therural economy.

MFIs contribute to improving livesof the poor people but they have a longway to go.

Bhatt, S.K. and Jhaveri,H. (2008)

33. inadequate capital, delayin sanctioning of loan and

inadequate understanding

of market and market

conditions

lack of orientation and initiativeof bank staff to the concept and the needsof Self Help Groups

(Ramanunny 2005),

34. access tocredit Actually brings the benefits to thepoor. Early studies at the micro level

have generally been able to trace apositive link between access to creditand economic development at thefamily level in terms of labour supply,schooling, household expenditure, andassets.

Dichter and Harper(2007)

35. Moral hazard or the

hidden action problem

The bank needs a signal from a thirdparty to screen the good risks from the

(Holmstrm, 1979).


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bad. Now suppose the loan is given. Atthis interim stage,the bank may be unable, or unwillingdue to high cost of monitoring, toensure that the

Borrower exerts full effort to repay theloan.36. (1) gender equality, (2)

poverty reduction,

and (3) microbank

efficiency

With respect to gender equality,microfinance is considered an effectivemeans of promoting womens

empowerment. By enabling women todevelop or strengthen income-generating activities, microfinance islikely to increase their monetaryincome, their control over theirincome, and their bargaining power

within thehousehold. These effects are expectedto lead to various mutually reinforcingsocial, psychological, and evenpolitical effects: better self-esteem andself-confidence, animprovement in status within thefamily and the community, betterspatial mobility, and greater visibilityof women in public spaces, and soforth

(Mayoux, 2001).

37.The demand for micro-financial services The first step in any mapping of rolesis to understand the

Demand for micro-financial services.The potential demandin India is huge (see Chapter 2 formore details While bankshave provided access to depositfacilities for large numbersof small depositors, total demand is farfrom being met, especiallyfor more flexible micro-savings.

Mahajanand Nagasri [1999]

38. The supply ofmicro-financial services

The total outreach of specialised providersof micro-financialservices is estimated to fall well below 1per cent of creditusage by poor householdsWhile banks have given a very largenumber of small loans, theproportion of rural credit usage suppliedby the formal sector

(Mahajan and Nagasri,1999)


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stood at 56.6 per cent in 1991, and muchlower for the pooresthouseholds.

39. Developing the supply of

micro-financial servicesSpecialised MFOs alone cannot meetthe total demand formicro-financial services in India.Instead, a three-track approachis required

(Mahajan andNagasri, 1999)

40. Regulation of micro-

financial services is often

necessary

Regulation helps in long-termsustainability, even though MFOsmay chafe under it in the initial years.The need for regulation andsupervision of MFOs arises fromseveral onsiderations like protectingthe interests of small savers,ensuring proper terms of credit,instilling financial discipline andhaving a proper reporting andsupervisionsystem.

(Fisher et al., 2001).As Mahajan andNagasri (1999: 7)argue,regulation

41. Five challenges oforganisation

and capacity-building

A review for the Ford Foundation onthe scale, scope andimpact of community developmentfinance in the UnitedStates and micro-finance in developingcountries concludedThe authors do not believe a shortageof capital is thebiggest constraint facing the[community developmentfinance] field. We suggest that whilethe growth of [communitydevelopment finance organisations]has beensolid, especially in developingcountries, the field is notseeing the formation and maturation ofas many [organisations]as are warranted by what has beenAchieved.

(Miller and Andrews,1998: 19):

42. Microfinance in IndiaIn India, microfinance is

done by organizations having

diverse orientations,

Five significant issues that

trigger the transformation


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Of NGOs into MFOs.

Size:

Diversity:

The most significant issue that triggers atransformation is growth. This affects thepromoters as well as the providers of

microfinance.1 With organizations likeMYRADA and SIFFS that promoted creditgroups, banks were unwilling to provideloans at the pace at whichMicrofinance customers needed them.

Another trigger for transformation is thediversity of financial servicesThat an MFO wants to offer. In most cases,NGOs start withCredit but soon realize the need to provideother support services.

While MFOs have reduced their ownlending risks through groupguarantees and addressed the issue of willfuldefault, they have notbeen able to grapple with the situation wherethe underlying economicactivity fails and the borrower faces aGenuine problem.

