MICROFINANCE PAPER WRAP-UP: “Map of Microfinance Distribution in India” by Amulya Krishna Champatiray, Parul Agarwal and Santadarshan Sadhu; published by the Centre for Micro Finance (CMF)

By Amulya Krishna Champatiray, Parul Agarwal and Santadarshan Sadhu; published by the Centre for Micro Finance (CMF); 2012; 41 pages; available at: http://www.centre-for-microfinance.com/wp-content/uploads/2012/02/Updated_Final_Report_Map_of_Microfinance_Report_CMF_June27.pdf

This report summarizes the findings of an initiative that gathered information on the portfolios, products and business correspondents of 103 microfinance institutions (MFIs) across India. In addition, the project gathered state-level data on savings and loan balances through sources such as the Micro Credit Innovation Department (MCID) at the government-backed National Bank for Agriculture and Rural Development (NABARD). This data was used to create a map of the levels of – and changes in – microfinance penetration in India over four years.

The study indicated that as of March 2010 Indian MFIs served over 24 million clients, who collectively have approximately INR 19,676 crores (USD 3.6 billion) in loans outstanding. For-profit MFIs account for roughly 90 percent of these outstanding loans. An additional 81 million people are currently receiving financial services from NABARD’s Self Help Group (SHG) Linkage Program, an initiative launched in 1992 that is intended to increase the penetration of microfinance services in India through SHGs, groups often made up of a few dozen women that work together to save, borrow or both.

The authors found that the penetration levels of Indian MFIs differ greatly throughout the country. The majority of microfinance services are concentrated in the southern region of India, which is home to 52 percent of microfinance client outreach documented in the study and 54 percent of microfinance loan portfolio holdings. People in the northeastern, central and northern regions of India have less access to microfinance services; these regions are home to 2 percent, 2 percent and 8 percent of microfinance clients respectively.

SHGs exhibit a similar degree of regional imbalance, with the southern region of India accounting for 52 percent of SHG outreach and 68 percent of the value of SHG loans. Disproportionately fewer SHGs are served in the northern, northeastern and central regions, which account for between 3 and 9 percent of client outreach and 2 and 8 percent of loan portfolios. The penetration of SHGs is also disproportional, with 61 percent penetration in the southern region. The other regions have penetration rates of between 10 and 22 percent.

The authors note that the number of districts served by Indian MFIs has “increased dramatically” each year since 2008. The number of clients served by Indian MFIs has also increased each year, especially in the southern and eastern regions.

The report finds that the most popular product offered by Indian MFIs is productive loans, which are intended to be used for purposes such as starting a business. Other popular types of loans include consumption and emergency loans, which 30 percent of Indian MFIs offer, and housing loans, which 15 percent of Indian MFIs offer. Nearly 60 percent of Indian MFIs offer life insurance products although the authors do not indicate how many of these offer voluntary insurance.

The report concludes that the southern region of India is home to the majority of microfinance services, exhibiting the greatest degree of penetration and service offerings of each of the regions of the country. People in regions with lower socioeconomic status have less access to microfinance services. Despite this imbalance, the authors argue that the microfinance sector shows evidence of “extraordinary achievement in terms of growth in the penetration of the sector.”

The report was sponsored by Bankers’ Institute of Rural Development (BIRD) at the National Bank for Agriculture and Rural Development (NABARD).

By Makai McClintock, Research Associate

About Bankers’ Institute of Rural Development (BIRD)
Bankers’ Institute of Rural Development (BIRD) was established in 1983 by the National Bank for Agriculture and Rural Development (NABARD) to provide training, research, and consulting services in the fields of rural development banking and agriculture in India. BIRD provides research, training, and consulting services to governmental and non-governmental organizations in the areas of rural credit and rural development. BIRD oversees the Centre for Microfinance Research (CMR), which is responsible for facilitating policy initiatives and researching improvements in the design and delivery systems of microfinance services.

About Centre for Microfinance (CMF)
Centre for Microfinance (CMF), one of the many research centers of the nonprofit Institute for Financial Management and Research (IFMR), was established in Chennai, India, in 2005. The mission of the center is to improve the accessibility and quality of financial services for poor people through research, knowledge dissemination and evidence-based policy development for microfinance institutions (MFIs). CMF partners with MFIs, banks, training institutions and academic institutions to conduct research in four main areas: (1) impact evaluation of credit and savings products, (2) how to integrate microfinance with other development interventions, (3) insurance and innovative products, and (4) sector-wide and policy issues, such as regulation and the impact of competition. CMF’s MFI partners include The Activists for Social Alternatives (ASA), Bandhan, Spandana, SKS Microfinance, Sonata, Grameen Koota and others.

