Microfinance, a concept popularized by Muhammad Yunus, has grown tremendously in India. The growing understanding of achieving self sustainability among the rural and urban poor has led to the acceptance and implementation of this idea across India. The report begins with an introduction to the microfinance sector covering different types of financial institutions, formal and informal, providing financial services to the rural and urban poor in India. The report provides an overview of the current state of microfinance in India covering extensively the two primary facilitators of microfinance - microfinance institutions (MFIs) and SHG’s bank linkage programme (SBLP). The report highlights the government’s initiatives towards encouraging microfinance institutions in India. The report identifies key trends and characteristics in the sector including low penetration levels of microfinance, large scale PE/VC activity, high interest rate and repayment issues, lack of interest from formal financial institutions and opportunity in the urban sector. The report profiles the major players in the sector including brief business overview, client outreach, financials and future outlook for each player.

1. Guide to Microfinance - India
July 2009

2. Executive Summary
Microfinance in India operates through two channels
– Microfinance institutions (MFIs)
Market – NABARD’s SHGs bank linkage programme (SBLP) - a partnership model between SHGs, banks and NGOs
Women account for a% of the credit clientele
Microfinance is predominant among the Southern States, especially A
LE
The introduction of the Micro Financial Sector Development and Regulation Bill, 2007
– Major Aspects: Definition of microfinance organizations, conditions for mobilization of savings and creation of
Government
Initiative
P
a regulatory body
– Limitations: Regulatory body, differential regulation, dual regulation, preferential regulation and lax prudential
norms
M
Trends &
A
– Recommendation: Encompassing a wide spectrum of institutions and modifying rules for depository MFIs
S
Low penetration level providing high growth opportunity
Large scale PE/VC activity
Characteristics High interest rate and issue with repayments
Lack of interest from formal financial institutions
Opportunity in the urban sector
The major microfinance institutions in India are
– Company 1
Major Players
– Company 2
– Company 3
GUIDE TO MICROFINANCE – INDIA.PPT 2

3. •Introduction
•Institutions
•Market Overview
•Government Initiatives
•Trends and Characteristics
•Major Players
•Key Developments
•Appendix
GUIDE TO MICROFINANCE – INDIA.PPT 3

4. Microfinance industry has been growing across the globe with
India playing a vital role
Definition Services Provided
•Microfinance is defined as the provision of
thrift (savings), credit and other financial Savings Insurance
Loans
services and products of very small amounts
to the poor for enabling them to raise their
LE
income levels and improve living Remittance
Pensions
P
•World Bank estimates that there are over X
microfinance institutions worldwide
M
Risk
Financial Mitigation
A
Counseling Products
Major Milestones in India
Major commercial
banks nationalized
S NABARD
established as an
apex agency for
Establishment of
SIDBI Foundation
for Micro-credit
19 - - rural finance 19 - - 20 - -
19 - - 19 - - 20 - -
Regional Rural NABARD launches Proposed bill on
Banks established SHG bank linkage microfinance
in 19 - - program regulation
Source:
GUIDE TO MICROFINANCE – INDIA.PPT 4

5. Types of Microfinance Institutions (1/4)
Intermediary Microfinance Micro-
Investor Pool of Funds
Bank Institution entrepreneur
LE
Non-profit Mutual Benefit For Profit
• Public Trusts
MP • Self Help Groups and Federation • Non Banking Financial
A
• Societies
• Co-operative Societies Corporation
S
• Section 25 companies
• Public trusts are established in accordance with the respective State regulations
• Private trusts are established under the Indian Trusts Act 18--
• Process of registration is not hindered by the lack of initial capital
Trusts
• They enjoy tax benefits as they are exempt for taxation if they are registered under C of
the Income Tax Act
• In order to accept foreign grants the institution needs to be registered under the FCRA
Source:
GUIDE TO MICROFINANCE – INDIA.PPT 5

