Financial Performance of Microfinance Institutions of India: A Cross-Sectional Study

This study analyzes the financial performance of Indian MFIs.

MFIs must be able to sustain themselves financially in order to continue pursuing their objectives. Lack of a working model, absence of dedicated legislation on MFI management, and lack of a regulatory mechanism for MFI financial disclosure hamper measurement of the financial performance and sustainability of Indian MFIs. The study examines the financial performance of 22 best performing Indian MFIs, analyzing them on parameters of financial performance that include financial structure, revenue, expenses, efficiency, productivity, and risk.

The study also analyzes overall performance based on the MFIs' return on assets, return on equity, and operational self-sufficiency. Study findings indicate that:

• MFIs in India use different business models;
• Risk coverage, debt equity ratio, productivity, cost per borrower, and operational self sufficiency are similar among the best performing MFIs;
• Similarity in performance is due to use of a business model that focuses on group lending and rural outreach;
• MFIs in India seem to be following a time tested way of doing business;
• Managerial capability of different Indian MFIs is different.