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Preface and Acknowledgements This report is an attempt to put together a one-stop document that will help a variety of readers catch up on the latest developments, issues, and achievements of the microfinance sector in India. The sector is growing rapidly, both in scale and diversity of actors, and is hopefully sitting on the cusp of regulation. It is therefore in the midst of rapid flux. The report is in a sense a snapshot of the sector taken when it was written, that is in second and third quarters of 2006. To the extent it succeeds in being topical, parts of it can expect to become out of date pretty soon. But at the same time, it hopes to function as a kind of evolving reference document, with something of permanent value retained in each successive annual edition. While a number of extremely useful periodic reports are already being prepared by some of the main players, much of the information on the sector is scattered over a wide variety of sources, as one would expect in a highly decentralized development and financial movement which has evolved as a result of the combined actions of a large number of creative, dynamic and idealistic individuals in civil society, who were supported initially by donors, and then increasingly, by NABARD and SIDBI, the banks, and government. Fortunately, Indian microfinance is not as under-researched as it used to be, although we are still touching the tip of the iceberg in terms of what needs to be known. One of the aims of the report is to publicize and synthesize the findings of important recent studies each year. This is one justification for the abundant use of footnotes, the other being to include as much important empirical material as possible without losing the attention of readers with less specialized interests. Due to constraints of time this year several important topics could not be covered, including "empowerment", SHG federations, the cooperative MFI movement, the role of many of the public sector banks including some prominent RRBs and DCCBs in supporting the SHG movement, and communitybased microfinance generally, which after all constitutes the bulk of the sector. Hopefully this omission will be rectified in future years. Other topics that could not be covered were urban microfinance and impact assessment (which are themes of this year's Microfinance India conference) or the prospects of new technology applications, or regulation. Of MFI financial services only two of the "younger" ones, microinsurance and money transfers, could be covered briefly, and not innovations in credit or savings. We are grateful to the Centre for Microfinance, Chennai for contributing a chapter on studies initiated there, but there was not enough time to review on-going research in the country generally, which needs to be covered more systematically in the future. While I attempted to consult as many sector participants as possible, I am conscious that a number of significant approaches, programmes, initiatives, institutions, studies and documents have escaped mention because of the constraints of time and space and my own lack of familiarity with them. In 6
particular it has not been possible to do justice to the individual building blocks of the MFI model, the MFIs themselves, or to the NGOs promoting the self-help group movement, many of who are setting new standards in good governance, transparency, product development, and successful identification and targeting of the poor. A report like this cannot expect to match their insights or have as nuanced an understanding as they do. I hope the individuals and organizations concerned will understand. I am grateful to Vipin Sharma of CARE India for having had the vision to launch this effort, for the energy to see it through, and for taking a chance on me! Malcolm Harper was an endless source of good advice and useful comments (some of them very rude!). The other person who went way beyond the call of duty and ploughed through many of the chapters out of sheer interest, although with considerable scepticism and disagreement on many points, was Ajay Tankha. Rewa Misra prepared Section 8B on donor participation, Annie Duflo and her colleagues at the CMF contributed Chapter 9 on ongoing research, and Sakshi Varma assisted with Chapter 2. Many thanks to all of them. Anjum Khalidi was a great source of support, as were Prabhat Labh and Rekam Jayasurya at CARE India. Others who spared valuable time to comment on draft chapters and share material were Krishan Jindal, Ajit Kanitkar, Vishal Mehta, Rajkamal Mukherjee, D. Narendranath, Jayendra Nayak, Sitaram Rao, Santosh Sharma, Sanjay Sinha, Frances Sinha, Mark Socquet, MS Sriram, and Blaine Stephens, Those who provided valuable information and pointed me in the right direction through, in some cases, extensive discussion and briefings were Deepak Alok, Mohammad Amin, Caitlin Baron, Rajendra Bhoi, Anjana Borkakati, Mirai Chatterjee, Sandeep Farias, David Gibbons, Amit Gupta, Marie-Loise Haberberger, Brahmanand Hegde, Ashok Jha, Vaman Kamath, Harish Khare, Udaia Kumar, Rajiv Lall, Vijay Mahajan, Brij Mohan, Rakesh Mohan, Nachiket Mor, CS Murthy, K. Narender, Saleela Patkar, Viswanath Prasad, Vineet Rai, Manohara Raj, S Ramachandran, Muralidhara Rao, CS Reddy, Padmaja Reddy, Raja Reddy, Vinatha Reddy, Savita Sarkar, Moumita Sen Sarma, Dr Sethuraman, Uday Shankar, Rashmi Singh, Sukhbir Singh, R Sowmithri, R. Srinivasan, Sudarshan Synghal, Yashwant Thorat, Mathew Titus, Niraj Verma, and MP Vasimalai. I am extremely grateful also to Viji Das and her team at FWWB; Annie Duflo, Rati Tripathi and other friends at CMF; Punit Gupta, Berenice Rose and Rupalee Ruchismita of the Social Initiatives Group at ICICI; Sneh Lata Kumar and her colleagues at RMK; Vijay Kumar, Navin Mittal and other officials of the AP government in Hyderabad and Krishna district; Jayant Madhab, Amiya Sharma and their colleagues at RGVN; Mathew Titus and his colleagues at Sa-Dhan; JS Tomar and his team at Cashpor; and Graham Wright and Ranjani at MicroSave. Stuart Rutherford, Shashi Rajagopalan and many others were kind enough to give me guidance and share material through e-mail. My apologies to the many others who I have left out. Thank you again, all of you. It goes without saying that the usual absolutions apply. Prabhu Ghate 7