43. Sustainability Sustainability is closely linked to growth.Beyond a certain level, MFOs have to seekexternal funds for keeping the credit activitygoing. When MFOs seek funds fromfinancial institutions, issuesLike ownership structure and capitaladequacy become critical. For an MFO tosurvive in the long run, it has to transformitself into an institution with transparent

systems and accountability. In most casesthe promoters of MFOs do not havesufficient capital to invest and therefore themain constraint is that they are dealing withother peoples money.

44. Taxation When an NGO carries out commercialactivities (microfinance) on a large scale, itcould lose its tax free status, and this

might jeopardize other activities. Even


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grants may become taxable. This is aMajor concern for NGO-MFOs. This alsotriggers a search for an alternative wheremicrofinance could be kept isolated.

45. Regulation in practice

Pricing issues

Practical problems in the application ofthe regulation need to be resolved. These

include problems in(i) determining the incomes of clients,(ii) applying the loan size limits,(iii) Defining productive purposes in thecontext of the fungibility of money.

the interest and margin caps need to bereconsidered;while these do not pose significantproblems for the larger MFIs in normaltimes, in ahigh interest rate regime (as now) the

interest cap of 26% limits the marginavailableto unrealistically low levels resulting inMFIs making a loss. If there must becaps, let

there be a margin cap but no interest

cap.46. Compliance cost

Specific issues arising in theapplication of the regulationare

resulting from having to assess borrowerincomes, enforceproductive use of loans, check householdindebtedness, apply KYC normsposesanother threat to MFI viability

Limit on borrower incomes:is there a way of assessing incomesaccurately? Will need very detailedknowledge of borrowers family situation.What happens when borrowers moveabove the income limit and then backagain on account of income variations? DoMFIs lend to them one year, not the nextand then lend again in the third year.

Loan size limit: borrowers can beprovided Rs35,000 each in the first cyclebut can borrow from two MFIs with thecaveat that total debt should not exceedRs50,000; meaning they can takeRs50,000 in loans with household annualincome limited toRs60,000 in rural areas? The debt serviceobligation of around Rs30,000 will not


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leave them very much for their dailyconsumption.Limit on indebtedness: if there is morethan one woman in a family and each ofthem is eligible for borrowing up toRs50,000, what does that mean for family

indebtedness in relation to the rural familyincome limit of Rs60,000. Even in urbanareas, this provides for a lot of debtrelative to the maximum family income ofRs1,20,000. The optimumamount of loan at the Rs60,000 incomelevel may be just 25% of that amount(Rs15,000) whereas at Rs1.2 lakhs (inurban areas).Repayment frequency: the choice left tothe borrower means that there could beweekly, fortnightly and monthly

collections in the same village/urban area;this will result in additionalwork/increased cost of collection forMFIs. Monthly collection results in largersums of money being carried by loanofficers from meeting venues to the MFIoffice or to the bank; the security risk isgreater.Loans for productive use only: how willthis be addressed in relation to thefungibility of money? If part of a loan isused for consumption, what proportion of

consumption is acceptable? Canproductive lending be monitored at allisexpenditure on education production orconsumption? Are loans for sanitation andhealth productive or consumption? In anycase repeated utilization checks will addconsiderably to the operating cost of MFIs.

47. inadequateworking capital,

Inadequate working capital, is the mostserious problem restricting theperformance of many DWCRA groupsand also the group members needtraining for skill enhancementespecially for items such assoft made garments, foot wear, woolenblankets etc.

Ramalakshmi (1998)

48. Dependence on subsidies ishigh.

Sinha and Sinha (2002) found in theirperformance analysis of Indianmicrofinance that Dependence on

subsidies is high. (p. 279) They foundthat about 47% of the sampled

Sinha and Sinha (2002)


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organizations net worth is made up of

donated equity. A more recent estimate byMicro-Credit Ratings InternationalLimited (M-CRIL) (2007) shows a sharpdecline in this percentage over recentyears. The latter estimates that in 2003,

30% of microfinance funds were grants,8% in 2005, and only 3.4% in 2007.Nevertheless, there was still ahuge increase in institutional debt (34.4%in 2003, 62.2% in 2005, and75.4% in 2007).

49. Efficient and dynamicdevelopment institution

such as MFI is to createan environment in which

these institutions may

prosper without long-term

dependence on externalsupport itself

As part of greater autonomy andresponsibilities, besides adjusting theinterest rates at commercial level, BRI alsorestructured its BRI unit desa. Many oflost making BRI unit desa were closeddown, or transformed into secondary

units which were open one day a week toserve less lucrative areas. It is apparentlythat they made the right decision in theright time especially if one observes thecurrent success of BRI unit desa as one ofinternationally recognized successfulmodel in microfinance. The decision tochange BRI into fully commercialconform to views of many scholars insustainable development.

