An Evaluative Study of NBFC- MFIs in India

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1 An Evaluative Study of NBFC- MFIs in India 1. Ms. Aisha Badruddin Integral University 2. Dr. Mohd Anees University Of Lucknow ABSTRACT The study is based on evaluation of the performance of NBFC form of MFIs in India. Amongst all the legal forms of MFIs microfinance in India is largely dominated by Non-Banking Financial Companies-Microfinance Institutions (NBFC-MFIs). NBFC-MFIs are regulated by Reserve Bank of Indiaalong with two Self-regulatory Organizations (SROs) Sa-Dhan and MFIN. The study builds on the data gathered from MFIN. The underlying objective of research is to perform ratio analysis of small, medium and large NBFC-MFIs and to study the level of outreach and portfolio of small, medium and large MFIs. MFIs have been classified on the basis of GLP as suggested by MFIN.The ratio analysis shows that smaller MFIs are facing challenges as compared to other categories of MFIs especially in terms of debt funding as depicted by Debt to Equity ratio, in proportion to the equity available to them. Operating Self Sufficiency for all categories is favorable. MFIN in their report mention demonetization as the main reason resulting in decline in the Return on Assets. KEYWORDS:NBFC-MFI, GLP, Outreach and Portfolio. INTRODUCTION Microfinance Industry in India is largely dominated by Non-Banking Financial Companies-Microfinance Institutions (NBFC-MFIs). NBFC-MFIs are regulated by Reserve Bank of India (RBI). There are also two Self-regulatory Organizations (SROs) Sa-Dhan and MFIN(SIDBI, 2016). An indicator of the remarkable growth in the sector is the comparison of the ratio of microfinance loans to the GDP (Gross Domestic Product), which is low even in mature markets such as India, Philippines and Indonesia. However, going by the sheer size in microfinance loans, India lead with gross loan portfolio of USD 12.3 billion for MFIs. Bangladesh is high not only in the size of the microfinance loan portfolio but also in the contribution of this loan size to GDP(MFIN, 2017). The client outreach of MFIs in the industry across all forms of MFIs had grown substantially from 2005 to 2011, attaining a level of 317 lakh. This trend decelerated during 2012 and 2013 and the count of clients decreased to 275 lakh. The trend reversed in 2014 with a growth and reached a level of 330 lakhs. This trend continues in 2016 with a massive rise in clients of 399 lakh. A huge chunk of these clients are being catered by NBFCs (NBFC/NBFC-MFIs) 79% whereas Section 8 Companies account for 5% and others (Society/Trust/MACS) accountfor 16%. MFIs with outstanding portfolio above Rs. 500 crore are responsible for reaching out to 80% of theclients in the industry (Bharat Microfinance Report, 2017). Market share within the NBFC-MFIindustryisclearlyconcentrated inthegroupoflargemfis, whichaccountfor90%oftheindustryglp,88%oftheclientbase,90%ofloanamountdisbursedand87%ofdebtfundin g (Micrometer, 2017). The share ofnbfcs-mfi, although accounting for only about 3 per cent of the NBFC sector s assets at end-march 2017, has shown a steady rise since their inception (RBI, 2017). RESEARCH METHODOLOGY The research is based on the data of NBFC-MFIs from the year Thedata has been collected from the various publications of MFIN. The ratios have been used for evaluating the performance of small, medium and large NBFC-MFIs in India. 941 Ms. Aisha Badruddin, Dr. Mohd Anees

2 RESEARCH OBJECTIVES International Journal of Engineering Technology Science and Research To evaluate the performance on the basis of ratios of small, medium and large NBFC-MFIs. To study the level of outreach and portfolio of small, medium and large MFIs DATA ANALYSIS The categorization of MFIs done by MFIN is based on their Gross Loan Portfolio (GLP) at the end of FY (as of 31st March 2017) hence, the data collected by MFIN in Microscape 2016,constitute 7 MFIs with GLP < Rs 100 Cr, 20 MFIs with GLP > Rs Cr and 14 MFIs with GLP > Rs 500 Cr for the FY The list of MFIs under different peer groups included for analysis isgiven in table 1. All MFIs for the year include 38 MFIs out of which 5 MFIs are small, 19 medium and 14 large. In the year total reporting MFIs were 40 comprising of 6 small, 20 medium and 14 large MFIs. Year all MFIs were 41 in number with 7 small, 20 medium sized and 14 large sized MFIs.The top ten MFIs as reported by MFIN in Microscape for three years respectively are mentioned in table 2. Table 1. Peer Grouping MFIs (large) Annapurna,Arohan,Asirvad,Belstar,BFIL, BSS, Fusion, Grameen Koota, Madura,Muthoot Microfin, Satin Sonata, Spandana, SVCL MFIs (medium) MFIs (small) Adhikar, Chaitanya, Growing Opportunity, Hindusthan, Fino, Jagaran, M Power, Margdarshak, Midland, Namra, Navachetna, Pahal, Saija, Samasta, Sambandh, Svatantra,Uttrayan, Varam, Vedika, VFS Agora, Light, MSM, Nightingale, Shikhar, Unnaco, Unnati. FY FY Source : Microscape , MFIN Table 2. Peer Grouping For Top 10 MFIs BFIL, Satin, Grameen Koota, Spandana, Sonata, SVCL, Annapurna, Arohan, Madura, Asirvad BFIL, Satin, Grameen Koota, Spandana, Sonata, SVCL, Asirvad, Annapurna, Arohan, Muthoot Microfin FY BFIL, Satin, Grameen Koota, Muthoot Microfin, Asirvad, Spandana, Annapurna, Sonata, Arohan, Fusion Source : Microscape , MFIN Table 3. Ratio Analysis DEBT TO EQUITY RATIO FY FY FY OPERATING SELF SUFFICIENCY (%) FY FY FY Ms. Aisha Badruddin, Dr. Mohd Anees

