Microfinance Industry Penetration in India: A State - wise Analysis in Context of Micro Credit

24 Microfinance Industry Penetration in India: A State - wise Analysis in Context of Micro Credit Laxmi Devi, Assistant Professor, Gargi College, University of Delhi Umed Yadav, Student, Dept. of Commerce, DSE, University of Delhi Mohammad Shamim Ahmad Ansari, Assistant Professor, Lakshmibai College, University of Delhi Rohit Shah, Assistant Professor, Shyam Lal College, University of Delhi ABSTRACT As per Census 2011, position of households availing banking services in Rural India was 91,369,805 out of 167,826,730 (54.4%) households and 53,444,983 out of 78,865,937 (67.8) in urban areas. Also outstanding loans portfolio have slipped down for rural clients reason being clearance of Non-performing assets by Microfinance Industry (MFIs). There is one more reason behind such fall which is being indicated by various regulatory reports is the unbalance increment in number of MFIs in both the regions. MFIs use to have low profit margins, they can offer the loans by charging maximum 10% extra interest rate than what banks collect from them. Also they use to have huge administration and operating cost in rural areas due to the reasons like remote areas targets, excess transportation costs, low level of financial literacy, training and awareness campaigning costs to attract people, very small amount of credit demands etc. to reach the ultimate targets enforces them to migrate to urban areas. This study has been conducted to analyse the number of MFIs outreach in every state of India in relation to the state specific density and outstanding loan portfolio to understand is there any significant relation between these three variables. To serve the purpose publications of various regulatory and self-regulatory bodies has been taken into consideration. Keywords Micro finance Institutions, Micro credit, Non-Performing Assets, Credit Penetration, Outstanding Loans Portfolio INTRODUCTION The Microfinance in India is on path of steady growth and is undergoing a substantial change. Building on Regulatory support it has shown an impressive growth and strengthen its position. The basic agenda of microfinance is to provide much needed credit to under privileged people in the country. Apart from this MFIs also provides small trenches, Micro Insurance, Micro Pension, provides training to its clients on how to save and invest their hard earned money. NBFC- MFIs in financial year, 2013-2014 with a branch network of 9,894 and employee base of 75.085, provided credit to over 2.86 Cr and reported a loan outstanding of Rs. 37,988 Cr. Microfinance Industry has total loan portfolio of Rs. 98,625 Cr. It may be noted that 7SFB- designate (DISHA, ESAF, RGVN, Suryoday, Ujjivan and Utkarsh) account for 46% of NBFC-MFIs portfolio amounting to Rs. 26,228 Cr [MFIN reports 2015-2016]. As on 31 st Dec 2016, MFIs indirectly provide life Insurance to over 4.3 Cr. Clients with total sum assured of over RS. 96,246 Cr. MFIs also indirectly facilitate over 22lakhs pension accounts (these products are delivered to microfinance clients by the MFIs in partnership with insurance companies & National Pension Scheme). According to The Bharat report 2016, MFIs currently operate in 29 States, 4 Union Territories and 588 districts in India. The reported 166 MFIs with a branch network of 12,221 & 39 million employees, having clients with an outstanding loan portfolio of Rs. 63,853 crore. This includes a managed portfolio of Rs16,914 crore. Out of managed portfolio, BC portfolio accounts for Rs. 7,984 crore. The average loan outstanding per borrower stood at Rs.11,425 and 94% of loans were used for income generation purposes. Outreach grew by 8% and loan outstanding grew by 31% over the previous year. South India continues to have the highest share of both outreach and loans outstanding, followed by East. However growth rates are higher in the Northeastern and Central regions. Outreach proportion of urban clientele has decreased marginally as against the rural population. The proportion of urban clientele which was 67% in 2014-15 decreased to 62% in 2015-16. Women borrowers constitute 97% of the total clientele of MFIs, SC/ST borrowers constitute 30% and minorities 27%. Of the total, NBFC-MFIs contribute to 85% of clients outreach and 88% of outstanding portfolio, while NGO MFIs contribute to the remaining. MFIs with portfolio size of more than `500 crore contribute significantly to the total outreach (85%) and loan outstanding (88%) of the sector. MFI sector employs 1,03,415 personnel, out of which 15% are women, and 62% are field staff. An active borrower per credit officer

