Boomtime for Indian MFIs

Micro finance institutions in India are welcoming 2009 with a smile as they look back on a productive year. As many as seven Indian MFIs have been ranked among the world’s top 50 in an annual Microfinance Information Exchange (MIX) ranking of MFIs across the world in 2008.

“We are delighted to see that Indian MFIs have done well in the past year. This is a testament to the rigour of the MFI sector and the strides we have made in terms of outreach, efficiency, and transparency,” says Vikram Akula, Founder and Chairman, SKS Microfinance. SKS is ranked #2.

“The focus this time has been more on efficiency rather than on just outreach and profitability,” says Vijayalakshmi Das, Chief Executive, Friends of the Women’s World Banking, India. The added focus on efficiency, she says, has altered the rankings significantly, making it possible for non-profit MFIs like Cashpor to be ranked #4 in the world. But then, the rankings have raised some serious concerns as well.

“Growth rates in borrowers have changed. About onethird are growing at over 50 per cent a year. While this is reasonable for small institutions, it could indicate overheating of the industry with a focus on growth in microborrowers, paying little attention to product diversification,” says Nancy M. Barry, an industry expert, who, two years ago, founded the Enterprise Solutions to Poverty that engages industry leaders and entrepreneurs in building inclusive growth strategies in India and other emerging markets.

She also feels the MIX measures do not give enough weight to institutions offering products that build income and assets. She observes that almost all the top 100 are NGOs or NGOs that have converted to regulated financial institutions and says: “It would appear that mainstream banks active in microfinance have not opted to report to MIX.”

Finally, to give a sense of how small most of the top 100 MFIs are, she observes that only 16 have over 200,000 clients.

—E. Kumar Sharma