3 943 Ms. Aisha Badruddin, Dr. Mohd Anees RETURN ON ASSETS (%) FY FY FY RETURN ON EQUITY (%) FY FY FY BALANCE SHEET PORTFOLIO/ASSET RATIO (%) FY FY FY BALANCE SHEET PORTFOLIO/GROSS PORTFOLIO RATIO (%) FY FY FY YIELD ON GROSS PORTFOLIO (NOMINAL) (%) FY FY FY TOTAL EXPENSE/PORTFOLIO (%) FY FY FY FINANCIAL EXPENSE/PORTFOLIO (%) FY FY FY OPERATING EXPENSE/PORTFOLIO (%) FY FY FY

4 ADMINISTRATIVE EXPENSE/ASSETS (%) FY FY FY PERSONNEL EXPENSE/ASSETS (%) FY FY FY COST PER CLIENT FY , FY , FY , ,367 1,134 1,000 GROSS LOAN PORTFOLIO TO TOTAL ASSETS (%) FY FY FY WRITE-OFF RATIO (%) FY FY FY LOAN LOSS PROVISION RATIO (%) FY FY FY Source : Microscape , MFIN DISCUSSION The result of ratio analysis represented in table 3 is used to interpret the performance of MFIs under various categories. Debt to Equity Ratio shows that medium and large MFIs are performing well in terms of leverage. Smaller MFIs are still facing challenges for debt funding in proportion to the equity available to them as compared to all other categories of MFIs.Operating Self Sufficiency(OSS) for all categories is favorable. Operational Self Sufficiency (OSS) ratio shows that as compared to last year, small and medium MFIs have been able to maintain their OSS with slight fall (1% to 2%). However, large MFIs show a drop of almost 8.45% in OSS.Return on Assets It is noteworthy that MFIs in all categories have recorded positive a Return on Asset (ROA) in FY 16-17, though there is a slight drop in the ROA as compared to FY Overall 944 Ms. Aisha Badruddin, Dr. Mohd Anees

5 industry ROA is 1.77% whereas for the large MFIs it is more than 2%. However, the small MFIs are facing some challenge on this front. Return on Equityin FY 16-17, the ROE remained positive across all MFI categories, though there has been a decline of 3.52% and 5.49% in small and large MFIs in comparison to previous year.balance Sheet Portfolio/Asset Ratio and Balance Sheet Portfolio/Gross Portfolio ratio show an increase of 3% and 9% from with decrease in the year in all MFIs.A slightly low ratio of Yield on Gross Portfolio (nominal) is observed in large category than small and medium. Otherwise all the MFIs in various categories seem to be profitable in the year Total Expense/Portfolio ratio is highest in small amongst all categories.financial Expense/Portfolio ratio in all MFIs has increased almost 3% in three years. The small MFIs category has increased ratio of 3.37% from The large MFIs have no significant change in the ratio over the time. Operating Expense/Portfolio ratio has decreased 6% and almost 2% for small and medium MFIs over three years. The large MFIs have maintained consistency with no change in the ratio within two years.personnel Expense/Assets ratio shows a fall of 3.75% from for small category with not much change for medium and large category.cost per Client has increased consistently over three years in large and medium category of MFIs. It has decreased in the year in small MFIs category which has again increased in next year.gross Loan Portfolio to Total Assets ratio shows a significant increase of 12.98% in FY in case of small sized MFIs and 13.09% for large MFIs.The write-off ratio shows a steep fall in the year for small MFIs but has increased in case of medium MFIs in the same year.loan Loss Provision Ratio it is highest in FY for all MFIs included in the sample. It is reported as highest in case of large MFIs in the year with no significant difference between the ratio of small and medium MFIs. ANALYSIS FOR LEVEL OF OUTREACH The outreach indicators suggested by MFIN are Number of branches, employees, loan officers and Clients. Client outreach and loan portfolio are two key indicators of an MFI s contribution to financial inclusion as well as the depth and breadth of financial deepening achieved by it (Bharat Microfinance Report, 2017). Table 4. Outreach Indicators BRANCHES FY ,532 2, ,750 FY ,795 3, ,014 3,683 FY ,346 4, ,422 4,783 EMPLOYEES FY ,014 21, ,370 22,170 FY ,802 31, ,019 33,031 FY ,360 42, ,819 44,543 LOAN OFFICERS FY ,529 12, ,654 12,668 FY ,601 19, ,093 20,125 FY ,491 26, ,401 27,508 CLIENTS (Cr) FY FY FY Ms. Aisha Badruddin, Dr. Mohd Anees

