ROLE OF MICROFINANCE IN THE ECONOMIC GROWTH OF INDIA: STATUS AND CHALLENGES

Transcription

1 ROLE OF MICROFINANCE IN THE ECONOMIC GROWTH OF INDIA: STATUS AND CHALLENGES **SHRUTI GUPTA & SOMA NAYAK Introduction According to CGAP, Microfinance is the provision of financial services to low-income people. The definition of microfinance has evolved in recent decades. The early success of microcredit demonstrated that poor families in the informal economy are valuable customers and that it is possible to serve them in large numbers in a sustainable way. The term microfinance now generally refers to a broad set of financial services tailored to fit the needs of poor individuals. The definition of microfinance often includes both financial intermediation and social intermediation. Microfinance is not simply banking, it is a development tool which involves: 1 Small loans, typically for working capital Informal appraisal of borrowers and investments Collateral substitutes, such as group guarantees or compulsory savings Streamlined loan disbursement and monitoring Secure savings products. Microfinance clients are typically self-employed, low-income entrepreneurs in both urban and rural areas. 2 It covers a range of services which include, in addition to the provision of credit, many other services such as savings, insurance, money transfers, counselling, etc. 3 Improved access and efficient provision of savings, credit, and insurance facilities in particular can enable the poor to ease their consumption, manage their risks better, gradually build their asset base, develop their business, enhance their income earning capacity, and enjoy an improved quality of life 4. 1 Joanna Ledgerwood, Sustainable banking with the Poor Microfinance Handbook: An Institutional and Financial Perspective, (July 2000). 2 Ibid. 3 Report of the Sub-Committee of the Central Board of Directors of Reserve Bank of India to Study Issues and Concerns in the MFI Sector, (January 19, 2011) 4 Gitanjali Panda, Padmalochan, Mahanta & Sreekumar, Status of Microfinance In India - A Review, Vol. 1 Issue 11, (November 2011). 231

2 The concept of micro-finance was introduced by the theorist Lysander Spooner in mid 1800s. Shorebank was the first microfinance and community development bank founded in 1974 at Chicago. Microfinance in India found its origin in early 1970s when an SHG of Gujarat, the Self Employed Women s Association ( SEWA ) established an urban cooperative bank, called Shri Mahila SEWA Sahakari Bank with an objective to provide banking services to poor women who are employed in the unorganized sector in Ahmadabad. Microfinance pioneers Mohammad Yunus joined hands with organizations such as Grameen Bank of Bangladesh and Akhtar Hameed Khan and revolutionized the modern industry of micro-finance. Hence India also adopted this model to alleviate poverty. The microfinance sector started growing rapidly in the 1980s with the evolution of the concept of SHGs, informal bodies that would provide their members with much-needed savings and credit services without any collateral and formalities for their business and other needs. The World Bank, in 2011 based on 2005's PPPs International Comparison Program, estimated 23.6% of Indian population, lived below $1.25 per day on purchasing power parity. According to United Nation's Millennium Development Goal programme 21.9% people of 1.2 billion of Indians lived below poverty line of $1.25 in In 2012, the Indian government stated 21.9% of its population is below its official poverty limit. As per Census of India 2011, 58.7% of the households in the country have access to banking services. The proportion of households availing bank services rose by 23% points over the decade The rise was by 24% points in the case of the rural sector i.e., from 30.1% points according to the Census 2001 to 54.4% according to the Census The growth of urban sector was by 23% points i.e., from 49.5% according to the Census 2001 to 67.8% according to the Census The absurd gap between the supply of and demand for microfinance services is too large to be filled by government and donor funds. But such funds are not needed, because a growing number of microfinance institutions have shown that poor people are bankable and that banking with the poor can be profitable and sustainable. Hence, the absurd gap can be filled only through a substantial increase in the number of sustainable and profitable microfinance institutions. 5 Poverty in India, 6 Government of India 2013.An Overview on Financial Inclusion, Department of Financial Services, New Delhi, 232

