India Microfinance Review 2007

This report presents an overview of the performance of Indian microfinance institutions (MFIs), based on a detailed analysis of their ratings. The report identifies the following developments in the Indian microfinance sector:

• MFIs have started leveraging their new found management expertise to achieve scale and spread of operations;
• Leading MFIs have recorded high growth rates of 80% per annum in terms of the number of borrowers, and 40% per annum in terms of portfolio growth;
• A significant part of the development has been to less developed areas of the country;
• On the negative side, MFIs have been under attack for their loan recovery processes and high interest rates;
• This has vitiated the credit culture, forcing the lowering of interest rates and increasing the necessary level of loan loss reserves and provisioning;
• The spread of MFI operations to non-traditional states has put pressure on operating efficiency, and has slowed the trend to lower unit costs;
• Banks continue their interest in microfinance, resulting in a highly leveraged industry;
• Outreach is high, and the Indian MFI industry is among the most efficient in the world;
• As they are becoming commercialized, MFIs are struggling with mission drift;
• The challenge for them is to achieve growth with equity as well as efficiency.

The report concludes by highlighting the development of a database of social indicators to assist investors achieve social/ethical goals.