Although 'doing good' is our innate nature, we often get lost in the complexities and view goodness as a distant dream. Making this dream of goodness a reality is often thwarted by thoughts surrounding sustainability. Thus, all good initiatives require a focus on sustainability and this has become one of greatest and most formidable challenges faced by any social enterprise. The book documents the understanding of the sustainability of one of the most celebrated forms of social enterprise of our times — Microfinance Institutions (MFIs) gained through a mixed-methods research investigation. It attempts to answer pertinent questions such as: What are the determinant and discriminating factors for the sustainability of MFIs in India? How are these factors being managed by the operationally efficient Indian MFIs that remained sustainable at reasonable interest rates before the onset of the crisis and ceilings imposition in Indian microfinance markets? What does the Indian microfinance crisis teach us about sustainability management and mismanagement? In a nutshell, the answers show that sustainability is a strategic issue that needs managerial attention and not a matter to be left to serendipity. At a time when the industry is recovering from the adverse effects of a crisis and when there are still contentions as to whether the rate fixed by the regulator is enough for the sustenance of the MFIs, the findings mentioned in the book revive the lost hope for the Indian microfinance industry. By deciphering the strategies used by efficient and sustainable MFIs and discussing the lessons that the crisis has imparted to the Indian microfinance markets, this book will enable Indian MFIs to march towards efficient and sustainable operations without losing focus on their clients.
Analyzing the Impact of Legal Form of Indian Microfinance Institutions on Financial Sustainability and Outreach
India boasts the largest microfinance market in the world, serving almost 40 million clients through about 220 registered institutions. Microfinance quickly became a popular industry for both business practitioners and researchers due to its ability to reduce poverty. While the industry has been doing well in serving the poor, it is still not reaching everyone that it could. There is room for improvement, and analyzing the legal forms of the industry would help. The current legal landscape of India allows microfinance institutions to take one of five legal forms: (1) Society, (2) Trust, (3) Section 25, (4) Cooperative, and (5) Non-Banking Financial Company. Each form differs in the amount of regulation it must go through, how it can raise capital, rules for formation, taxation, and services it is allowed to perform. This thesis suggests that the form of microfinance institution plays a large role in determining its effectiveness. It considers the laws that govern the microfinance institutions and analyzes the effects of these laws on two important metrics for effectiveness: profitability and client outreach. The thesis explores each legal form by analyzing a company of each type both qualitatively and quantitatively; after that legal forms are analyzed at the industry level. It finds that, at the industry level, Non-Banking Financial Companies are the most financially sustainable legal form and the most successful at client outreach. Therefore, Non-Banking Financial Companies should be promoted in India to make sure microfinance is reaching as many people as it can. Other developing countries around the world can employ some of the effective features of Non-Banking Financial Companies to ultimately reduce poverty in their nations as well.
Microfinance in India has been viewed as a development tool which would alleviate poverty and enhance growth of the country through financial inclusion. A large number of households are excluded from banking and financial services. With the Andhra crisis of MFI's and issues that MFI's have a mission drift, the aim is to study the performance and efficiency of microfinance institutions and its contribution to the Indian economy. The role of commercial banks in bringing about financial inclusion is also studied. A sample of MFI in India have been selected based on their ratings given by microfinance information exchange (MIX) for the study. The performance of these sample MFIs as well as their performance with respect to commercial banks in India have been studied using statistically tools. Based on the analysis, the performance of MFI's & their impact on financial inclusion is studied in this research paper.
Around the world, a revolution is occurring in finance for low-income people. The microfinance revolution is delivering financial services to the economically active poor on a large scale through competing, financially self-sufficient institutions. In a few countries this has already happened; in others it is under way. The emerging microfinance industry has profound implications for social and economic development. For the first time in history, capital is well on its way to being democratized. 'The Microfinance Revolution', in three volumes, is aimed at a diverse readership - economists, bankers, policymakers, donors, and social scientists; microfinance practitioners and specialists in local finance and rural and urban development; and members of the general public interested in development. This first volume, 'Sustainable Finance for the Poor', focuses on the shift from government- and donor-subsidized credit systems to self-sufficient microfinance institutions providing voluntary savings and credit services.
With reference to India; contributed papers presented at a workshop.