Presentation at ICRIER s Financial Sector Seminar 5th February 2008, 12.30pm Microfinance in India: What do we know? by Mathew Titus, Executive Director Sa-Dhan
Presentation Outline 1 Microfinance Sector overview over trends of gross loan portfolio and customer volumes and impact 2 Microfinance providers what are there profiles, how will they change? 3 Way forward Properties and range of current and future Microfinance products
1 mf Sector Along with increased income, microfinance clients have diversified their income sources, assets and loan-purposes (investments). % of Clients who report increased (+) or decreased (-) income 100 75 50 25 0-25 -50-75 -100 Agriculture Animal husbandry Non-Farming Income
1 mf Sector REGIONAL SPREAD OF SHG BANK LINKAGE 3% 6% 5% 1% 9% 76% Nort h Cent ral West ern N.E. East ern Sout hern
1 mf Sector Supply of Microfinance (March, 2007) Total Mf Channel Self-Help-Groups (SHG)- bank linkage Microfinance Institutions (mfis) No. of active loan clients (lakhs) 64 104.94 168.94 Amount of outstanding loan portfolio (Rs. Cr.) 7,081.50(64) 3,987.10(36) 11,068.60
1 mf Sector 184 Sa-Dhan-member-MFIs serve over 1m clients 12000 10000 8000 6000 4000 2000 0 2001200220032004200520062007 4500 4000 3500 3000 2500 2000 1500 1000 500 0 No. of Contributing MFIs No of active loan clients ( 000) Amount of Outreach (Rs in cr.)
1 mf Sector Yet, the lion s share of financial services is still! sourced from informal providers. Co-operative Cooperatives society Microfinance Micro finance Institutions institution Self Self-help group Groups 0 50 100 150 200 250 300 Out standing Loan aggregates (in Rs. Cr.) of loan taken in past 2 years Formal Finance Formal + Semi-Formal Microfinance Informal Finance
1 mf Sector Moneylenders remain a stronghold of financial service provision Aggregate Outstanding debt with Moneylender (Rs. Cr) 2007 1,384 8,244 22,101 7,236 783 955 All India: 40703 North Central West Northeast East South
2 mf Providers Formal microfinance is provided under various legal formats, mutual benefit; not for profit; for profit
2 mf Providers Sa-Dhan-members engage successfully in various lending models
2 mf Providers All lending models show a number of common characteristics Group Loan Methodology Maximum Amounts per Loan Cycle Pre-dominant properties of MFI-loans No Physical Collateral Weekly or Bi-weekly repayment Proximity to Borrowers home
2 mf Providers However, customer priorities challenge micro-credit features Interest Rates Privacy Manageable Installments Speed of Loan Approval Interest Rates Manageable Installments time Loan disbursment 1 month 2 month 4 month 6 month 10 month 12 month
3 Way forward Four considerations four shape and opportunities of microfinance In principle, the group-lending contract provides a way to achieve efficient outcomes even when the lender remains ignorant or unable to effectively enforce contracts. Our belief is that the future of microfinance rests in understanding alternative mechanisms, taking them apart, reconfiguring them, and, possibly, combining them with new, emerging ideas. Progress could be made by experimenting with different mechanisms in a way that would allow researchers to properly infer causality-say, by using different methodologies in different, randomly chosen branches.
3 Way forward Beyond micro-credit The demand for low-frequency saving can remain important-and this should inform the design of new savings products. The new market too for remittances has yet to built up The new pension products, which have been very popular in the first few years since their introduction in 2000, are a case in point. The micro-credit experience also shows the importance of enterprise related linkages and strong institutions. Regulation and Diversification are thus far more imperative when it comes to savings and insurance.
Way Forward Choice is accepting entrenched views or exploring new dimensions!! Framework within which we learn to understand household demand vis-à-vis investments in consumption and income generation. Investigation into understanding what it takes for these households to participate in financial markets; attributes of products, lemons etc. How do we build effectiveness, especially for the poorer, more sparsely populated regions, with poorer connectivity. How do we use subsidies and build sustainability in the massive roll-out of gov.sponsored programs Finally, the promise of technology, and infrastructure. How can it be realised?
Presentation at ICRIER s Financial Sector Seminar 5th February 2008, 12.30pm Thank you very much for your attention I am looking forward to answering any questions Mathew Titus, Executive Director Sa-Dhan Tel. 011-65650787 info@sa-dhan.org