State of the Sector Report 2010 - Microfinance Gateway

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xviiiMICROFINANCE INDIASadhan’s consent for using their publications in the preparation of the report has been invlauable. MIXmarket was a treasure house of MFI specific information used in this year’s report. NABARD had madeavailable the provisional information earlier than in the previous year. The advisory group of MicrofinanceIndia comprising Y.C. Nanda, Brij Mohan, Malcolm Harper, Vijayalakshmi Das, Jayshree Vyas, Justin Oliverand Vipin Sharma kept me on course with sound advice, without being editorially intrusive. I thank the donorsfor offering total support to the Report. I thank CMF-IFMR and UNSE for being the research partnerand knowledge partner, respectively. Yeshu Bansal initially and later Radhika Aghase untiringly anchoredmy work from ACCESS. Rohan Trivedi, intern with ACCESS was incredibly fast in learning and doing. Heprovided data analysis and charts for two chapters and provided incisive comments on initial drafts of somechapters. Lalitha as in the past years was a pillar of support. Vipin got his way in overcoming my reluctanceto do the report for the third year running. He was a source of good ideas relating to coverage. Despite personaldifficulties and privation, he never compromised on his support. Pravin Shende keyed in the initialdraft from voice files this year too. Girija Srinivasan extensively reviewed the report and provided criticalinputs for which I am very grateful.This year’s report carries 11 chapters, the new additions being a chapter on savings and another on GlobalContext. Social performance makes a strong comeback in the light of current developments in the sector.Microinsurance and human resources have not been covered this year in exclusive chapters. The issuesrelating to insurance and HR have been integrated in the relevant places. Most of the data sets of last yearhave been continued. The data set on individual MFI specific information (that appeared in Appendix Table2 in the last two years) is not carried as the Sadhan quick report which is the basis has not been released tillfinalisation of this manuscript. All expectations on coverage from many of you may not have been fulfilledon account of constraint of space and time. I seek your understanding.My thanks to many over there who had read the report last year and gave me brickbats and bouquets.Your comments have influenced some sections of the report. The views in the report are all personal and assuch I alone am responsible for errors of omission, commission and interpretation. Any critical commentsthat you might find have been made without malice or ill will towards anyone. Please continue to providefeedback.N. Srinivasan
Overview—the juggernautdeceleratesThe Macro ContextThe growth of the mircofinance sector in alignmentwith the rest of the economy continued in the year2010 but less vigorously than in the previous years.The macroeconomic environment changed marginallyfor the better during 2010 as compared tothe previous year. Across the world, reports were ofpainful and slow recovery from the financial sectormeltdown of the previous year, and there was a continuingflow of bad and some good news. The bailoutsof financial institutions elaborately designedby different governments had run their course andgave way to a great deal of attention for improvingregulation and supervision of the financial sector,and especially of the conglomerates. Pessimism anddistrust gave way to cautious attention to set thingsright. The impact, if any, on the mircofinance sectorhad not been overly negative. Of course, the initialwithdrawal of funds—both of equity and of loans—was a predictable knee-jerk reaction of investors toconsolidate their liquidity to minimize risks. Withthe passage of time, both loan and capital fundshave started to flow to the sector but with more circumspectionand caution. It is only a matter of timebefore the investors return to the marketplace withfull force.The Indian economic environment recoveredfrom slower growth rate of the previous year to posta GDP growth of 7.4 per cent in 2009–10. 1 Industrialproduction continued to record double digitgrowth with year on year (YOY) growth at 14 percent during April–May 2010. Agriculture, plaguedby a deficient monsoon, 2 did not fare as well as thesecondary and tertiary sector, and posted a growthof 0.2 per cent. The prospect of a normal monsoonand heightened initial rainfall activity in the currentyear has led to a significant increase in area sownacross all major crop categories. The prognosis forthe agricultural sector in the current year is positive.However, the inflation scenario according to the ReserveBank of India (RBI) is a cause for concern. Asmentioned in Microfinance India: State of the SectorReport 2009, inflation did play a major role pushingup food prices as also different commodity prices.The freeing of retail prices of oil from state controlsaw a spike in the price of fuel which led to downstreameffects on the prices of other commodities,either on account of increased manufacturing costor transportation cost. The continuing rise in theprices of food articles places the poor under considerablestress. Though inflation rates have moderated,they are still in double digits, reflecting a strongupward pressure on prices and, thereby, affordabilityof food for the consumers. The forecast for thecurrent year by RBI is a growth rate of 8.5 per centin the gross domestic product (GDP) riding on theback of better industrial production and its favourableimpact on the services sector. The forecast forinflation in the Wholesale Price Index (WPI) termshas been raised to 6 per cent by RBI, reflecting inflationaryconditions during the year.Credit flow to the economy did improve especiallyfrom the second quarter onwards. The non-foodcredit reached a level of 17 per cent YOY growth inMarch 2010. Banks had fulfilled their priority sectorlending mandates, ensuring that credit flow tovulnerable sectors was more than the previous year.Despite inflationary conditions and tightening of themonetary stance by RBI, the Prime Lending Rates(PLR) of banks remained more or less stable. From1 July 2010, RBI has introduced the Base Rate systemamong banks and removed the cap on interestrates on small loans (up to ` 200000). This is expectedto improve transparency in pricing and enhanceefficiency. The overall monetary policy direction of1Chapter
Page 1: Microfinance India
Page 4 and 5: Copyright ©ACCESS Development Serv
Page 7 and 8: List of Tables, Figures, Boxes,Abbr
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Page 13 and 14: ForewordAfter coping with the uncer
Page 15: ForewordxvI’m happy that the 2010
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Page 29: Overview—the juggernaut decelerat
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Page 38 and 39: 20 MICROFINANCE INDIAThe study whil
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Page 44 and 45: 26 MICROFINANCE INDIAinnovation tha
Page 46 and 47: 28 MICROFINANCE INDIAANNEX 2.2Micro
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50 MICROFINANCE INDIABut to make MF
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52 MICROFINANCE INDIA11. In Chapter
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54 MICROFINANCE INDIAflow of funds
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56 MICROFINANCE INDIAThe MHP requir
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58 MICROFINANCE INDIAto boomerang o
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60 MICROFINANCE INDIAlocal populati
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62 MICROFINANCE INDIAInvestor Inves
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64 MICROFINANCE INDIAand 3.1 in Eas
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66 MICROFINANCE INDIAto have the la
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68 MICROFINANCE INDIAand it also ha
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Savings, investmentsand pensionMicr
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Savings, investments and pension 73
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On the other hand, a third of respo
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Policy environmentand regulationThe
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Policy environment and regulation 8
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Policy environment and regulation 8
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Technology in microfinanceMicrofina
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Technology in microfinance 91Other
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Technology in microfinance 93100%90
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Social performance,transparency and
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Social performance, transparency an
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Table 9.2 Mission orientation and a
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110 MICROFINANCE INDIATable 10.1 Wh
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112 MICROFINANCE INDIAtransfer serv
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114 MICROFINANCE INDIAManaging BC n
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116 MICROFINANCE INDIAdoes not seem
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118 MICROFINANCE INDIASHG Sahayog N
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120 MICROFINANCE INDIATo conclude,
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122 MICROFINANCE INDIA6. Further, b
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124 MICROFINANCE INDIASl. No. Recom
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126 MICROFINANCE INDIA• To provid
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128 MICROFINANCE INDIAInstitutional
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AppendixTable A.1 Fact sheet on cov
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Appendix 133Name of the bankCommerc
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Appendix 135mobilization by SHGs an
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BibliographyThe Union Budget 2010-1
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Bibliography 139‘How India Earns,
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