COMPARISON OF PERFORMANCE OF MICROFINANCE INSTITUTIONS WITH COMMERCIAL BANKS IN INDIA

Abstract

Microfinance in India has been viewed as a development tool which would alleviate poverty and enhance growth of the country through financial inclusion. Out of 6 lakh villages in India, only approximately 50000 have access to finance. India is a country which has the highest number of households which are excluded from banking. With the Andhra crisis of microfinance institutions and issues that microfinance institutions have a mission drift, the aim of the paper is to study the performance and efficiency of microfinance. A sample of microfinance institutions in India have been selected based on their ratings given by microfinance information exchange (MIX) for the study. The performance of these sample MFIs as well as their performance with respect to commercial banks in India have been studied using statistically tools. A microfinance institution is measured for financial sustainability based on its good financial accounts and the recognized accounting practices they follow according to Meyer (2002). Data for the microfinance institutions have been collected from Microfinance information exchange (MIX) where few of the MFIs have started reported their financial data. The MIX has classified the MFIs based on various parameters such as level of disclosure, financial parameters etc and rated them accordingly. Out of the 88 MFIs in India reported on MIX, 24 MFIs are taken as samples, these samples taken were five star rated by MIX. The financial parameters of these MFIs are studied and compared with the financial parameters of commercial banks and their financial performance can be analyzed. The various parameters taken for analyzing the financial performance of MFIs and banks include: Financial structure, Profitability and Efficiency.