3 Microfinance Institutions A microfinance institution (MFI) is an organization that provides microfinance services. MFIs range from small non-profit organizations to large commercial banks. Starting from 1950s to 1970s, governments and donors were focused on providing subsidized agricultural credit to small and marginal farmers, hoping to raise the productivity and incomes. During 1980s, micro-enterprise credit focused on providing loans to poor women to invest in small-scale businesses, to enable them to accumulate assets and raise household income and welfare. These experiments encouraged NGOs to provide financial services for the poor. In the 1990s, many of these institutions converted themselves into Formal Financial Institutions in order to access and on-lend client savings, thus enhancing their outreach. 7 The microfinance service providers include apex institutions like NABARD, SIDBI and Rashtriya Mahila Kosh. At the lower level Commercial Banks, Regional Rural Banks and cooperatives provide microfinance services. There are also some NGOs which lend credit to SHG such as MYRADA in Bangalore, Self Help Women s Association in Ahmadabad, PRADAN in Tamil Nadu 8 Profitability and Sustainability of MFIs There is a fear that the concern over profitability of MFIs will divert lead MFIs from poor clients to serve clients who are better-off and want larger loans. It cannot be denied that programs or organisations that serve very poor clients are comparatively less profitable than those serving better-off clients, but if seen from a different perspective, it is more about managers' objectives than an already existing conflict between serving the very poor and profitability. Today MFIs serving the poor are showing elevation in financial conditions. Microfinance programs like Bangladesh Rural Advancement Committee and ASA in Bangladesh have already demonstrated that very poor clients can be reached without suffering loss. 7 Microfinance Institutions, 8 Vivek Kumar Tripathi, Microfinance - Evolution, And Microfinance-Growth Of India, Vol. 4, Issue 5, (May 2014). 233

4 However, cases can be seen where microfinance cannot be made profitable, for example, where potential clients are extremely poor and risk-averse or live in remote areas with very low population density. In such settings, microfinance may require continuing subsidies. 9 To overcome this challenge, NABARD announced a new concept called Joint Liability Group (JLG) in 2014 to ensure that the repayment of loan by the poor as loans given by microfinance institutions are not secured. In JLG, the borrowers form a group among themselves and MFIs give loan to that group. One person in the group is appointed as leader of the group and each person is responsible for the loan taken by any member of the group. On the default of any one person in the group, the other group members will pay for that. So everyone is kept in check by other people in the group and the borrower makes use of his money properly or he will not be allowed in that group the next time. As a result he will not be able to take loan in future. 10 Role of NABARD in Microfinance NABARD has brought into action a framework for growing SHGs as community based financial structures and making use of them as methods for lending by the formal banking system. The main aim is to gradually develop the credit strategies for meeting the credit needs of the poor by merging flexibility, sensitivity and responsiveness of the informal credit system with the strength of technical and administrative capabilities and financial resources of the formal financial institutions. 11 Most outstanding role of NABARD is building commitments through capacity building by: designing separate training modules, developing separate course materials, content and delivery enrichment by training tools, training methodologies, seminars and programmes at different levels, for bankers, for NGO employees including field staff; organizing workshops, seminars, providing selective capacity building support to NGOs, SHGs, Federations, of 9 Supra n.7 10 Rishabh Jain, Concept of Joint Liability Group, (July 19, 2009), 11 Institutional Support to Microfinance in India, 234

5 SHGs and related institutions. 12 NABARD provides re-finance support to banks to the extent of 100% of the bank loans disbursed to SHGs. Realising the increase in need for microfinance in India, the then Union Finance Minister announced the creation of a Micro Finance Development Fund (MFDF).In , the Government of India raised its corpus from Rs.100crore to Rs.200crore with contribution of 80crores from the banks. 13 The Micro Finance Development and Equity Fund (MFDEF) is managed and administered by NABARD with an objective to support the orderly growth of the microfinance sector. 14 The MEDP programme was launched in 2006 with the basic objective of enhancing the capacities of the members of SHGs to take up micro enterprises through appropriate skill upgradation in the existing and new livelihood activities both in farm and non-farm sectors. NABARD has been giving promotional grant support to NGOs, RRBs, DCCBs, Farmers Clubs and Individual Rural Volunteers and has brought about excellent results in the promotion and credit linkage of SHGs. Hence, it now becomes pertinent to know in brief the delivery models to make financial services available to the poor households. Delivery Models The following are major delivery models used by MFIs for delivery of financial services to low income families: Self-Help Groups NGOs, engaged in various developmental activities, provide financial assistance to the poor. Thus, SHGs have evolved as a result of this function of NGOs. SHG is a village based financial intermediary committee usually composed of local women or men. 15 It comprises a group of micro-entrepreneurs having homogeneous social and economic backgrounds, all voluntarily saving small sums of money regularly, mutually agreeing to contribute to a common fund and to meet their emergency needs on the basis of mutual help. They pool their resources to become 12 Ibid. 13 Supra n Ibid. 15 Self-help group (finance), 235

