Spreading wings


In the last few years, microfinance institutions are moving to new business ecosystems

mfisThere is good news for the microfinance sector in our country. The gross loan portfolio (GLP) has seen an impressive growth in the quarter ending in September 2015 (Q2 FY 2015-16). According to MFIN Micrometer, GLP stood at a Rs. 36,660 cr as compared to 20,879 cr during the same quarter last year. Experts believe that this surge in business is primarily attributed to the positive business environment and favorable regulations.

The report further says that the productivity ratios for MFIs continued to move upwards. Average GLP per branch as on Sep 30, 2015, stood at Rs 4.25 cr, up by 51 per cent over Q2 financial year 14-15 and average GLP per loan officer is now Rs 81 Lakhs, 36 per cent more from the last year. This indicates that a segment of our society that is overlooked by the banking sectors, is being addressed very successfully by MFIs.

It is also interesting to see that MFIs are now foraying into new business ecosystems, like into secured loans (housing) and green funding (e-rickshaws & solar lamps). While it is too early to say whether the model will succeed, but it will be rather interesting to see MFIs operating in that segment. Many argue that economic well being brings about new needs in a society, and that need should be addressed too by the existing economic models. Like a small and poor household needs not only job, but a place to live in too. Therefore financial institutions need address that need too. This could be good for both parties. Furthermore, needs of a society is localized and the set of services it wishes to avail could be unique. For instance, an unemployed youth living somewhere in suburban Delhi will have some unique employment opportunities and living requirements. An MFI working in this particular area would be familiar with such opportunities and could such customer better.

Greater product diversity—in particular the extension of microfinance services beyond a single microcredit product and, more broadly, beyond microcredit in general—will indicate that these financial institutions are meeting a greater range of client needs. Availability of a wide variety of financial products and services tailored to client needs is beneficial to clients.

Eighty-eight per cent of Indian MFIs offer more than one credit product. However, the cause for concern is that the reported credit products still have features identical to the core products with weekly installments and a short duration, making new product ill designed to begin with. Reporting on the product variety should take into account the purpose, size, loan term, and repayment schedule.

According to Access ASSIST Survey, 2013, 89 per cent loans are for livelihoods, followed by 4 per cent each for health & housing, and other consumption; investment needs account for only 3 per cent of the portfolio. This seems to be more a reflection of inadequate product diversity from the supply side than weak demand for credit of different types.

ASSIST survey shows that the number of MFIs offering need-specific loans such as water and sanitation and education are increasing compared to last year. The Enterprise/IGA loans that constitute 80 per cent of portfolio are not differentiated to accommodate the differing nature of the diverse range of enterprises carried out by poor. Compounding the lack of savings options for Indian microfinance clients is the relative paucity of MFIs offering savings facilitation services. It is heartening to see that Indian MFIs provide voluntary insurance to their clients more frequently than South Asian MFIs generally. In terms of options, over 70 per cent of these voluntary insurance offerings go beyond credit life insurance, 27 per cent include health insurance, and 20 per cent include agricultural insurance.