25 (ABCO) is 440, which is higher than the previous year indicating higher focus on client services without much of staff growth. The CAR (Capital Adequacy Ratio) for all types of MFIs remained above the desirable level of 15%. NBFCMFIs have CAR of 20.1%. Leveraging of the sector was 3.2. The sector received a sum of `39,331 crore, which includes a portfolio sale of `8,834 crore. Total outstanding borrowing of MFIs stood at `44,822 crore, with a substantial share of this derived by NBFC-MFIs (97%) especially from the very large MFIs (87%). Financial inclusion is widely recognized all over the world, it has become a prioritized policy in many countries. Financial inclusion is an important part of the journey for a developing country like India which needs to travel a long way to reach the destination of economic wellbeing and become a global player. The Reserve Bank of India (RBI) during 12th Five-Year Plan made financial inclusion one of the top priorities for inclusive growth. Financial Inclusion provides a positive contribution towards economic growth. According to a study by IMF, if the quality of supervision is high then financial inclusion and financial stability can go hand in hand. In developing economies small sized firms face greater financial constraints as compared to the medium and large sized firms and as far as the advanced economies are concerned the results are same.the effect on growth increases as the financial deepening takes place. Where there is high access and the depth is lower the return to growth is much higher. Growth is much higher when financial inclusion is higher. If poor people are provided with the risk mitigation tools it will help in insurance. CONCEPT OF MICRO FINANCE INSTITUTIONS Microfinance is the provision of financial services to low-income clients or underprivileged people, who traditionally lack access to banking and related services due to the shortage of asset holding which could be presented as collateral security with the banks or formal financial institutions to avail the credit. It encompasses various functions like providing Micro credit, Micro insurance, micro pension, conducting workshops or various training programs to create awareness among rural people and increase the financial literacy in there target area. SCOPE OF THE STUDY The scope of the study is limited to the microfinance institutions in India. This study will help in understanding the trends in Number of MFIs scattered all over the country the quantum of outstanding loan state wise. Such quantum of outstanding loans in the country has been further studied in co-relation with the adjusted population of the country and number of MFIs state wise in the country. It would help in understanding the mutual relation between these three variables simultaneously. RESEARCH METHODOLOGY Secondary data has been collected from various published reports by regulatory & Self-regulatory bodies like RBI, MFIN, NABARD, SIDBI, MUDRA, World Bank, IMF and Census 2011. Apart from these other research papers, journals, articles have also been taken into concern for literature review. The adjusted population which has been used in the paper to find the trends and co-relation between variables has been adjusted using the formulae [population as per census 2011(1+ decadal growth rate state-wise*4.25)]. 4.25 as a multiplying factor has been taken to adjust the state-wise decadal rate of growth to adjust the figures for four years and three months i.e. 1 st January, 2012 to 31 st march 2016. All the calculations has been made on the data available till 31 st march 2016 due to non-availability of latest reports containing 2016-2017 database. RESULTS AND ANALYSIS A regional analysis of microfinance spread across the country, as discussed above, reveals a higher concentration in the southern states. The Southern states have been predominant in microfinance activities since the very beginning although in recent years microfinance network is spreading at a substantial rate in the eastern and central regions of the country. It compares the distribution of microfinance institutes in every state which is irrespective of the density of that particular state as well as the adjusted population. Table 1 shows the state wise data on population, state wise density in area km square and the number of MFIs in the given state. The unavailability of Microfinance Institutional spread in some Union territories ( Lakshadweep, Dadar & Nagar Haweli, Daman & diu, Andaman & Nicobar Islands) for the purpose of analysis has been taken as zero existence, though the outstanding loan of Rs.1crore has been given a due weightage in the further analysis. All the Southern States have recorded huge number of microfinance clients (in terms of dispersal of outstanding loan) as compared to the other states. Further the inter dependence between the existence of number of MFIs in every state in relation to the outstanding loan dispersal have been shown in figure 1.an attempt has been made to understand if any relation does exists between these two variables and correlation has also been calculated. The correlation between these variables stands insignificant. It could be inferred from the figures that Karnataka, Tamilnadu are the states which shows an outstanding financial score [as per FInclusix volume III] have the opposite trends than what the least scoring states have shown.