(Adams et al., 1983;Buss, 1999; The WorldBank, 1997).

50. lack of availability of workingcapital

From an economic development policyperspective, access to credit is one of the

main constraints in setting up of small andMedium-sized enterprises and lack ofavailability of working capital is one of themain reasons for business failure in therural sector.

(Liedholm and Mead,1999).

51. Extending access toFinancial services to low-

income women.

holds that microfinance has done well interms of extending access toFinancial services to low-income women.This access extension however has been interms of delivery of credit for mostlyconsumption purposes and very smallproduction loans. Furthermore critical

financial needs are yet to be satisfied

Arunachalam (2007)


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52. Poorest of the poor The effectiveness of Indian MFIs infulfilling their outreach targets in thepoorest of the poor classification ofcustomers suggests that attitudes of staffand a range of organizationalconsiderations detract from their

understanding of market requirements, andhence their ability to provide differentoffers to the market to take account ofvariations in demand across customersegments.

Wright,2000;

53. Possibility of earning profitswhile serving poor

Found evidence of while serving the poor,but a tradeoff emerges betweenprofitability and serving poor ,but a tradeoff emerges between profitability andserving the poorest using data of the 124MFIs in 49 countries.

Cull et el.(2008)

54. Integerating interst rate Integrating interest rate as a determinant of

the sustainability while controlling formarket structure direction, from anempirical standpoint. this essayinvestigates the role of financial and socialefficiency in determining the interest ratepolicy of MFIs which directly affects thesustainability.

Armendariz and

szafaraz(2009)

55. Mission drift inmicrofinance

Mission drift microfinance stress theimportance of the inclusion of interestrates into the equation to investigate themission drift phenomenon.

Armendariz andszafarz(2009)

56. Interest rate policy The impact rate of policy of microfinance

,is an issue not addressed at length in themicrofinance literature so far probably dueto the data limitations

(Hudon and Trace

,2008)

57. Efficiency and productivity The effect of subsidies on the efficiency ofmicrofinance can be positive and negative.The arguments for negative impact onsubsidies rest on the effects of soft budgetconstraints where donorfunded bailoutsof poorly performing MFIs reduce theincentive for cost cutting and hencedecrease the efficiency.

Dewatripont andMaskin 1995;kornai etal .,2003)Dewatripont andMaskin ,1995;Kornai etal.,2003)

58. BorrowerTransaction

Cost Credit Rationing andSegmented Market: A

Study in the Rural Credit

Market in Vietnam

He concludes that the two factors, that

is, regulated lending interest rate and theasymmetric information problem, are thecauses of high borrower transactioncosts of formal credit rationing andsegmentation of rural credit market

Dat Tran 11 (1998)

59. Transaction Costs of

Lending to the Rural

Poor- Non Governmental

The average transaction cost of lendingfor the banks per account at 3.68 percent of the loan amount, if the loan is

V. Puhazendhi 16(1995)


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Organisation and Self-help

Groups of the Poor as

Intermediaries for Banksin India

given directly to the borrower. The inter-mediation of the NGOs and the SHGshelp the banks to reduce this transactioncost to an extent ranging between 21 and41 per cent. The dynamic nature ofreduction in transaction costs, because ofinter-mediation, affect a downward shiftof the marginal cost curve.

60. High MFI transaction costs,in a large part driven by the

cost of frequent paymentcollection

MFI interest rates high and limit theirability to scale up operations and reachnew clients in more remote location. MFIsoperating in comparable settings to savedramatically on the transaction costs ofinstallment collection while facingvirtually no added risk of default. It isoften held that high MFI transaction costs,in a large part driven by the cost offrequent payment collection (Shankar2006), keep MFI interest rates high andlimit their ability to scale up operationsand reach new clients in more remotelocations.

(Shankar 2006),(Armendariz andMorduch 2004).

61. Client delinquency isconsidered to be an

important correlate of MFIloan default

1999), and for internal accountingpurposes VWS considers any late paymentas a measure of default. We, therefore, usegroup meeting data to examine the rate oflate payments by clients over the course ofthe loan cycle

(Rosenberg 1999)

62. Financial sustainability,liberalization of financial

markets, and a high

number of commercially-

oriented new entrants in the

microfinance market, with

benefits such as increased

attention to changes in

clients needs and

expectations, and rapid

adoption of new

technologies.