6 financially stable, taking loans without any collateral from the money collected by that group and by making everybody in that group self-employed. The group members use collective wisdom and peer pressure to ensure proper end-use of credit and timely repayment like SEWA in Ahmedabad. 16 Since women had negligible role to play in the decision making process of the family as well as in the society, they were the main target groups under SHG programme. There are following three models of SHGs: i. SHG-Bank Linkage Model - It involves the SHGs financed directly by the Public Sector Banks, Private Sector Banks, Regional Rural Banks, and Cooperative Banks. ii. MFI-Bank Linkage Model It covers financing of MFIs by banking agencies for further lending to SHGs and other small borrowers. iii. NGO-Bank Linkage Model In this model NGOs promote the linkage between banks and SHGs for savings and credit. Federated Self-Help Groups - Federated SHGs is a developed version of SHG to ensure benefits to maximum people with same or more profitability. Federated SHGs is a combination several SHGs and hence it comprises of thousands of members. In this model there is a three-tier structure with an SHG as a basic unit, a cluster at the middle level and an apex body at the topmost level. Generally, about SHGs come together to form a cluster with one or two representatives from each SHG. Now, several type of such clusters join together to form an Apex body which links the SHGs to NGOs which will help to mobilize the resources within a group of large number of members. For example, PRADAN. 17 Grameen Bank Model - Grameen Bank is a microfinance institution and community development bank founded in Bangladesh. It makes small loans to the impoverished without requiring collateral. Many organisations in India SHARE Microfinance Limited and CASHPOR Financial and Technical Services Limited have adopted this model. Micro-credit loans are based on the concept that the poor have skills that are underutilized and, with incentive, they can earn more money. A group-based credit approach is applied to use peer-pressure within a group to ensure the borrowers follow through and conduct their financial affairs with discipline, ensuring repayment and allowing the 16 Ibid. 17 Sibghatullah Nasir, Microfinance in India: Contemporary Issues and Challenges, Middle-East Journal of Scientific Research, (2013) 236

7 borrowers to develop good credit standing. 18 The most significant features of a Grameen Bank include low transaction costs; no collateral is required repayment of loans in short intervals and quick loans without any formalities. 19 Co-operative model - A co-operative is an organization owned by the members who use its services. The principle on which a co-operative runs is that since each community is having sufficient human and financial resources, therefore people belonging to such community who are the owners of these resources can also utilise them. This type of networking helps small scale industries to develop and members continue to be the owners of institutions. Co-operative Development Foundation established in 1975 by a group of individuals, relies on the Credit Union model involving a savings first strategy. Based on women s thrift groups and men s thrift groups, CDF has built up a network of financial co-operatives and had convinced the Andhra Pradesh government to form legislation called Mutually Aided Societies Act for flexible functioning of cooperatives. The Act helps the CDF to register thrift groups promoted by CDF under it. The activities of CDF involve assisting rural women and men in the areas of operation in forming and developing self-sustainable co-operatives. CDF also provide education and training to the co-operators from its work area. 20 The obvious next step would be to look into the impacts of availing microfinance services by the low income groups. Impact of Microfinance Impact of microfinance can be seen in following three fields: Women Empowerment Since in rural areas, women living below poverty line are unable to utilize their skills, MFIs introduce such programmes so as to encourage women in rural areas to become self-dependent like organizing them into an SHG. SHG helps in getting women employed by utilizing their skills and earning profits. Self-Employment - Microfinance sector is basically concentrating on alleviation of poverty through financial assistance from MFIs. This has resulted in making poor people 18 Grameen Bank, 19 Supra n Supra n

