EMERGING TRENDS IN INDIAN

MICROFINANCE INDUSTRY; ROLE OF

FINANCIAL TECHNOLOGY AND INCLUSIVE
POLICIES

Dr. M. Ravindar Reddy

Mr. Muhammed Shafi.M.K
 INTRODUCTION
 The Indian microfinance industry has been a strong
enabler of financial inclusion of underserved and
unbanked people in India..

 After the mission of Pradhan Mantri Jah-Dhan Yojana

(PMJDY) in 2014, financial inclusion is vigorously
promoted to ensure delivery of banking services at an
affordable cost to the vast sections of the unbanked
group.
 Subsequently, The Government of India and Central
Bank (RBI) reaffirmed the role of Microfinance
Institutions (MFIs) in financial inclusion by introducing
NBFC-MFIs guidelines, Priority Sector Lending (PSL),
promoting MFIs as Business Correspondents (BC) of
banks and launching of MUDRA bank due to its easy
viability and wide range beneficiaries across the country.
 INTRODUCTION-CONT....

 Nowadays banks also concentrate on Microfinance sector

with different schemes and corporate sector considered
Microfinance as a mode to fulfill the corporate social
responsibility (CSR).
 After the recent movement of the Indian government
towards demonetization (8th Nov-2016) and Andra
Pradesh Microfinance crisis happened in 2011, this
sector is dropping large collections and experienced loan
defaults due to the cash crunch.
 Hence, this study explores emerging trends in
Indian Microfinance due to impact of policy
reforms, financial technology (Fintech) and
banking initiations.
 BREAKING DOWN THE TITLE
 New Financial Inclusion Policies and Initiatives:-

1-PMJDY (Pradhan Mantri Jan Dhan Yojana) (Declared on

15th Aug-2014)
2-Digital India (Launched on 2 July 2015)
3-Derived Trends towards Digitalization after
demonetization Drive (Declared as on 8th Nov-2016).

Financial Technology (Fintech):-

--Use of Micro ATMs (Point of Sale device-POS)

--Digital Transactions
 REVIEW OF LITERATURE
1-CARE Rating (2017) on post demonetization impact

2-Villasenor, D & West, M (2016)- an analytical study

based on financial inclusion of 21 countries across four
dimensions of financial inclusion which are 1-country
commitment, 2-mobile capacity, 3-regulatory
environment, and 4-the adoption of traditional and
digital financial services.

3-Sa-Dhan (2015)-The Bharat Microfinance Report

4-Ravi, S & Gakhar, S (2015)- financial inclusion

programs like PMJDY and suggests further steps to
carry out complete financial inclusion other than
PMJDY.
SL Author, Year
No and title of Review
Material
CRISIL Inclusix India’s first comprehensive measure of FI in the
(2015) form of an index based on three parameters such as
branch penetration (BP), deposit penetration
(DP), and credit penetration (CP) , shows that,
5 the all-India CRISIL Inclusix registered a score of
50.11 on a scale of 100 at the end of fiscal 2013.
There are nine districts in India with CRISIL
Inclusix score of 100 and 82.0 crore total saving
bank accounts exist in India (As of 2013).
The Microfinance This report was organized to examine the 2012 bill
Institutions, passed by lokh Sabha and reviewing the
(Development different approaches pertaining to Financial
and Regulation) Inclusion and Microfinance on the basis of
Bill, 2012 previously issued reports by various
6 published in committees and organizations like Ministry of
2014 Finance (Department of Financial Services); State
Government of AP, RBI, NABARD, Small Industries
Development Bank of India (SIDBI); All India
Democratic Women Association (AIDWA), MFIs and
Experts.
SL Author, Year
No and title of Review
Material
NABRD As per NABARD report 2013-14, As of 31 March 2014,
Report (2014). there were 74.30 lakh saving linked SHGs with a
Status of bank deposit of Rs 9897 crore and 41.97 lakh credit
microfinance linked SHGs with bank loan outstanding of Rs 42928
in India crore.
2014-15 Though the number of savings linked SHGs increased
marginally by 1.5 % (1.12 lakh) during 2013-14 over
previous year. The savings deposit with banks shot up
7
by 20.4 % (Rs.1,680 crore) during the same period.
Approximately 70 % of the savings mobilised from
members by SHGs is used for internal lending.
During 2013-14, 13.66 lakh SHGs were provided credit
assistance amounting Rs 24017 crore by banks. During
2013-14, in south region itself, 8.75 Lakh SHGs
financed by Banks, whereas, 13.66 lakh SHGs in
overall region in India.
SL Author, Year
No and title of Review
Material
Report- This report reviewed the theoretical and overall
C. performances of different financial inclusion
Rangarajan programs like SHGs, SBLP, RRBs, Local Area
8 (2008) Banks, MF-NBFCs, Use of PACS and other
Financial Primary Cooperatives as Business
Inclusion Correspondents, Technological applications in
the field of FI, Micro-Insurance.

