Financing Microfinance in India
This note estimates the investment required to enable India's microfinance sector to meet the overall demand for microcredit by 2010 in a financially sound and sustainable manner. The estimate is based on portfolio size and net worth position of all MFIs rated by M-CRIL between 2003 and 2005, projected over the next five years. Given the market potential and current microfinance growth rate in India, the microfinance sector should be able to reach some 72 million households in the next five years, if the required equity funds and operational support is made available to them. According to calculations presented in this note:
- Indian microfinance sector would need an investment of US$1415 million over the next five years to increase its effective outreach;
- Funds would have to be primarily generated from the governments budgetary resources;
- Private investment in microfinance would have to supplement government investment.
Private investment in microfinance can be achieved by improving the organizational capacity of microfinance service providers, making microfinance operations more professional and transparent and creating an appropriate legal framework for microfinance.
