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New Challenges in Microfinance – Raised Expectations. The story so far. Fast annual growth of about 45% Total outstanding of over $ 2 billion Over 3 million families have access to financial services A wide variety of institutions as well as operating models
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The story so far • Fast annual growth of about 45% • Total outstanding of over $ 2 billion • Over 3 million families have access to financial services • A wide variety of institutions as well as operating models • Viable business well supported by commercial Banks/regional rural banks • Very low defaults with PAR>60 days at 1.77% • Operating cost ratio at 15.43% (Asain ratio at 18.7%) with average OSS at 105%
More recent developments • New investors interest- Four mf venture funds-Bellwether, Lok capital, Unitus, Aavishkar • New equity funds from NABARD/SIDBI • Special focus on underserved States • The microfinance sector (development & regulation) bill-2007 • Increasing competition • Coverage of urban poor • New national enthusiasm in microfinance platform
Support infrastructure • Effective coordination & networking role of Sa-Dhan- a network of about 200 MFIs • Two rating institutions of repute • Four nurturing/financing institutions for start ups • Around 10 capacity building institutions • Microfinance now an integral part of rural finance courses in management institutions/universities • State level CB institutions in making
The new challenge • Andhra crises in 2006 has raised several issues • Question behind the basic objective of microfinance. • The major issue of reasonable (effective) interest rate • Demand for holistic support to clients • Objection to the no tolerance policy towards defaults
The new challenge (cont.) • Effectiveness of microfinance in poverty reduction • Demand for social security cover for clients such as life, health & asset insurance, old age pension etc • Demand for micro-enterprise & livelihood support services for MF clients • Higher individual loans to mature Mf clients & non poor not served by the formal sector
The challenge of governance • Transparency in operations & reporting • Ethical practices & better treatment to clients • Composition of Board & its ability to lead • Family hold on the institutions • Weak second line of management • Increasing competition • Inadequate MIS & internal audit system not compatible with fast growth
HRD challenge • No regular supply of trained manpower yet • Reliance on adhoc in-house training infrastructure • Substantial investment required in building professionals/consultants • Development of faculty • Absence of books/literature on good practices/indian case studies
Equity challenge • No concept of net owned funds • Very little promoter/community stake • Partnership model/Banking correspondent no good substitute to adequate debt equity ratio • Bankers now showing signs of reluctance for large loans for low net worth institutions • Proposed legislation unfortunately favour non- corporate community structures
Some other challenges • The gender challenge • The efficiency challenge • The regulatory challenge • The technology challenge • The livelihood challenge • Client education challenge
Conclusion • Microfinance gradually melting into national mainstream as a cost effective welfare tool for poor, women, tribals, underserved- much more than a much needed financial service to all those left out by the formal sector