Article In his study, he introduced four globally accepted

John D microfinance models. The model that has
Conroy (2003) popularized the above methodology and has been
replicated in many countries in a wide variety of
settings is the Grameen Bank model. A second
model that has been widely replicated mainly in Latin
9
America and Africa is the Village Bank model.
The third type of MF model is a Credit Union (CU).
A CU is based on the concept of mutuality.
Association of Persons, ROSCA it is a simple way
for providing micro loans is forming association of
persons.
PROBLEM IDENTIFICATION AND RESEARCH GAP
 Many studies discussed different aspects of financial
inclusion and Microfinance especially on Self Help
Groups, NBFC, BC models etc with respect to Indian
scenario.
 This study is mainly done to investigate holistic
approaches in Microfinance ecosystem due to the impact
of financial technology.
 Furthermore, none of the studies did cover recent
trends and dynamism taken place in Microfinance
sector especially based on banking initiatives in
this sector after the PSL provision.
 Thus, the objectivity of the study was formulated to
throw light on such kind of unexplored areas.
 OBJECTIVES OF THE STUDY

 To explore the new paradigm shift in Microfinance

sector as the part of financial inclusion in India.

 To assess the performance of Microfinance and to

analyze the impact of financial technology (Fin Tech)
on this sector.
 RESEARCH METHODOLOGY

 The study is a qualitative assessment and

quantitative analytical study based on new trend
and patterns occurred in operational methods of
Microfinance.
 The study is exploratory research in nature,
therefore data have been collected through secondary
sources mainly from PMJDY website, Bharat
Microfinance report etc. To analyze the data, linear
regression was employed with the help of SPSS.
 WHAT IS MICROFINANCE
 Malegam Committee (2011) defined ―Micro Finance as follows:- Micro
Finance is an economic development tool whose objective is to assist the poor
to work with their way out of poverty. It covers a range of services which
include, in addition to the provision of credit, many other services such as
savings, insurance, money transfers, counseling, etc…..
 Clause 2 (j) (A) of Microfinance Bill, 2012 says micro credit facilities involve
such amount, not exceeding Rs.5 lakh for each individual and for such special
purpose as may be specified by RBI.

Legal Structure of MFIs

A microfinance institution under the Microfinance Institutions
(Development and Regulation) Bill, 2012 and C. Rangarajan Report
(2008) defined as “an organisation or association of individuals
including the following
•A society registered under the Societies Registration Act, 1860
•A company registered under section 3 of the Companies Act, 1956
 LEGAL STRUCTURE OF MFIS-CONTIND..
 A trust created under the Indian Trust Act,1880 or public trust
registered under any State enactment governing trust or public,
religious or charitable purposes. Eg NGOs
 A cooperative society / mutual benefit society / mutually aided
society registered under any State enactment relating to such societies
or any multistate cooperative society registered under the Multi State
Cooperative Societies Act, 2002
 Section 25 Companies 1956 (not-for profit)
 Cooperatives registered under the conventional state-level cooperative
acts, the national level Multi-State Cooperative Societies Act (MSCA
2002), or under the new State-level Mutually Aided Cooperative
Societies Act (MACS Act);
 A body corporate or any other organisation, which may be specified
by the RBI if the object of the institution is the provision of
microfinance services.
 OUTREACH AND PROFITABILITY PERFORMANCE
MICROFINANCE INSTITUTIONS

Performance of MFIs 2016 2015 2014 2013 2012

Client Outreach (in 399 371 330 275 268
Lakh)
Rural Clients (%) 38 33 56 67 52

Number of Branches 11644 12221 11687 10697 12000

ROA (%) 2.2 1.73 1.94 1 2.61

ROE (%) 11.6 8.19 9.25 4.8 7.64

No of SHGs Linked (In 79.03 77.12 74.29 73.17 -

Lakh)
Operating Expense 10.2 11.45 12.08 12.00 10.90
Ratio (%)

Source: Sa-Dhan. Consolidated data from the Bharat Microfinance reports 2016-12
 Microfinance outreach (Region wise)
Microfinance outreach in India
Regions South East Central West North North-East
Percentage
50% 25% 10% 7% 4% 4%
of Outreach
Microfinance outreach in India

4%
6%

8%
South
East

10% Central
49%
West
North
North-East

23%

Source: Sa-Dhan Bharat Microfinance Quick Report 2012

Top Ten Microfinance Institutions in India Based on
Client Outreach

50
46.37 46.23
45
40
36.34
30.5
35
27.44
30
25 20.57 18.51
20 13.28 12.06 10.68
15
10
5
0