6 DISCUSSION Table 4 constitutes the outreach indicators for three consecutive years under small, medium and large category of MFI. The number of branches in small MFIs has increased 66% and 44% in the year and respectively. The medium MFI continues with 40% increase in both the years and 34% and 30% in large MFIs for and respectively. In the year the industry shows an increase in the count of employees in all the categories of MFIs. All MFIs shows a rise of 13% and 17% in Top 10 MFIs. The highest percentage change of 26%, is observed in small MFIs categories as compared with others. The number of loan officers also depicts percentage change of 85%, 54% and 59% in the FY in small, medium and large categories respectively. A percentage change of 52%, 56% and 37% was observed in small, medium and large MFIs in the year In the number of clients the highest percentage change of 75% was seen in FY in the category of small MFIs. The top ten MFIs experienced a change of 25% in FY Table 5. Analysis of Portfolio GLP (Cr) FY ,741 11, ,348 12,264 FY ,028 19, ,867 21,880 FY ,640 24, ,811 27,504 AVERAGE LOAN OUTSTANDING PER CLIENT (Rs) FY ,654 13,188 12,129 11,950 13,797 FY ,396 16,359 14,501 15,178 16,091 FY ,042 16,027 13,895 14,558 16,307 AVERAGE LOAN AMOUNT DISBURSED PER ACCOUNT (Rs) FY ,004 15,657 16,059 15,747 16,332 FY ,098 18,138 19,357 19,253 18,765 FY ,040 19,735 23,389 22,566 20,615 Source: Microscape , MFIN DISCUSSION Portfolio indicators as suggested by MFIN include Gross Loan Portfolio (GLP), Average Loan Amount Disbursed per Account and Average Loan Outstanding per Client (ALOPC). Table 5. shows analysis of portfolio of small, medium and large MFIs on various portfolio indicators.the year on year (YoY) change in the loan portfolio was 118%, 113% and 78% in the FY and 16%, 33% and 26% in small, medium and large MFIs respectively.in the FY a drop in ALOPC is observed in small and medium category with percentage change of -4% in both the categories. An increase of 1% is seen in large MFIs. A change of 21% is observed in both the years in small MFIs, in medium MFIs it was 22% and 17% in FY and respectively and large category of MFIs experienced a year on year change of 15% and 10% in both FY respectively. CONCLUSION The ratio analysis result shows that smaller MFIs are facing challenges as compared to other categories of MFIs especially in terms of debt funding as depicted by Debt to Equity ratio, in proportion to the equity available to them. MFIN in their report mention demonetization as the main reason resulting in decline in the 946 Ms. Aisha Badruddin, Dr. Mohd Anees

7 Return on Assets(Microscape, ).The operating and personnel expense ratio remained steady in all categories except Small size MFIs. NBFC MFIs in terms of outreach MFIs have shown consistent growth. The NBFC-MFI segment of NBFCs is considered as a very significant part in the entire Financial Inclusion scenery of India. NBFC-MFIs being the differentiated segment of NBFCrepresent the substantial growth in size and level of outreach. REFERENCE [1]. MFIN, Microfinance in Asia A mosaic future outlook, FINAL-by-PwC.pdf [2]. The Bharat Microfinance Report 2017, Published by Sa-dhan, [3]. SIDBI, Voices of Microfinance clients-a study of microfinance clients concerns, perceptions and delights, Published by ACCESS-ASSIST November 2016 [4]. The Microscape ,published by MFIN, _ pdf [5]. Micrometer 2017, Issue 24, published by MFIN, Issue-24_Q3-FY-17-18_Final.pdf [6]. RBI, October Ms. Aisha Badruddin, Dr. Mohd Anees

Adhikar Agora Annapurna Arohan Asirvad Belstar. BSS Chaitanya Fusion Grameen Koota Growing. Madura Margdarshak Midland MSM Muthoot Microfin

Adhikar Agora Annapurna Arohan Asirvad Belstar BFIL BSS Chaitanya Fusion Grameen Koota Growing Opportunity Hindusthan Fino Jagaran Light M Power Madura Margdarshak Midland MSM Muthoot Microfin Namra Navachetna