8 to manage their resources and mobilize them in accordance with the establishment of micro enterprises of these borrowers through the credit given by the MFIs. Poverty Alleviation - Improved access and efficient provision of savings, credit, and insurance facilities in particular can enable the poor to smooth their consumption, manage their risks better, build their assets gradually, and develop their micro enterprises. Government, NGOs and other financial institutions have introduced various welfare schemes and activities to alleviate poverty. Microfinance, by providing small loans and savings facilities to those who are excluded from commercial financial services has been developed as a key strategy for reducing poverty throughout the world. 21 Since MFIs have been flourishing and are having major impact on rural poverty alleviation, it is essential to discuss the existing legislative framework that regulates the MFIs in India. Existing Legal Framework for the Regulations of Microfinance Institutions in India In Andhra Pradesh in 2010, MFIs were accused of engaging in abusive practices that resulted in borrowers committing suicides. Therefore, government passed the Andhra Pradesh Microfinance Ordinance 2010, which put additional constraints on MFI practices at state level. The Andhra Pradesh Micro Finance Institutions (Regulations of Money Lending) Act 2010 replaced the Ordinance. Consequently, funds stopped flowing to MFIs, resulting in a liquidity crisis in the sector. The ordinance issued by the Andhra Pradesh government depicted the vulnerability of MFIs to regulatory and legislative risks. It triggered a chain of events which adversely affected the business models of MFIs in Andhra Pradesh by impairing their growth, asset quality and profitability. Hence this legislation was challenged by SKS and other MFIs seeking to quash it because it aimed at reining in the alleged harassment of borrowers in the state through coercive loan recovery practices, banned MFIs from approaching the doorstep of their customers, 21 Sonia Chawla, Micro Finance: A Tool For Poverty Alleviation, Vol. 3, Issue 1, IJRESS, (January 2013). 238

9 lengthened the loan recollection cycle from one week to one month, and made it mandatory for the lenders to get government approval to give a second loan to the same borrower. 22 The court acknowledged its importance in protecting the interests of SHGs borrowers and hence dismissed petitions. The court didn t strike down the law, but it made the observation that the RBI has the authority to govern NBFCs engaged in microfinance. In 2010, RBI formed Malegam Committee to review the definition of microfinance and MFI for the purpose of regulating NBFCs undertaking microfinance by the RBI, to recommend a grievance redressal system that could be put in place to ensure adherence to the regulation recommendations, to examine the prevalent practices of MFIs with regard to interest rates and to examine the role that bodies of MFIs could play in enhancing transparency disclosure and best practices. Following were the Recommendations of Malegam Committee Report: Classification of NBFC-MFI A separate category should be created for NBFCs operating in the microfinance sector called the NBFC-MFI, a company of which not less than 90% of its total assets except for cash and bank balances and money market instruments are in the nature of qualifying assets. An NBFC which does not qualify as NBFC-MFI should not be permitted to give loans to the microfinance sector, which in aggregate exceed 10% of its total assets. 2. Pricing of interest rate and transparency in interest charges - Interest rate should be set as follows: margin cap of 10% in MFIs which have an outstanding loan portfolio at the beginning of the year of Rs.100crore, margin cap of 12% in MFIs, which have an outstanding loan portfolio at the beginning of the year of an amount not exceeding Rs.100crore, and cap of 24% on individual loans Report of the Sub-Committee of the Central Board of Directors of Reserve Bank of India to Study Issues and Concerns in the MFI Sector; (January 19, 2011) 239

10 Transparency in interest charges can be assured by: There should be three components in the pricing of the loan: (i) processing fee, not exceeding 1% of the gross loan amount, (ii) interest charge, and (iii) insurance premium. Only the actual cost of insurance should be recovered, the security deposit and administrative charges should not be recovered. Every MFI should provide the borrower with a loan card which shows the effective rate of interest and other terms and conditions 3. Conditions relating to Asset book for NBFC-MFI - An NBFC-MFI should satisfy the following conditions: A qualifying asset shall mean a loan which satisfies the following criteria: loan is given to a borrower whose annual household income does not exceed Rs50,000, amount of the loan does not exceed Rs25,000 and the total outstanding indebtedness of the borrower including this loan also does not exceed Rs25,000, time period of the loan is not less than 12 months where the loan amount is not more than Rs15,000 and 24 months in other cases and the loan is without collateral. the aggregate amount of loans given for income generation purposes is not less than 75% of the total given by the MFIs, 4. Minimum net worth and Capital Adequacy Ratio of NBFC-MFI. All NBFC-MFIs should have a minimum net-worth of Rs1.5crores and should maintain Capital Adequacy Ratio of 15%.. 5. Securitisation and assignment. Disclosure is made in the financial statements of MFIs of the outstanding loan portfolio, which has been assigned/securitized and the MFI continues as an agent for collection. Where the assignment/securitization is with recourse, the full value of the outstanding loan portfolio assigned/securitized should be considered as risk based assets for calculation of capital adequacy. Where the assignment/securitization is without recourse but credit enhancement has been given, the value of the credit enhancement should be deducted from the Net Owned funds for the purpose of calculation of capital adequacy. 240