(Figures in Lakh)
 Top Ten Microfinance Institutions in India
with Branch Network
1200

1000

800
Lakh

600

400

200

0
SKS SML Spanda Cashpo Ujjivan Satin Equita AML Janala
na r Creditc s kshmi ,
are Utkars
h
Series1 1191 697 523 494 469 431 397 380 341

SKS Microfinance Ltd was founded in 1998 and has become a leading brand
and largest Microfinance Company which operates in 19 states with 20,000
employees. Company has Headquarter in Andhra Pradesh and listed in both
BSE and NSE
 NEW PARADIGM SHIFT IN MICROFINANCE
SECTOR
 Moving into Banking Industry:-Bandhan Bank Ltd,
which is an Indian banking and financial services company
headquartered in Kolkata. Bandhan, which started as
a micro-finance company in 2001, received banking license
by Reserve Bank of India in 2014.
 Corporate sector also considered Microfinance as a mode to
fulfill the corporate social responsibility (CSR) and to
promote welfare and economic growth in unbanked and
remote areas. Pertaining to this, the founder of Ratan Tata,
Nandan Nilekani and Vijay Kelkar decided on August
2016 to team up for establishing ‘Avanti Finance’ to provide
loans and advances to poor.
 SEBI to do an IPO in 2015:-
1-Equitas microfinance, to raise up to Rs 600 Crore,
2-Some analysts estimate that ESAF Microfinance’s IPO
would rise between Rs 1000 -1500 crores.
 PARADIGM SHIFT IN MICROFINANCE
 State Bank of India set up a specialized micro-finance
branch in Asia’s largest slum area, Dharavi in 2010

 The launch of MUDRA (Micro Units Development and

Refinance Agency Bank) and Pradhan Mantri Mudra
Yojana (PMMY) by the Hon’ble Prime Minister on April 08,
2015 is one of the historic events of the year and is the
landmark initiative in the financial inclusion landscape.

 The data submitted by MUDRA indicates a total of 39

NBFC–MFIs and 33 non-NBFC–MFIs for FY 2015–16
suggests a disbursement of `45,904 crore worth of Mudra
loans. Disbursements by MFIs was topped by SKS
Microfinance Ltd (now, Bharat Financial Inclusion Ltd)
with `11,856 crore followed by Janalakshmi Financial
Services Limited extending `10,596 crore, (PP 26, MUDRA
Annual Report, 2015-16).
Banks Initiatives in the Field of Microfinance
•Business Correspondent (Almost all Banks)
•SHG Bank Linkage Program (All banks especially NABARD)
•Primary Agricultural Credit Societies (Cooperative Banks)
•Opening of specialized Microfinance branches (SBI, PNB initiatives)
•Micro-mutual funds (Micro SIP of Axis Bank)
•Rural and Agricultural Banking (SBT)
•Micro Credit, Micro Insurance, Micro Savings (ICICI Banks)
•SHG Credit Cards and SHG Gold Cards (SBT initiatives)
•Apna Saving Accounts (ICICI initiatives)
•YES SAMPANN and Microfinance Institutions Group (MIG) for
Financial Growth (YES Bank Initiatives)
•Micro Finance (ICICI Bank, in the form of Term loan, Overdraft and
Portfolio Buyout facilities.).
WHY DO BANKS OPERATE IN MF SECTOR

Priority Sector Lending: Priority sector lending is a government

initiative which requires banks to allocate a percentage of their
portfolios to investment in specified priority sectors at concessional
rates of interest.
As on 17.10.2012, RBI issued special regulation on “Priority Sector
Lending” of Banks, which includes following categories.
(i) Agriculture
(ii) Micro and Small Enterprises
(iii) Education
(iv) Housing
(v) Loan to Self Help Groups
(vi) Others ( Mainly Weaker section)

Competition & CSR

IMPACT OF DEMONETIZATION ON MICROFINANCE
SECTOR
 Microfinance is an Industry with 60,000 crore
where almost all the transactions carried out in
the form of cash. The decision to demonetizing the
Indian currencies of 1000 and 500 taken on 8th, Nov,
2016 by PM of India drastically hurtled on tiny and
small scale sectors which are contributing much to the
Indian Microfinance sector.
 Due to non-availability of cash during post
demonetization, Some MFIs like Bandhan Bank have
stopped all loan disbursements for a week and
borrowers were in liquidity crunch and they were
not in a position to serve their loans which led to delay
and huge drop in collection rates (Care Rating, 2017).
 COLLECTION AND DISTRIBUTION IN MF SECTOR
DURING PRE AND POST PERIODS OF
DEMONETIZATION
1 Nov to 7 Nov to 14 Nov to 21 Nov to 28 Nov to 5 Dec to
Parameters
6 Nov 13 Nov 20 Nov 27 Nov 4 Dec 11 Dec
Collection
99% 83% 80% 109% 92% 86%
Efficiency
Disburseme
nt as % of 80% 50% 64% 82% 85% 34%
collection
Source: CARE Ratings; Note: Data compiled from 11 NBFC-MFIs