About Institute for Financial Management and Research (IFMR)
Institute for Financial Management and Research (IFMR) is an Indian nonprofit organization whose mission is to facilitate universal access to financial services in rural India. Established in 1970, IFMR focuses on the following areas: academic programs, research, executive training and consulting. Its affiliated research centers include: Centre for Micro Finance (CMF), Centre for Development Finance (CDF), Small Enterprise Finance Centre (SEFC), Centre for Insurance & Risk Management (CIRM), Center for Advanced Financial Studies (CAFS), Centre for Innovative Financial Design (CIFD) and Jameel Poverty Action Lab (J-PAL).

About National Bank for Agriculture and Rural Development (NABARD)
The National Bank for Agriculture and Rural Development (NABARD) is a development bank in India that formulates the credit and banking policy for the rural sector, supervises and conducts on-site inspections of cooperatives and regional rural banks (RRBs) and promotes the development of microfinance activities in the rural sector. NABARD is charged with the oversight of the Microenterprise Development Programme, which focuses exclusively on the development of microenterprises. Through this program and the Microfinance Development and Equity Fund, an INR 2 billion (USD 44.6 million) fund designed to support the growth of microfinance, NABARD provides loans to nongovernmental organizations, nonprofit microfinance institutions (MFIs) and agricultural lending outfits. NABARD was formed by an act of the Indian Parliament in 1979 based on the recommendation of the Reserve Bank of India (RBI), which originally owned a controlling interest in NABARD but as of 2010 owns a 1-percent stake in the bank. While MFIs and non-banking financial companies still operate under RBI regulations, the responsibility for inspecting nonprofit MFIs, agricultural lenders, RRBs, state cooperative banks, district central cooperative banks and state cooperative agricultural and rural development banks was transferred to NABARD upon its formation in 1979. As of March 2011, NABARD oversees 31 state cooperative banks, 370 district central cooperative banks, 86 RRBs and 18 state cooperative agricultural and rural development banks. Between March 2011 and March 2012 NABARD’s aggregate assets increased by INR 235 billion (USD 4.3 billion) to INR 1.8 trillion (USD 33.3 billion). During the 2011-12 year NABARD promoted and linked 730,000 SHGs with the formal banking system via savings accounts compared to 600,000 in the previous year.

Sources and Additional Resources

“Map of Microfinance Distribution in India”; Centre for Micro Finance; 2012; http://www.centre-for-microfinance.com/wp- content/uploads/2012/02/Updated_Final_Report_Map_of_Microfinance_Report_CMF_June27.pdf

MicroCapital.org story: “MICROCAPITAL BRIEF: Private Equity Firms Investing in Indian Microfinance Institutions (MFIs) After Two-year Hiatus”; Published November 13th, 2012; https://www.microcapital.org/microcapital-brief-private-equity-firms-investing-in-indian-microfinance-institutions-MFIs-after-two-year-hiatus/

MicroCapital.org story: “MICROCAPITAL BRIEF: Indian Government Publishes Draft of Microfinance Institutions Bill, Would Make Reserve Bank of India (RBI) Sole Regulator, Establish Microfinance Development Council, Microfinance Development Fund”; Published August 15th, 2011; https://www.microcapital.org/microcapital-brief-indian-government-publishes-draft-of-microfinance-institutions-bill-would-make-reserve-bank-of-india-rbi-sole-regulator-establish-microfinance-development-council-microfinance/

MicroCapital.org story: “MICROCAPITAL BRIEF: MFTransparency Launches Pricing Data Report on India’s Microfinance Industry”; Published February 4th, 2011; https://www.microcapital.org/microcapital-brief-mftransparency-launches-pricing-data-report-on-indias-microfinance-industry/

MicroCapital.org story: “MICROCAPITAL BRIEF: After Reserve Bank of India Caps Microfinance Institution Interest Rates at 26%, Investors Eye Non-Banking Financial Companies”; Published December 19th, 2012; https://www.microcapital.org/microcapital-brief-after-reserve-bank-of-india-caps-microfinance-institution-interest-rates-at-26-investors-eye-non-banking-financial-companies/

MicroCapital Universe Profile: NABARD
https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=National+Bank+for+Agriculture+and+Rural+Development+%28NABARD%29

MicroCapital Universe Profile: BIRD
https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Bankers%27+Institute+of+Rural+Development+%28BIRD%29

MicroCapital Universe Profile: CMF
https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Centre+for+Micro+Finance+%28CMF%29

MicroCapital Universe Profile: IFMR
https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Institute+for+Financial+Management+and+Research+%28IFMR%29

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