Page 3: Microfinance in India A State of th
Page 6 and 7: List of Tables Page No Table 2.1 Gr
Page 10 and 11: Abbreviations ABC ADB BC BF CAR CAG
Page 13 and 14: CHAPTER 1 Overview and Summary of M
Page 15 and 16: Overview and Summary of Main Recomm
Page 27: Overview and Summary of Main Recomm
Page 30 and 31: 1 1a 1b 2 2a 2b 2c 3 3a 3b 3c 4 4a
Page 32 and 33: The Light and Shades Study A major
Page 34 and 35: highest proportion of weak records
Page 36 and 37: their profitability after accountin
Page 38 and 39: allow the programme to grow organic
Page 40 and 41: 1.0 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8
Page 42 and 43: Endnotes 1 It is very hard to compa
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Page 46 and 47: linkages", 11 percent 3rd, and 5 pe
Page 48 and 49: References APMAS (AP Mahila Abhivru
Page 51 and 52: CHAPTER 3 Progress Under the MFI Mo
Page 53 and 54: Progress Under the MFI Model is fun
Page 55 and 56: Table 3.4 Comparative performance i
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Progress Under the MFI Model 4 Howe
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Progress Under the MFI Model Refere
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MFIs, and the need for MFIs to plou
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size had actually come down during
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The point at which peer group press
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The lack of contact and communicati
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Box 4.1 Continued 4. MFIs will coll
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Endnotes 1 There will be many disag
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19 The base suicide rate in AP is 1
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References APMAS, 2005, "A Report o
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(such as cattle and houses), and co
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The advantage of the provider model
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Some lessons learnt from experience
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Box 5.2 VimoSEWA: Synergies between
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86 Table 5.1 Main Feature of Health
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Endnotes 1 While the microinsurance
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16 A little less than a fifth of th
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29 The rationale for transfer progr
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Roth, James and Vijay Athreye, 2005
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Issues and priorities for action re
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Endnotes 1 See for instance CGAP (2
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100
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such as Chaitanya who soon became s
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money to support operational expens
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finance, and the microfinancial ski
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Box 6.1 Continued in experts and to
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Endnotes 1 In a sense it always was
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16 Examples are Margdarshak in Luck
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114
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Table 7:1 Commercial bank exposure
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The main constraints to the expansi
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further review, RBI has modified th
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9 Thus ICICI has sold some of its b
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B. Equity Investments by the Ventur
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Figure : The Bellwether triangle Lo
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Despite the weaknesses the public s
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Box 7.1 Continued foreign sources o
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Endnotes 1 At this point they will
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References ACCION, 2003, "The Servi
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SIDBI Foundation for Micro Credit (
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categories, depending on the amount
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The distribution of total disbursem
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Endnotes 1 It should be noted that
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B. Donor Participation in Indian Mi
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this has dropped to 8% on the curre
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and poor populations. More directly
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and expansion of available retailer
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11 SDC through various programs for
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154
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1.1 Impact evaluation of Spandana's
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in the loan tenure of 24 months. Th
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There are two main motivations of a
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compensation structures used by Ind
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Endnotes 1 By Annie Duflo, Anvesha
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29 The main components of direct tr
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