The above table (Table-2) demonstrates that there is slow down in collection
efficiency during post periods which are 92% on 28th November and very less during 5-11
December period (86%). Disbursement also was disrupted very much during 5-11
December period which steeply sloped to 34%, whereas it was 60-65 at average level
during pre demonetization period.
 USAGE POINT OF SALE (POS) AND MFI
CLIENTS

Descriptive Table of Data

POS & MFI Clients 2015-16 2014-15 2013-14 2012-13 2011-12

POS Usage -Credit Cards

785.67 615.12 509.08 396.61 319.96
(In Million)
POS Usage -Debit Cards
1,173.61 808.09 619.08 469.05 327.52
(In Million)
MFI-Client Outreach (in
39.9 37.1 33.0 27.5 26.8
Million)
Total Number of POS
1385668 1126735 1065984 854290 660920
Transactions (In actual)
MFI-Client Outreach (in
39.9 37.1 33.0 27.5 26.8
Million)

Source:- RBI Bulletin-April, 2017-12

 STATISTICAL TEST
 There is no significant difference between penetration of MFIs
Client Outreach and Usage of POS for digital transactions.
Table-3: Model Summary
Model R R Square Adjusted R Std. Error
Square of the
Estimate
1 .967a .936 .914 150.11745
a. Predictors: (Constant), Client Outreach

Table-4: ANOVAa
Model Sum of df Mean Square F Sig.
Squares
Regression 980832.452 1 980832.452 43.524 .007b
1 Residual 67605.750 3 22535.250
Total 1048438.201 4
a. Dependent Variable: POS
b. Predictors: (Constant), Client Outreach
 CONCLUDING OBSERVATIONS
 Great Impact:- Microfinance is considered as one of the
paramount mechanism for financial inclusion as
flagship program to poverty alleviation. The recent
entry of Banks and Corporate sector into this sector
show the positive impact of this sector on rural economy.
 Apart from conventional SHG and NBFCs
programs, new avenues have been emerged as post
impact of banking interventions in Microfinance sector
like Business correspondent programs, SHG-Bank
linkage programs etc.
 Moreover, Central and state governments also
played key roles by setting up refinancing and
regulatory bodies like MUDRA to ensure legitimacy and
imputes to this sector.
 CONCLUDING OBSERVATIONS
 Though, Andra Pradesh Microfinance crises pinched
the sound performance of Microfinance operations to its
customers, yet again there is sign of prospective
growth of microfinance in India owing to intensive
interference of Governments, social investors and
commercial banks, they are attracted Microfinance as a
mode of potential profit and discharging duty of corporate
social responsibility (CSR).
 The total outreach grew by 13% and loan
outstanding also grew by 33% over the last year. The
south region continues to dominate on highest share of
both outreach and loans outstanding followed by East
region.
 Prospects of Micro-ATMs and Aadaar Enabled
Transactions
 CONCLUDING OBSERVATIONS
 The tremendous changes in Microfinance sector will
strengthen the financial performance of microfinance
entities by which it will be helpful to empower the rural
economy through the thrift and credit facilities.
Simultaneously, new financial outlets like Specialized
Microfinance Branches will be opened in different
nook and corner of rural areas.
 Thus, low income people can reach into mainstream
financial sector and can do reliable transactions
through this kind of emerging operational methods.
 Challenges due to Incompetency:-It will effect present
small scale Microfinance institutions, they may be ruled out
due to incompetency with corporate and mainstream banks.
Hence, government should take precautionary measure
authorities should ensure the viability and healthy
competition in this sector to ensure the industry would not get
affected awfully.
CONCLUDING OBSERVATIONS
 To curtail unhealthy practices in this sector, replication
of Grameen bank model will be more benefited especially
in Indian context as it is channalised in Bangladesh where
it is mainly focused on group lending.
 The viability of Interest-free Microfinance already
explored but still its applicability is very scanty due apathy
of authorities and legal constrains based on existing
regulatory system.
 Despite the statistical result in this regards shows
extensive use of such devices by MFIs clients, to overcome
the asymmetries due to demonization and the digital
economy, MFI institutions and customers have to acquire
adequate digital financial literacy, still it remains as
great challenge while moving ahead with the dream of
cashless economy.
End…

THANK YOU