6. Types of Microfinance Institutions (1/4)
• Comprises of Apex Development Financial Institutions, Commercial
Banks, Regional Rural Banks, and Cooperative Banks providing
Formal / Banks
micro finance services in addition to their general banking
activities - referred to as micro finance service providers
Types of
financial
institutions
LE
• Informal institutions that undertake micro finance services as their
Informal /
main activity are generally referred to as micro Finance
P
Non-Banks
Institutions (mFIs)
Investor
SAM
Pool of Funds
Intermediary
Bank
Microfinance
Institution
Micro-
entrepreneur
Non-profit Mutual Benefit For Profit
• Public Trusts
• Self Help Groups and Federation • Non Banking Financial
• Societies
• Co-operative Societies Corporation
• Section 25 companies
Source:
GUIDE TO MICROFINANCE – INDIA.PPT 6

7. In India, microfinance sector operates via two routes -
Microfinance Institutions and Self Help Groups
Overview Credit Distribution (07-08)
Microfinance in India
Large MFIs
b%
Medium and
LE
NABARD’s SBLP - a c% Small MFIs
Microfinance partnership model
institutions (MFIs)
MP between SHGs, banks
and NGOs
SBLP
a%
SA
• Demand for micro-credit is pegged at USD XX bn but
the supply stands at less than USD YY bn
• Outstanding micro-credit portfolio amounted to ~INR
U bn in 2007-08
Client Outreach
mn a%
Z
60
• Microfinance is predominant among the Southern Y SHGs
States, especially Andhra Pradesh 40 MFIs
X
• v% of the consumers are from the rural sector V
Women account for w% of the credit clientele 20
U W
• Highest growth observed in the loan segment 0
ranging from INR X0 – INR Y 2006-07 2007-08
Source:
GUIDE TO MICROFINANCE – INDIA.PPT 7

8. Introduction of the bill is expected to create a definite regulatory
framework for microfinance institutions
Micro Financial Sector Development and Regulation Bill, 2007
Regulating and supervising cooperative societies and non-profit institutions (including
Purpose
societies and trusts) that are providing microfinance
• Microfinance: Includes loans, savings, insurance and pension services. Loans cannot
LE
exceed more than INR X (INR Y for housing purposes)
Definitions
• MFO: Any organisation that provides micro-finance services including societies, trusts and
MP
cooperative societies
• Definition of Microfinance Organizations: NBFCs and Section 25 companies, which
SA
account for ~a% of microfinance loans outstanding are excluded from its scope
• Mobilization of Savings: States that MFOs are authorized to collect deposits from their
members
Certain conditions must be satisfied
– Have a minimum capital base of INR U mn
– Be in operation for a minimum of v years
Major Aspects – Receive approval from the Microfinance Development Council (MDC), an entity promoted by NABARD
• New Regulator: NABARD to be the regulatory body for both depository and non-
depository micro MFOs . Its role entails
Facilitating the development of credit rating norms and performance benchmarks
Specifying the accounting form and the auditing standards
Promoting financial literacy of MFO clients and sector-related research
Disseminating information relating to best practices
GUIDE TO MICROFINANCE – INDIA.PPT 8

9. Trends and Characteristics
Low penetration level provides tremendous growth opportunities
Large scale PE/VC activity
Trends and
Characteristics
` High interest rate and issue with repayments
Lack of interest from formal financial institutions
Opportunity in the urban sector
GUIDE TO MICROFINANCE – INDIA.PPT 9

10. Players (1/8)
Company Snapshot: Company 1
Corporate Information Financial Performance and Outreach
Gross Loan Portfolio
Established 20--
Number of Active Borrowers
Headquarters Kolkata USD mn ‘000
LE
• Micro loans 100 1,500
d
Services Offered • Micro Enterprise Program
P
80
• Health Loan 1,000
60
SAM 40
20
0
a
Mar ’05
b
Mar ’06
c
Mar ’07 Mar ’08
500
0
Business Highlights Business Outlook
• It is a non-profit entity • It is planning to raise INR XX bn in FY ’09-’10by selling
• Operates in X States through Y branches agricultural loans to banks
• Primarily focusing on 3 programs • Plans on expanding operations to Delhi and Mumbai
P1 because of large scale rural urban migration
P2 • Expected to encompass Uttar Pradesh, Rajasthan and
P3 Gujarat
• Plans on opening B new branches
Source:
GUIDE TO MICROFINANCE – INDIA.PPT 10

11. Thank you for the attention
The Guide to Microfinance report is a special feature from Research on India.
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