Macro Potential for Microfinance Industry

This article discusses strategies of banks and MFIs in India for meeting demand for credit in untapped markets.The microfinance market in India is the largest in the world, and is growing at an average rate of 50 percent. The huge demand-supply gap in the sector has attracted several new players. Microfinance has evolved from a pure development activity to an economic driver at the grassroots level. The article states that:

• MFIs have started operations in urban areas;
• Several banks have transformed themselves into non-banking financial companies to widen capital base;
• Seven Indian MFIs were featured in Forbe's list of the world's top 50 MFIs;
• Banks and telecommunications companies are teaming up to promote mobile banking;
• International players are investing significantly in Indian MFIs;
• Equity and external commercial borrowings are the common fund-raising routes for MFIs;
• Commercial banks are entering the sector as part of corporate social responsibility.

The Indian microfinance sector is geographically skewed, with almost 75 percent of microcredit activity concentrated in four southern states. Experts predict that MFIs will become front-ends for banks in the future. The sector is likely to experience consolidation.