11 6. Provisioning of loans MFIs should always maintain an aggregate provision for loan losses, which shall be higher of: 1% of the outstanding loan portfolio, or 50% of the aggregate loan instalments which are overdue for more than 90 days and less than 180days and 100% of the aggregate loan instalments which are overdue for 180days or more. 7. Lending procedure MFIs should lend to an individual borrower only as a member of a JLG and should have the responsibility of ensuring that borrower is not a member of another JLG. A borrower cannot be a member of more than one SHG/JLG. Not more than two MFIs should lend to the same borrower. There must be a minimum period of moratorium between the grant of the loan and its repayment. Recovery of loan given in violation of the regulations should be deferred till all prior existing loans are fully repaid. 8. Recovery process MFIs should ensure that coercive methods of recovery are not used. Otherwise MFIs should be subject to severe penalties. MFIs should have a proper Code of Conduct and proper systems for recruitment, training and supervision of field staff to ensure the prevention of coercive methods of recovery. 9. Funding of MFIs Bank advances to the MFIs shall continue to enjoy priority sector lending status. MFIs should be encouraged to issue preference capital with a ceiling on the coupon rate. The broad framework laid down in these Recommendations was accepted in Monetary Policy Statement including retention of priority sector lending status for bank loans to MFIs, margin cap at 12% and interest rate cap at 26%. Micro Finance Institutions (Development and Regulation) Bill, 2012 The Micro Finance Institutions (Development and Regulation) Bill, 2012 introduced in LokSabha in May, 2012 where a microfinance institution includes the following entities: 241

12 1) society registered under the Societies Registration Act, 1860; 2) company registered under section 3 of the Companies Act, 1956; 3) trust established under any law for the time being in force; 4) body corporate; or 5) any other organisation, which may be specified by the RBI if the object of the institution is the provision of microfinance services. It does not include a banking company, co-operative societies engaged primarily in agricultural operations or industrial activities or any individual who carries on the activity of money-lending and is registered as a moneylender under the provision of any State law. 24 The 2012 Bill was referred to the Committee for examination and report which heard the views of representatives of various economic institutions, MFIs, RBI, NABARD, SIDBI and State Government of Andhra Pradesh and took oral evidence of the representatives of Ministry of Finance. Finally the draft was adopted in It was re-drafted several times in the last 5 years and many new recommendations were also incorporated. A new version of the Micro Finance Institutions (Development and Regulation) Bill, 2012 was then released. 26 The bill was laid in the RajyaSabha in 2014 and presented to the LokSabha in However the Bill lapsed with the dissolution of House. Priority Sector Lending: Priority sector lending is a government initiative which requires banks to allocate a percentage of their portfolios to investment in specified priority sectors at concessional rates of interest. Currently only MFIs registered as NBFC-MFIs are designated as a priority sector. 27 An NBFC-MFI is defined as a non-deposit taking NBFC (other than a company licensed under Section 25 of the Indian Companies Act, 1956) with Minimum Net Owned Funds of Rs.5crore (for NBFC-MFIs registered in the North Eastern Region of the country, it will be Rs.2crore) and having not less than 85% of its net assets as qualifying assets Regulation of Microfinance Institutions in India, CUTS Centre for Competition, Investment and Economic Regulation, (2013) Abhay Nayak, Microfinance Institutions (Development and Regulations) Bill , (March 27, 2014), 26 Ibid. 27 Supra n

