Operational self-sufficiency of select NBFC-MFIS of Andhra Pradesh

Abstract

Operational Self Sufficiency (OSS), expressed in percentage terms, provides an indication as to whether a Microfinance Institution (MFI) is earning sufficient revenue (through interest, fee and commission income) so as to cover its total costs-financial costs, operational costs and loan loss provisions. MFIs can achieve OSS of 100%, either by increasing their operating income or by decreasing their total costs. This paper analyzed the Operational Self Sufficiency (OSS) of six select Non-Banking Financial Companies (NBFC)-MFIs, which have their headquarters in Andhra Pradesh. It has identified five factors that have an effect on the OSS of these MFIs, using the multiple regression analysis technique. These five factors are-Yield on Gross Loan Portfolio (Nominal), Total Assets, Cost per Borrower, Gross Loan Portfolio and Number of Active Borrowers. The study results indicated that an increase in the yield on gross loan portfolio and total assets of a MFI, resulted in the increase of OSS while an increase in the cost per borrower and number of active borrowers, decreased the OSS of the MFIs.