Evaluation of Microfinance Programmes in India

Transcription

1 Evaluation of Microfinance Programmes in India A thesis Submitted to Devi Ahilya Vishwavidyalaya, Indore For the Degree of Doctor of Philosophy in Management Guided By Dr. Alpana Trehan Professor Institute of Management Studies Devi Ahilya Vishwavidyalaya Indore Submitted By Kshama Jaiswal (Malviya) Assistant Professor Renaissance College of Commerce and Management, Indore Research Centre Institute of Management Studies Devi Ahilya Vishwavidyalay, Indore, M.P. 2014

2 UNDERTAKING I, the undersigned Ph.D scholar in (Management) Evaluation of Microfinance Programmes in India declare that I have not joined any other course or study or appeared at any other examination conducted by the University during the tenure of my registration for the Ph.D Degree Course. Postal Address: Kshama Jaiswal (Malviya) 55 Panchvati Janki Nagar Assistant Professor Flat No. 202 Vijayshree Appartment Renaissance college of Commerce & Management Indore (M.P.)

3 CERTIFICATE This is to certify that the work entitled Evaluation of Microfinance Programmes in India is a piece of work done by Kshama Jaiswal (Malviya) under my guidance and supervision for the degree of Doctor of Philosophy in Management, from Devi Ahilya Vishwavidyalaya, Indore, (M.P.) The candidate has put in more than 300 days of attendance with me. To the best of my knowledge and belief in the thesis: 1. Embodies the work of candidate herself has duly been completed 2. Fulfils the requirement of the ordinance relating to Ph.D. degree of the University; and 3. Is up to the standard both in respect of content and language for being referred to the examiner. 4. If any plagiarism found in the thesis researcher shall be solely responsible. Dr.Alpana Trehan Supervisor, Professor Institute of Management Studies Devi Ahilya Vishwavidyalaya Indore, (M.P), Pin Forwarded by, ACKNOWLEDGEMENT

4 I am extremely happy to recollect and express my gratitude to those who helped me in the study, both academically and non academically. First of all, my supervisor, Dr. Alpana Trehan, without whom this work would not have been materialised. She has supported me throughout my thesis from the conception of the research idea to the final stage with her advice which has enabled me to conceptualize and understand the research project. She has been my ideal and friendlier thesis supervisors whose steadfast support was greatly needed and deeply appreciated. Words alone can't express my gratitude. I can only say Thank You. You are such a blessing in my life. I express my gratitude towards Dr P.K Gupta for giving adequate attention to my work through his useful comments and suggestions. It was indeed Institute of Management studies (IMS) which provided me the opportunity to complete this doctoral programme and therefore I give my thanks to Dr. P.N Mishra, director of Institute of Management Studies, Indore. I am grateful to my colleague Prof.Namita Hirwani for spending time with me during valuable discussions on the microfinance Programme in India. Special thanks to Prof. Suhas Dhande, who helped me in the analytical work during the course of my study. My sincere gratitude also goes to Hemant who is a member of Development & Support Team of Sa-Dhan Institute for taking out his valuable time to provide data regarding MFIs. It was because of the help given by Mr. Rajesh Singh and Mr Amit that I could visit different NGOs working in Indore and Ujjain district.

5 I also recollect the time spared by Mr.Mrinal Pant coordinator of Microfinance Institution Network. The insightful discussions with him became useful while writing my thesis. I am thankful to Prof. Devika Trehan for her valuable suggestion during the course of my study. I bestow my special thanks to my Principal Dr.Rajesh Dixit for his immense support in the course of my studies, I also received help from different faculty members of Renaissance College of Commerce and Management from time to time. Among them, Dr Nikhilesh Shastri, Dr.Jayesh Shah, Dr.Yogita Chandel, Prof.Manish Soni, Prof.H.S. Kohli, Prof.Samta Jain, and Mrs.Vinita sidwani are noteworthy. I extend my thanks to Mr. Satish Kushwah for the editing work. It would have been impossible to complete the PhD on time, without the help of my husband and assistance of my other family members for giving me the much needed emotional and moral support whenever I needed. It is that support which helped me to finally reach this point of success. I also show Gratitude towards my parents for their prayers in the successful completion of this work. A very special thanks to my little son Aradhya for his silent sacrifice of my absence, most of the time, especially when he needed me the most. ABSTRACT

