Indian Microfinance Institutions Research Articles

Review of Literature on Determinants of Loan Repayment Performance in Microfinance Institutions

This article presents a comprehensive literature review on the determinants of loan repayment performance in microfinance institutions (MFIs). The review aims to enhance the understanding of borrower behaviour regarding loan repayment, focusing on socio-economic, institutional, and motivational factors. It synthesises findings from various studies, including the Indian Institute for Mother and Child (IIMC), a nonprofit Indian MFI, to identify critical determinants influencing borrowers' ability to repay loans. Factors such as income stability, education level, financial literacy, and family size are highlighted as significant socio-economic determinants. Loan-specific factors, including loan size, repayment period, and supervision, are also critical. Institutional practices like credit assessment techniques, loan structuring, and technological adoption are examined alongside social factors such as peer pressure, social cohesiveness, and community support systems. Additionally, the review explores borrowers' motivation for taking out additional loans, finding that the drive to reach the maximum loan level positively impacts repayment performance. Empirical evidence suggests that repayment rates increase as borrowers approach their loan limits. The article concludes with recommendations for MFIs to improve their operational strategies by addressing these determinants, thereby enhancing loan repayment rates and contributing to the sustainability and effectiveness of microfinance programs.

Effect of Capital Structure on Financial and Social Performance of Indian MFIs: A Bibliometric Analysis and Systematic Literature Review

Microfinance Institutions (MFIs) play a crucial role in financial inclusion and social empowerment, with funding sources significantly influencing their overall performance. Despite existing research efforts on the relationship between capital structure and the performance of MFIs, a notable gap remains in the literature, particularly concerning Indian MFIs. This study aims to address this void by examining the influence of capital structure on the financial and social performance of Indian MFIs. The study aims to assess the effect of capital structure on financial and social performance through a systematic literature review of 20 articles using Scopus and Google Scholar. Network analysis and systematic literature review methodologies, employing tools such as Bibliometrix and VOSviewer, were used to scrutinize the selected records. Findings reveal inconclusive outcomes on the effect of capital structure on MFIs' performance, specifically in the heterogeneous context of India, highlighting that while Indian MFIs utilize debt financing to expand services, it may elevate credit risk and non-performing assets, negatively impacting overall performance. The empirical results can guide MFIs in optimizing their capital structures for financial self-sufficiency, enabling better services for underserved populations. The study underscores the need for more empirical analyses, incorporating additional variables and a broader range of MFIs, to enhance reliability and provide actionable recommendations for financing structures and diversified funding sources.

Determinants of FinTech adoption by microfinance institutions in India to increase efficiency and productivity

Determinants of FinTech adoption by microfinance institutions in India to increase efficiency and productivity

Income Diversification and Financial Sustainability of Indian Microfinance Institutions (MFIs): An Empirical Study

Microfinance institutions (MFIs) emerged intending to provide financial services to underserved populations, fostering economic inclusion and poverty alleviation. However, achieving this aim is wholly based on the MFIs’ financial sustainability and profitability. MFIs’ fundamental structural restrictions might make raising income through increased interest rates difficult. As a result, it is now widely acknowledged that MFIs with various revenue streams outperform those primarily focused on lending in terms of financial sustainability. This study investigates this link by assessing the impact of income diversification on the financial performance and financial self-sufficiency of the top ten listed Indian MFIs. The study uses eight years of panel data from 2016 to 2023, and analysis was made by applying descriptive statistics, Herfindahl-Hirschman Index (HHI), and panel data regression models. Our findings provide empirical support for the banking studies’ preference for focused strategies over diversification strategies, showing that expanding income sources has no impact on the financial performance (return on equity/return on asset) and financial self-sufficiency (FSS) of Indian MFIs.

