Indian MFIs: Growth for Old and New Institutions Alike

This article presents an overview of the Indian microfinance market, which has seen significant changes over the last two years.

The article states that the industry emerged from the financial crisis more consolidated. The market that was made of numerous, small- and medium-sized, nonprofit players gave way to one dominated by fewer large commercial players that are successfully attracting equity and debt capital, human resources and clients at a fast rate. Other findings include:

• Investors have consistently shown a preference for MFIs that have high growth potential;
• MFIs absorbed part of the rising costs as growth in income was not proportional to rising cost of debt;
• Leaders have been able to reduce operating costs by taking advantage of economies of scale;
• Greater efficiency also results from improved staff productivity;
• Leaders have exhibited consistently rising return on assets;
• Portfolio quality has been healthy overall, with deterioration in some pockets;
• Indian MFIs have the lowest yields, lowest operating costs, and the highest return on assets.