26 The comparison between the outstanding portfolio and the state wise density shows that the states having higher the density have the least credit penetration whereas the states having lower density per km square area have a high outstanding credit penetration. This fall in credit supply could be explained by the number of customers demands increases with the increase in density of a given area. This problem could be worked out by opening more MFIs in areas having high density and increasing the quantum of loans i.e. serving at par in every part of the country. The figure 3 shows a balanced relation between the adjusted population and quantum of outstanding loans dispersed. It indicates a significant relation between the variable namely quantum of outstanding loan dispersed state wise and the adjusted population of the state. A comparative study between Number of MFIs spread all over the states/union territories and the density of a given country shows that Karnatka, Tamilnadu, Uttar Pradesh, Maharashtra, Bihar, Madhya Pradesh, West Bangal, Odisha Kerala, Gujrat and some other states have higher the number of MFIs in relation to the density in comparision to other states like Delhi and Chattisgarh. At the same time both the groups of states have a mixed growth in turn. So, the number of MFIs in Comparison to the density does really not effects the performance of a given state. Table 1: State wise population & Microfinance penetration in 2015-2016 States/Union Territories Outstanding loan portfolio (in Cr.)# Number of MFIs*** Adjusted Population* Andaman and Nicobar Islands 1 ** 489 Andhra Pradesh 1,286 3 124,482 Arunachal Pradesh 49 2 2,909 Assam 1,013 10 53,659 Bihar 3,526 20 215,014 Chandigarh 25 21 1,822 Chhattisgarh 1,136 3 50,070 Dadra and Nagar Haveli ** ** 1,155 Daman and Diu ** ** 796 Delhi 559 8 31,743 Goa 23 4 1,966 Gujarat 2,193 15 109,682 Haryana 1,186 14 46,792 Himachal Pradesh 23 5 10,602 Jammu and Kashmir 4 1 25,178 Jharkhand 977 17 64,308 Karnataka 12,645 20 101,783 Kerala 2,372 9 40,306 Lakshadweep ** ** 81 Madhya Pradesh 4,088 25 135,286 Maharashtra 6,589 31 188,741 Manipur3 134 1 5,120 Meghalaya 29 6 6,475 Mizoram 170 2 2,159 Nagaland 4 1 1,939 Odisha 3,339 14 66,895 Puducherry 201 9 2,718 Punjab 1,116 7 43,932 Rajasthan 1,368 16 131,009 Sikkim 34 2 932 Tamil Nadu 9,039 15 119,980 Tripura 70 5 5,977 Uttar Pradesh 6,671 19 370,416 Uttarakhand 577 13 18,303 West Bengal 3,406 14 145,314 ALL INDIA 63,853 332 2,118,633 Source : # Sa-dhan, The Bharat Micro Finance Report 2016Author's Computations ***Micrometer, MFIN Feb. 2017 * Author's Computations ** Data Unavailable

27 Figure 1: Corelation between Existing number of MFIs and total outstanding Loan Portfolio (In Crores) Figure 2: Comparison between Outstanding loan Portfolio (in Crore) & Population Density

28 Figure 3: Correlation between Adjusted Population and Total outstanding Loan Portfolio (In Crores) Figure 4: Comparison between MFIs & Population Density

29 CONCLUSION In the light of various inter relationship studied in the last section it was found out that the distribution of the number of MFIs in the country is unevenly scattered that has caused a huge loss to the balanced inclusive growth agenda. The MFIs have been located in such a manner that it doesn t boosts the balanced credit penetration all over the country as it has been shown the last section that there is no such significant relation between the number of MFIs or the quantum of outstanding loans with the density or the adjusted population of the country. It may be used to explain the reason why some states like north-eastern states has very low outstanding loans portfolios as compare to the southern states in India. [10] Dhar, P.(20156) Microfinance Penetration in India: a state wise analysis International journal of interdisciplinary research in science society and culture, vol.2(2). [11] Christabell, P.J. & Vimal, Raj A. (2012) Financial Inclusion in Rural India: The role of Microfinance as a Tool, IOSR Journal of Humanities and Social Science, 2(5): 21-25. LIMITATIONS AND SCOPE OF FURTHER STUDY The data has been collected through secondary source only. State level data has been used due to time constraints, in depth study could be conducted. The microfinance Industry could be further studied on district level and MFIN database could be used for the same. There is huge scope for research lies in this area, more independent catalysts could be identified and studied. REFERENCES [1] Sa-dhan, The Bharat Report 2016, NABARD [2] Handbook of Statistics on Indian States, RBI 2015-2016 [3] Directory of Microfinance Institutions in India, Version I, Sa-dhan 2014. [4] Status of Microfinance in India, 2015-2016, NABARD. [5] MFIN annual report 2015-16, MFIN. [6] Micrometer, feb. 2017, MFIN [7] SAMN Conference Report 2015-2016 [8] Consensus 2011, India [9] Shrivastawa. D. Singh, R.(2016). Microfinance and its role in Economic Development of India, Journal of Madhya Pradesh Economic Association, vol.xxvi.