Micro-Finance in India –Challenges and Opportunities

India has a large population that is unbanked, for

whom access to capital is not forthcoming.

Semi-skilled and unskilled labourers, unemployed,

under-employed and low-income individuals…

..have limited or no access to formal

banking services.

Micro-finance is the business of providing small sums

of loan to people who cannot access formal banking..

While micro-finance companies were set-up with

the supposed intent of serving the rural segment…

..there is a gradual but definite tilt in

focus towards urban India.

As of 2015, 67% of the 37 Million customers

live in Urban India

As of 2015, the Micro-Finance Industry Loan

Portfolio is reported to be of Rs.40,000 crore.

There is a systematic shift in the way micro-finance

industry is currently structured.

Today, Non-Banking Financial Corporations (NBFCs)

constitute over 90% of the micro-finance loan disbursals..

Key Growth Opportunities for Micro-Finance Players

include:

A. Pradhan Mantri Jan Dhan Yojana

This will help Micro-finance Institutions (MFIs) to

disburse loans directly to customers’ accounts.

B. Interest Rate Regulation

There is a cap on the interest rate charged by MFIs. This has

led to a fall in bad loans, which augers well for the industry.

C. Growth in Loan Disbursals

Per a recent report, the micro-finance industry has seen a

healthy growth in loan disbursements at 29% in Q1, 2016 - 17

Key Challenges faced by the Micro-finance industry include:

A. Lack of skilled personnel

B. Lack of Borrower data Records

C. High Cost of Borrowing

MFIs borrow from other institutions at a higher rate.

D. High Recovery Costs

In the event of non-payment of loan, the

recovery cost involved is high.

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