Greetings dear readers! In the next series of blogs, we’re going to blog on ACCESS’ Microfinance India Summit 2013 and summarize the discussions through a number of panel sessions.
We start with the opening session of the conference yesterday, where Tara Nair released the Microfinance India State of the Sector Report 2013.
Tara Nair: We thought the financial inclusion program which seems to have gathered momentum over the past few years has appeared more frequently in the report than previous years.
The first phase of financial inclusion seems to have worked in terms of households getting access to banking services – went up by 7.7 crore and was more in rural areas – 24% vs urban (17%). So we can see that the branch expansion strategy works- branch expansion has always led to increased financial inclusion. This strategy has changed in the sense of increasing branches as well as fostering a relationship with the community.
Microfinance is facing a crucial time when it hopes to become part of the financial delivery system in India and be part of the financial inclusion agenda. Given this background – Here are the highlights of the report:
1) Status of Microfinance in 2013
- Major trend is RBI being able to put forward a very significant set of regulatory guidelines which seem to have given hope to the sector that orderly growth is possible.
- Big NBFC MFIs have regained market confidence and picked momentum in client outreach and loans outstanding. Bank credit eased for MFIs and SHGs as well.
- Emergence of new forms of partnerships (SHGs – MFIs-government banks-tech companies – BCs) has been encouraging.
- Compound annual growth rate – Suffered after 2010 for both SBLP and MFIs
2) Major trends in the Report
- AP based MFIs continue to experience negative or negligible business growth. Lopsided growth – regional as well as size bias in growth due to high penetration of microfinance in South India.
- Rising NPA levels of the SHG portfolio of banks. (7% in 2012-13) ,which is a serious concern as far as the SHG portfolio is concerned. Credit linkage has been reported by 60% of SHGs.
3) Some Challenges
- No serious attempt was made to leverage the SHG-Bank linkage program to achieve the financial inclusion goals.
- We have also realized that there has been too much of a focus on cost effective delivery channels like the BC model, and as a result there is a feeling that perhaps the SHG model as a financial intermediary is losing its place. Do they have a new role to play? NABARD has given the impression that there is an increased cost of maintaining SHG federations.
- MFIs are facing the challenge of coping with the regulatory environment- continuous client data monitoring, reporting, technology adoption/up-gradation and building staff capacities as there are no investments in capacity building by MFIs themselves or the sector due to less availability of funds.
4) The Current Discourse
- ‘Specialized Banking Institutions for Small Credit’ – occasional paper by RBI on small-finance banks, which promotes a stratified banking structure and addressed specialized needs.
- Promotion of savings, which are going up because of the cleaning up done by banks with respect to non-performing SHG accounts. Unless we focus on promoting savings, we will end up focusing on loans and credit which wont be healthy. But, we don’t have evidence on what is viable and what will sustain over the long term.
5) Moving Forward
- There were some initiatives to bring women back into the discourse by setting up a women’s banks and perhaps gendering finance is a serious agenda people are interested in. The Mahila Bank is already functioning in certain cities – how will this educate and enlighten the financial agenda? This seems to be an interesting theme to follow on.
- Responsible lending by NBFC MFIs- coordination and convergence in terms of instruments, methodologies and metrics. Increased focus on capturing individual data.
- Is group approach a necessary evil? Enhancing the capacity of microfinance entities. Who invests? Nobody
- More drive towards formalizing, standardizing and regulating the sector.
- Marginalization of different models and diversity we were proud of in early MF is facing a certain death.
6) The Big Agenda
- Convergence of the debates on financial inclusion and microfinance.
- MF legislation bill still not seen the light of day, which is a huge concern. MFIs want a more structured guideline to follow and hope for this being successfully achieved is becoming dimmer and dimmer.