13 In the absence of a robust legislative framework, the MFIs are facing challenges which is making it difficult for the MFIs to work towards alleviation of poverty. Hence, it becomes pertinent to discuss the challenges faced by the microfinance industry. Challenges to Microfinance Institutions Low outreach of MFIs In India the outreach of MFIs is merely 8% as compared to 65% in Bangladesh. Moreover, Microfinance sector concentrates more on women clients as compare to men clients for the reason that women borrow same as that of men but their re-payment performance is better than men. This ignorance of MFIs towards men clients has definitely contributed to the low outreach of the MFIs in India. 29 Heavy dependence on banks and financial institutions Instead of raising loans from capital market, the MFIs are largely dependent on debts from banks and financial institutions. NBFC-MFIs have to depend on loans from private sector banks as public sector banks do not consider giving loans to NBFC-MFIs as a good deal. Public sector banks prefer lending to institutions through SHG-bank linkage following SHG model. 30 Thus, trust and societies have better access to the PSBs as compare to the NBFC- MFIs. Higher interest rates MFIs charge very high rate of interests which makes re-payment of loans by the borrowers difficult. Since these MFIs do not get subsidized credit therefore in order to sustain in the market, they tend to realize operation costs from the borrowers. Subsequently, the purpose of microfinance i.e., providing cheap financial assistance to the poor gets diluted. 31 Absence of regulatory control Microfinancial activities are carried out by organizations under various State Societies Registrations Acts. Only NBFC-MFIs are regulated by RBI. The absence of regulatory control and prudential norms regulating institutions apart from NBFC-MFIs is resulting into 29 Supra n India Top 50 Microfinance Institutions A Financial Awareness Initiative By CRISIL, (October 2009) 31 Supra n

14 non-uniform accounting practices and highly-leveraged balance sheets. 32 As a result, these institutions at times do not provide true accounts information. Savings although is an essential element of microfinance but only banks and co-operatives can provide facilities with respect to savings and deposits as the NBFC-MFIs are not authorised to provide these facilities if they do not obtain the licence from RBI. S.45s of RBI Act prohibits trusts and societies from accepting deposits or savings. Pressure on processes and controls due to aggressive growth plans As a result of shifting focus of MFIs towards business growth and network expansion, risk management practices of MFIs have weakened. Some practices have been diluted by the MFIs which include lending to client with multiple loans from different MFIs, reduction in average waiting period for loans etc. Some new practices have been introduced and there is also improvement in operations of MFIs such as installation of software to monitor the loans, upgrade in cash management service and availability of banking facilities to MFIs located in rural areas. 33 Late Repayments One of the major challenges faced by MFIs includes late repayments of loans which creates a hindrance in the growth and expansion of the institution because late repayments are around 70% in MFIs. This usually occurs because clients are uneducated and they don t know how to manage their debt. They are unaware of the fact that delay in repayment increases their loan payments as they also have to pay interest for the delayed period. 34 Conclusion Microfinance has emerged to be an effective tool for rural development and poverty alleviation but the microfinance industry is lagging behind in terms of proper regulatory framework, non-availability of capital. MFIs in India have so many challenges before them, so it has not yet evolved its capability to the fullest to improve the economy of India. Recently, owing to the Andhra Pradesh Micro Finance Institutions Act 2010 microfinance has earned a bad name in the market because of increasing number of suicide cases of micro credit borrowers as they had to pay higher interest charges and face frail process of recovery 32 Supra n Ibid. 34 Supra n

15 loans. The government tried to frame a regulatory framework with the objective of protecting the interest of the borrowers and to make the RBI, to regulate the MFIs. However, it failed. So there is a need of an exclusive regulation to regulate to MFIs which help in protecting the interest of the stakeholders. The MFIs are facing difficulties as the PSBs are not willing to lend capital to these MFIs due to which MFIs have to be largely dependent on the capital market, MFIs are not authorised to take deposits and savings due to which they are unable to mobilize their resources. Therefore, PSB should trust the MFIs and start lending credit to the MFIs so that they can also play a vital role in poverty alleviation. There should be transparency in interest rates which will ensure uniformity among all microfinance providers and also restrain MFIs from charging unnecessarily high processing fees and administrative charges RBI must come up with specific and precise definitions of coercive collection practices, adequate product transparency, and abusive selling practices. The associations should send regularly, information regarding the institution's consumer protection compliance to regulators, on the basis of which it could then be determined whether an institution is eligible for certain privileges, such as priority sector funds or permission to lend. Here, the government should step in and play an active role, so that microfinance industry can work in the field of alleviation of poverty. The government should plan capacity building programmes and skill development trainings so that poor people can establish microenterprises using those skills. Moreover, growth of microfinance institutions can be assured by development of microfinance awareness, propagating its policies and methods of working, providing a competitive market with a range of products by increasing the number of microfinance institutions. If the above mentioned challenges are eliminated, it would have positive results on the economy, resulting in greater efficiency and improvement of living standards of the thousands of people enabling them to manage their assets. 245