With increased competition, the need forgreater transparency as well as betterorganization and regulation of the markethas emerged. In particular, potentiallyrising information asymmetries call forinformation sharingfor instance withcredit bureausto limit uncertainty overindebtedness of final borrowers, especiallythose with multiple loans. Similarly,possible opportunistic behaviours and therisk of escalation of any conflicts

(Rhyne and Christen,1999).

63. such as size, maturity anddeposit-mobilizing activity

may also result in

differential competitiveness

in the market for funders

MFIs are of different types too. The

main dividing line is between those thatare subject to supervision by the nationalfinancial authorities, and those that arenot, mainly non-governmentalorganizations (NGOs). The formertypically, though not always, enjoygreater financial solidity

(Gonzalez 2010a).

64. MFI interest rates high andlimit their ability to scale up

findings suggest that a slight variation of thetraditional micro-finance model could allow

(Armendariz andMorduch 2004).


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operations and reach new

clients in more remote locationMFIs to reach up to four times as many clientswithout hiring additional collection officers,and thereby significantly expand operationswithout incurring a loss. It is, however,important to note that this policy implicationrests on the assumption that the riskcomposition of borrowers is not negativelyinfluenced by a more flexible repayment

65. Client delinquency isconsidered to be an importantcorrelate of MFI loan default.

Client delinquency is considered to be animportant correlate of MFI loan default(Rosenberg 1999), and for internal accountingpurposes VWS considers any late payment as ameasure of default. We, therefore, use groupmeeting data to examine the rate of latepayments by clients over the course of the loancycle.

(Rosenberg 1999),

66. Critical MicrofinanceTriangle

how to evaluate the performance ofmicrofinance institutions. Meyer (2002),indicated that there is what is called Critical

Microfinance Triangle that we need to look at

it to evaluate Micro-Finance institutions basedon their objective. Here, the corners of thetriangle represent outreach to the poor,financial sustainability and welfare impact.And Performance criteria are required for

each objective and all three must be measuredthoroughly to evaluate micro-financeperformance, noted

Zeller and Mayer (2002),and Mayer (2002)

67. There are six aspects ofmeasuring outreach: depth,

worth of users, breadth, length

and scope. Where, depth of

outreach refers to the value

the society attaches to the netgain from the use of the micro

credit by a given borrower

The microfinance institutions participation inseveral developing economies is escalatingfrom time to time. and a donation by theSociety to the clients as individuals wasdeposited with the MBTs. As private trusts, the

MBTs were permitted to invest their funds inany way mandated by the members of the trust

Meyer (2002). Navajas etal (2000),

68. Microfinance (MF)1 hascome to be considered themagic bullet for poverty

alleviation

The Microfinance Promise (Morduch,1999) builds on hopes that social andeconomic structures can be transformed byproviding financial services to the poor.

(Bateman, 2010;Consultative Groupto Assist the Poor[CGAP], 2008; Stephens,2009; WorldBank, 2000).

69. Social Capital Social capital is based on the premise thatan interpersonal network provides value toits members through access to the socialresources available within the network.

(Bourdieu, 1986;Coleman, 1988).

70. Microfinance has verybeneficial economic andsocial impacts

A recent study by Emma Svenssonexamines microfinance movement foreconomic growth by exploring thelinkages of microfinance, the financialsystem and economic growth. He foundsome evidence of the microfinance clientsengaging in growth enhancing economicactivities.

(Holcombe, 1995;Hossain, 1988; Oteroand Rhyne, 1994;Remenyi, 1991;Schuler, Hashemi andRiley, 1997).


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Sarita Vichore,(2012).The Indian Microfinance Predicament-Evidence in Literature and Practicethe international journal of social science & management ISSN:2251-1571URL:http://www.theiinternationaljornal.org/ojs/index.php?journal=tij&page=article&op=view&path[]=717&path[]=pdf

Hussain1 Bhat Arshad * Aasif Hussain1 Nengroo (2011) .Mollifying Poverty throughMicrofinanceIndian Perspective Information and knowledge management ISSN 2224-

5758 (Paper) ISSN 2224-896X (Online)Vol.1, No.4, 2011 URL:www.iiste.org

Auwalin Ilmiawan. Microfinance Institutions: Overcoming the ObstaclesURL:http://www.microfinancegateway.org/gm/document-1.957343/Auwalin_MFI overcomingobstacles_bio.pdf

Asyraf Wajdi Dusuki, (2008),"Banking for the poor: the role of Islamic banking in microfinance

71. MFIs can provide or thegreater flexibility shown bymoneylenders.

MF has not yet occupied the centre stagein the Indian financial sector. People stillgo to moneylenders. This may be due tothe need for more credit than the MFIs canprovide or the greater flexibility shown bymoneylenders

(Ghate 2007).

