Report Review: M-CRIL Assesses India’s Hard Year in Microfinance

> Posted by Beth Rhyne
MCRIL report on MF 2011As leaders of the microfinance industry in India assemble in Delhi this week for the ACCESS Microfinance India Summit, India-watchers outside the country can follow events in the sector by taking a look at the latest report from M-CRIL: “M-CRIL Microfinance Review 2011: Anatomy of a Crisis.”  The executive summary is available as a stand-alone document, and it provides instructions for purchasing the entire data-drenched report.
For me, the best parts of the report are the numbers that help dimension the sector and its crisis, as well as its no-holds-barred approach to stating conclusions.  Here is a small sampling:
On the role of microfinance in India: “Microfinance is now established as a significant component of the financial system in the country and its contribution to financial inclusion continues to rival, if not exceed, that of the rural banking system.”  “With 31.8 million borrower accounts the size of the microfinance sector more than matches significant parts of the Indian financial system in terms of the number of citizens affected. This number is more than three times the number of micro‐credit accounts serviced by the Regional Rural Banks and is greater even than the total number of such micro‐accounts held by the commercial banks.”
On multiple lending in Andhra Pradesh: “In AP, while the number of MFI loans is just over 100% of the number of eligible financially excluded families, SHG loans are actually 310% of that number….This raises the question whether it is SHG rather than MFI lending that is responsible for multiple lending and the crisis.”
On the consequences of the crisis for MFIs and their investors: “A ‘hair cut’ for both the MFIs caught in the crisis and for their lenders now seems inevitable. It is only the closeness of the cut (the proportion of investment lost) that remains to be determined….The effect of the crisis resulting from the AP ordinance spread much more widely than the state of Andhra Pradesh. This effect was not due to any delinquency contagion reaching clients outside the state but rather due to the drying up of bank funds to MFIs. [This] has brought about the shrinkage of the sector by one‐third from the peak in October 2010.”
On the consequences of the crisis for the poor: “Most low income families in AP have been thrown back into the not‐so‐benevolent arms of moneylenders. Many low income families outside AP have also suffered collateral damage as the drying up of onlending funds from commercial banks has caused a reduction in MFI operations throughout the country.”
On the proposed Microfinance Act: “Emerging from the crisis, the Government of India, through the proposed microfinance law now seeks to accord the sector with a level of importance commensurate with its contribution to millions of citizens. The proposed Microfinance Act would provide the sector with the full attention of the central bank, would enable MFIs to offer at least limited deposit services to low income families (recognising their need for savings facilities) and protect it from the whims of local government by clarifying that microfinance is governed by national laws and is, therefore, not a state‐level concern.”
Many thanks to Sanjay Sinha and his team. Highly recommended!
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