Capacity Building: Needs and Challenges in India

This paper describes the challenges that Indian microfinance faces currently and suggests solutions to these challenges. The paper states that the Indian microfinance industry has witnessed extraordinarily high annual growth of about 45% in the last few years, characterized by:

• Low defaults;
• Low average operating cost ratios;
• High flow of funds from the commercial banking system;
• Investment by private equity funds.

Further the paper identifies challenges faced by the sector. It identifies challenges related to access to finance, governance and management, demand for low interest rates and managing competition. It further adds that:

• The single biggest challenge for microfinance lies in the area of training and capacity development;
• On the supply side, there is a lack of service providers and comprehensive, integrated and relevant training modules;
• On the demand side, not enough attention is being paid to training for senior management.

The paper concludes that good governance, client focus and networking with other development institutions are the new challenges that microfinance institutions must prepare to face.