72. Indian microfinance hasalready taken its momentumand has emerged as thelargest microfinancemovement in the world withits perceptible impactespecially after the secondhalf of eighties.

It also needs to clarify that the term mFhas been understood and defineddifferently by different people. More oftenthan not, mF is defined in a limited senseof micro credit for micro enterprises.

(Firoze andBhattacharya 2007:2071).
https://dipot.ulb.ac.be/dspace/bitstream/2013/54393/1/RePEc_sol_wpaper_10-010.pdfhttps://dipot.ulb.ac.be/dspace/bitstream/2013/54393/1/RePEc_sol_wpaper_10-010.pdfhttp://www.jstor.org/stable/40282659http://www.jstor.org/stable/40282659http://www.theiinternationaljornal.org/ojs/index.php?journal=tij&page=article&op=view&path%5b%5d=717&path%5b%5d=pdfhttp://www.theiinternationaljornal.org/ojs/index.php?journal=tij&page=article&op=view&path%5b%5d=717&path%5b%5d=pdfhttp://www.theiinternationaljornal.org/ojs/index.php?journal=tij&page=article&op=view&path%5b%5d=717&path%5b%5d=pdfhttp://www.theiinternationaljornal.org/ojs/index.php?journal=tij&page=article&op=view&path%5b%5d=717&path%5b%5d=pdfhttp://www.theiinternationaljornal.org/ojs/index.php?journal=tij&page=article&op=view&path%5b%5d=717&path%5b%5d=pdfhttp://www.jstor.org/stable/40282659https://dipot.ulb.ac.be/dspace/bitstream/2013/54393/1/RePEc_sol_wpaper_10-010.pdf


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initiatives", Humanomics, Vol. 24 Iss: 1 pp. 49 66 Permanent linkhttp://dx.doi.org/10.1108/08288660810851469

Sinha Sanjay and Sinha. FrancesSustainability and development: Evaluating the performance ofIndian micro-finance chapter: 10 .pages only 265-360

P K Manoj,(2010),Prospects and Problems of Housing Microfinance in India: Evidence from

Bhavanashree Project in Kerala State, European Journal of Economics, Finance andAdministrative Sciences ISSN 1450-2275 Issue 19 (2010) EuroJournals, Inc. 2010http://www.eurojournals.com

Sane Renuka,Thomas Susane,(march 2011) a policy response to the Indian microfinancecrisis Indira Gandhi Institute of Development Research, Mumbai April 2011http://www.igidr.ac.in/pdf/publication/WP-2011-007.pdf

Vadde suresh(February,2012)Self-help groups bank linkage programme: the indian experienceasian journal of research in social science & humanities,Volume 2, Issue 2 (February, 2012)ISSN 22497315

Sriram M. S, Upadhyayula & Rajesh S.The transformation of the Microfinance Sector inIndiaExperiences, Options, and Future Journal of Microfinance.Volume 6 Number 2

Rusdy Hartungi, (2007),"Understanding the success factors of micro-finance institution in adeveloping country", International Journal of Social Economics, Vol. 34 Iss: 6 pp. 388401

Philip Megicks, Atul Mishra, Jonathan Lean, (2005),"Enhancing microfinance outreach throughmarket-oriented new service development in Indian regional rural banks", International Journal ofBank Marketing, Vol. 23 Iss: 1 pp. 107125

EDA Rural Systems (2005), The Maturing of Indian Microfinance: Findings of a MicrofinanceAssessment Study (baseline) - Implications for Policy and Practice, A Study done by SIDBI,Gurgaon.
http://www.eurojournals.com/http://www.eurojournals.com/http://www.igidr.ac.in/pdf/publication/WP-2011-007.pdfhttp://www.igidr.ac.in/pdf/publication/WP-2011-007.pdfhttp://www.eurojournals.com/

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