6 Microfinance has proved to be an effective tool for poverty alienation. It provides the financial services for the people belonging to the low-income groups including consumers, self employed and women who traditionally lack access to banking and related services. Broadly speaking, microfinance is a movement whose objective is to create a new economic order in which maximum number of people below poverty lines and people belonging to low income groups have permanent access to high quality financial services, such as- savings, credit, insurance and fund transfer. It is believed that such access to financial services helps the cause of poverty alienation. Microfinance facilities not only allow the poor people overcome poverty but it also helps bring economic quality and empowers low-income groups. That is why the United Nations observed the year 2005 as the international year or microcredit. India has a long dating history of micro financing. Money lenders and chettiars who provided credits at high interest rates and on mortgage of land records, other valuable assets like gold and silver ornaments and other domestic asset base like domestic animals have existed in Singapore and Indian communities for a long time. Still, poverty persists in rural areas due to a combination of factors like lack of micro credit, social stigma from failed attempt at entrepreneurship, institutional constraints on lending and inability to recover quickly from setbacks such as natural disasters and death of earning members.

7 That is why microfinance has been a focal issue of not only market forces but also the governments, Non Government Organisations etc. As a result of the consolidated efforts, India has seen dynamic growth of the microfinance industry. The present study is based on the year of 2009 to For the purpose of the analysis and clear understanding the Growth of MFIs, Ratio analysis is used to measure profitability, efficiency, productivity and self-sufficiency of NBFC Microfinance institution. The study reveals that the client outreach as well as the gross loan portfolio have been rapidly increasing from the financial year 2009 to the financial year 2013 (Except the F.Y ), implying an increase in the demand for microfinance services. In the past two decades, substantial progress has been made in developing techniques to deliver financial services to the poor on a sustainable basis. Most donor interventions have concentrated on one of these services, microcredit. For Microfinance to be appropriate however, the clients must have the capacity to repay the loan under the terms by which it is provided. Otherwise, clients may not be able to benefit from credit and risk being pushed into debt problems. This sounds obvious, but microfinance is viewed by some as "one size fits all." Instead, Microfinance should be carefully evaluated against the alternatives when choosing the most appropriate intervention tool for a specific situation. The study stresses that it is only fair that the Reserve Bank of India retains the priority sector status of microfinancing industry in view of the observation in a World Bank report that about 45.5 crore of India s total population lives on Rs55 per day.

8 It recommends offering a wide range of services needed, for reaching as many households as possible in a service and putting client needs at the center, MFIs should be followed the Wealth management approach in three forms including 1) focused geographic commitment and complete population coverage, 2) Client Wealth Management Apporach and 3) Complete range of product This report also stresses that the MFIs should be made program for destitute and in that program, they should support destitute women through free food, training, health care, and savings. The MFIs should also do investments in infrastructure, such as roads, communications, and education, provide a foundation for economic activities. Community-level investments in commercial or productive infrastructure (such as market centers or small-scale irrigation schemes) will facilitate business activity. The MFIs may also venture in self employment programs for the poor, foodfor-work programs and public works projects which may be out of reach for cash-strapped local governments but within the purview of donors. This study also underlines that legal and institutional reforms can create incentives for microfinance by improving the operating environment for both microfinance providers and their clients. For example, streamlining micro-enterprise registration, abolishing caps on interest rates, loosening regulations governing non-mortgage collateral, strengthening the judicial system, and reducing the cost and time of property and asset registration can foster a supportive climate for microfinance.

9 List of Figure S. No. Particular Page No. Figure 1.1 Introduction of Microfinance 03 Figure 1.2 Definition of Microfinance 06 Figure 1.3 Model of Banks promotes SHGs and finances 16 them Figure 1.4 Model of NGOs facilitate the promotion of SHGs 16 and Banks Finance SHGs Figure 1.5 Model NGOs Borrow Funds from Banks / FIs and 17 Provide Services to SHGs / Clients Figure 1.6 Model of linkages between SHGs & Bank 17 Figure 1.7 Model of linkages between SHGs & Bank 18 Figure 1.8 Model of ICICI Bank Model 20 Figure 1.9 The value chain of other bank models 21 Figure 1.10 High transactions and Service cost 48 Figure 2.11 Types of Risks for MFIs 53 Figure 1.12 Urban Microfinance 61 Figure 3.1 Application of Randomised control trial 150 Figure 4.1 Chart showing No of Client in percentage 156 Figure 4.2 Chart showing Gross Loan Portfolio of 157 Microfinance Institutions in percentage Figure 4.3 Chart Showing Loan disbursed by MFIs in 158 percentage Figure 4.4 Chart showing loan outstanding of MFIs in 159 percentage Figure 4.5 Chart showing Branches of MFIs 160 Figure 4.6 Chart showing Employee of MFIs 161 Figure 4.7 Chart showing assets of MFIs 162 Figure 4.8 Chart showing Equity investment of MFIs 163 Figure 4.9 Chart showing operating expenses ratio of MFIs 165 Figure 4.10 Chart showing operational self sufficiency of MFIs 166

