Disclosure and Financial Performance: A Study of Microfinance Institutions of India

This study attempts to analyze the financial performance of various MFIs operating in India.

Indian MFIs practice different levels of disclosure as there is no regulatory mechanism to monitor their financial disclosures. There is also no working model for analyzing MFIs' financial performance. The study analyzes financial reports voluntarily submitted by MFIs to examine differences in financial performance between institutions practicing differing levels of disclosure policy for the year 2007. It groups MFIs into high disclosure groups (HDG) and low disclosure groups (LDG). Findings include:

• Firms in HDG have larger gross loan portfolios, bigger balance sheets and a larger equity base;
• Most important difference between the two groups is the debt equity ratio which is higher for the HDG;
• HDG firms are likely to attract more debt capital;
• Overall financial performance of HDG and LDG do not display any significant difference.

Study findings suggest that bigger and more aggressive firms opt for more voluntary disclosure. Firms seeking aid and grants have low debt equity ratio at the outset. As they grow bigger, with infusion of grants, their debt equity ratio and their obligations of disclosure rise.