Outreach and Financial Performance of Select MFIs in India-An Empirical Analysis

The present paper has examined the recent developments in Microfinance Institutions (MFIs) from two standpoints: (i) enlarged customer outreach, and (ii) financial viability for longer term sustainability. Both these issues are dealt analytically as well as empirically. For customer outreach, we denote that the central purpose of MFIs is to provide financial services to large numbers of poor, including the very poor and women. The definition of financial sustainability embodies the institutional capacity to become independent of donor or government subsidies to carry out business in the long run. The variable that captures financial aspects is Return on Equity (ROE). There is highest concentration of Microfinance usage in India with 18% of the total population are utilising a loan from MFIs at present. In the wake of Andhra Pradesh crisis in 2010, MFI segment has taken a severe beating with rising delinquency ratios and downgrades by rating agencies. Lenders have turned wary leading to drying up of funding channels seriously impinging on the business. Debt is positively related to ROE which implies that higher borrowing actually encourages profitability for the MFIs as it allows them to grow its assets and thereby see a larger return. The gross loan portfolio variable indicates that the MFIs should continue to grow and increase their size by increasing their loan portfolio. While the provision of funds for potential loss is a good safety measure, the generally high repayment rates by borrowers make the risks taken and the risk parameter not significant. Finally, the number of borrowers is negatively correlated with ROE indicating that goals of customer outreach and financial sustainability are moving in opposite directions.