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the profitability of lending to MFIs, which have almost perfect repayment rates. Large MFIs
are the most highly capitalized, at 21 percent.
A second feature of the Indian MFI sector is that it funds only 8.4 percent of loans from
voluntary deposits (the deposit to loan ratio in Table 3.4). This is a feature it shares with
Bangladesh (but not with other South Asian countries) where this ratio is even lower, at 3
percent, and has led observers to characterize the sector in these countries as "walking on one
leg", because microfinance really offers only microcredit, and not the other main financial
service of vital importance to the poor, which is savings. This characteristic too is a function
of the regulatory environment, which only allows mutual, or member owned institutions such
as cooperatives to collect savings. 14
As the MIX
report points
out, Indian MFIs
are unique in
the extent to
which they
leverage
borrowed funds.
As will be seen
from Table 3.4
the average
capital asset
ratio in India is
less than 11
percent, only
half the average
for South Asia,
which is itself
only two thirds
to half the
level in the
other three
main
microfinance
regions in the
world (East
Asia, Latin
America and
Africa)
However it should be noted that the consequences are very different in India and Bangladesh.
In both countries MFIs, whether registered as societies or trusts, or in addition in India as
NBFCs which many Grameen type lenders are transforming into, do raise compulsory savings
through a variety of arrangements (such as small weekly contributions added on to the loan
repayment installment, membership fees at the time of joining, or a percentage of the loan
amount or a lump-sum deducted at the time of each loan disbursement). In India, the savings
are often retained and controlled by group members themselves for emergency loan assistance
to members, or they are usually placed in local banks under group or individual accounts, as
with savings in the case of SHGs. However, in Bangladesh, and most other countries, because
of regulatory forbearance, MFIs are allowed to use such compulsory savings to fund lending, 15
and they constitute as much as 30 percent of the funding base (loans account for 46 percent
and capital for the rest.) 16 Deposits, although small as a proportion of loans India, are more
important than in Bangladesh because of the higher presence of cooperatives in India, both
as primary lenders and SHG federations registered as MACS playing the MFI role in securing
bulk funds. 17
Third, Table 3.4 provides further evidence of the depth of outreach in India, as in South Asia
generally, compared to other regions, as measured by average loan balances as a proportion on
income, 18 and the percentage of women borrowers (90 percent in India, ranging from 94
percent in small MFIs to 85 percent in large MFIs. As large MFIs grow and diversify product
offerings, they tend to attract men through larger, individual loans). 19
Fourth, India along with its South Asian neighbours has very high staff productivity. Indeed
India's productivity is the highest in the world and is twice as the South Asian regional
average. This is due to the prevalence in India of group lending through SHGs which are
usually 2 to 3 times as large as the standard Grameen group of 5, as well as due to the low
proportion of individual loans. Eight out of 10 of the most productive MFIs in South Asia are
Indian, with a range of 2,873 to 469 borrowers per staff member, (way above the 250 to 350
recommended in the Sa-Dhan performance standards, about which SBS expresses concern).
Fifth, high productivity, coupled with low staff costs 20 makes South Asian MFIs the most efficient
in the world whether measured in terms of cost per borrower, or cost per unit loan outstanding.
On the latter measure, at 12 percent, India's operational cost ratio is about the same as
Bangladesh's and the regional average, but at a level only half to two-thirds of the rest of the
world (Table 3.4). It needs to be borne in mind though, that India's performance on efficiency
is partly the product of aggressive growth, based almost entirely on group mechanisms, and
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