10 S. No. Particular Page No. Figure 4.11 Chart showing cost per loan of MFIs 167 Figure 4.12 Chart showing Return of assets of MFIs 168 Figure 4.13 Chart showing Return of Equity of MFIs 169 Figure 4.14 Chart showing Debt Equity of MFIs 170 Figure 4.15 Chart showing Impact on income of existing 178 business Figure 4.16 Chart showing Impact on income of new business 180 Figure 4.17 Chart showing Impact on expenditure of 183 household Figure 4.18 Chart showing Impact on Women empowerment 187 Figure 5.1 Diagram showing proposed model for destitute 213

11 List of Table S.No. Particular Page No. Table 1.1 Type of microcredit products 30 Table 1.2 Types of life micro insurance product 36 Table 1.3: Types of General micro insurance product 37 Table 4.1: MFIs- Client outreach 156 Table 4.2 Gross Loan Portfolio 157 Table 4.3 Loan disbursed of MFIs 158 Table 4.4 Loan outstanding of MFIs 159 Table 4.5 Branches of MFIs 160 Table 4.6 Employee of MFIs 161 Table 4.7 Assets of MFIs 162 Table 4.8 Equity of MFIs 163 Table 4.9 Return on Assets of MFIs 165 Table 4.10 Return on equity of MFIs 166 Table 4.11 Debt equity ratio of MFIs 167 Table 4.12 Operating expenses ratio of MFIs 168 Table 4.13 Operational self sufficiency of MFIs 169 Table 4.14 Cost per loan of MFIs 170 Table 4.15 Capital building through Training program by 173 NABARD Table 4.16 Impact on income of existing business of 178 Microfinance borrower Table 4.17 Impact on income of New business of 180 Microfinance borrower Table 4.18 Impact on expenditure of Microfinance 183 borrower Table 4.19 Impact on woman empowerment 187

12 Content Particular Page No. Chapter 1: Introduction Background Concept of Microfinance Definition of Microfinance History of Microfinance How microfinance grew in India Microfinance Delivery Models Microfinance Institution Types of MFIs Incorporation and Registration of MFIs Organizational, Legal and Other Issues Support Mechanism for Institutions 26 Providing Microfinance 1.8 Microfinance services Microcredit Micro Savings Micro-Insurance Lifecycle planning products Remittances Risk mitigation products Financial counseling Interest and Cost Regulation and Supervision of MFIs Function Style of MFIs Risk for MFIs 50

13 Particular Page No Urban Microfinance 59 Chapter 2: Review of Literature What is Microfinance Microfinance and its operations Poverty alleviation and Employment generation Outreach and Sustainability Profitability Technology and Microfinance Microfinance studies on Women Empowerment Impact of Microcredit Impact of micro saving Demand of microfinance 2.11 Future of microfinance Finding from literature Review Research gap and Rational Study 136 Chapter3: Research Methodology Research Objectives Research design Sample Size Tools of data collection Data Source Tools of Data Analysis Ratio Analysis: Return on Assets Return on Equity Ratio

14 Particular Page No Cost per loan The debt-to-equity ratio Operating Cost Ratio Operating self-sufficiency Randomized control trial 149 Chapter 4: Results, Interpretation and Discussion Growth of Microfinance institution in India Outreach Infrastructure Efficiency & Productivity Profitability and capital adequacy Capacity Building needs for Microfinance 171 institution 4.3 Impact of microfinance programmes on 178 microfinance borrowers 4.4 Impact on Women empowerment Finding and discussion 188 Chapter 5: Conclusion and Recommendations Conclusion Benefits of Microfinance Future Implication Recommendations 209 Chapter 6: Bibliography 215 Appendix

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