Microfinance Institutions’ Efficiency and its Determinants: Evidence from India

This study evaluates the financial and social efficiency of Indian Microfinance Institutions (MFIs) from 2005 to 2018 and also tries to find out the determinants of financial and social efficiency. In the first step, bias-corrected bootstrap Data Envelopment Analysis (DEA) efficiency scores for financial and social efficiency were calculated using two input and two output variables. In the second step of analysis above efficiency scores have been used as dependent variables and Seemingly Unrelated Regression (SUR) model is employed to ascertain the determinants of financial and social efficiency of Indian MFIs. The study finds that the aggregate financial efficiency of Indian MFIs is higher than the social efficiency. Over the study period, efficiency of Indian MFIs shows an increasing trend. Results of SUR suggest that as compared to Non-Banking Finance Company (NBFC) MFIs, Non-NBFC MFIs’ financial and social efficiency is better. Influence of age, scale of loan portfolio, asset quality and financial leverage on efficiency of MFIs are insignificant. This study also finds that asset size of the firm is positively associated with efficiency. Evidence from this study suggests that reform measures taken post microfinance crises has negatively affected the financial efficiency. However, social efficiency has improved during post reform period. JEL Codes: G21, C33

Regulatory non-compliances in microfinance operations: a survey of Indian microfinance institutions

PurposeRegulation is critical for sustainable microfinance sector growth. Under this premise, the study aims to examine the different regulatory noncompliance (RNC) practices prevalent in the operations of microfinance institutions (MFIs) at the ground level.Design/methodology/approachBoth the quantitative and qualitative (observations, interviews and focus group discussions) techniques are used to extract the findings.FindingsThe study highlights the different RNC practices exercised by the loan officers at the field level in their microfinance loan disbursements.Originality/valueThis study is based on the primary data collected from microfinance clients. The arguments put forth for the RNC practices are extracted from direct personal interviews with the loan officers and the clients. The role of various dilemmas/circumstances of the loan officers and the beneficiaries that implicate the MFIs in RNC is highlighted.

Does firm size affect client targeting? An investigation over the clients of the Indian Microfinance Institutions

The study examines the impact of the Microfinance Institutions’ (MFIs) size on their client targeting. Using MFI clients’ household data, the study considers household income, wealth, human development, caste, settlement type, and purposes of loans as different client targeting dimensions. The analysis is based on a sample survey of over 301 women clients who had received loans exclusively from 12 big and 13 small MFIs.The results indicate that the MFI size has an adverse effect on social performance. As the MFIs grow in size, they tend to target and serve the wealthier and non-agriculturally employed clients residing in urban areas. The women’s passive role in borrowing emerges as yet another concern. The instances of poverty penalty among the poor clients as reflected through higher interest rates for small-sized loans are yet another concern. The target towards poverty eradication may turn out to be a far cry under the large-sized MFIs.

Prediction of Factors Influencing Social Performance of Indian MFIs using Machine Learning Approach

The aim of the current work is to predict the impact of MFI specific internal factors on the social performance of Indian microfinance institutions (MFIs) by using machine learning techniques. Social performance index (SPI) is designed by taking data of 73 Indian MFIs for 10 years with the help of an indexing technique where six different factors (operational self sufficiency, number of women borrowers, number of rural borrowers, gross loan portfolio, average loan balance per borrower / GNI per capita and cost per borrower) representing different dimensions of functioning of MFIs are considered. The data is taken from MIX data repository. Pooled OLS regression model is used for analyzing impact of various MFI specific factors on SPI. For predicting the SPI, Artificial Neural Networks (ANN) machine learning model is considered that takes all independent variables as input. The results of regression model indicate that size, legal status, outreach and service provisions significantly affect SPI. ANN analysis result indicates that social performance of MFIs gets determined by MFI specific internal factors. The experimental result indicates that the proposed ANN prediction model is providing better result for predicting the SPI. The findings suggest that MFIs can contribute for development of the society by adopting suitable policies keeping in view certain internal factors.

Assessing financial sustainability as a key indicator for business transformation of microfinance institutions: A study in India

Access to financing is acknowledged to play a notable role in the development of economy by efficiently allocating resources from excess units to units in need. If microfinance institutions (MFIs) can maintain good financial performance, the positive effects they have on the financial wellbeing of those in need will continue. To promote sustainable global development, sustainable financial practices are essential. Previous studies have been motivated by the economic crisis to highlight the necessity of assessing and managing financial sustainability in business. India is the top borrower in South Asia, and hence, this study is significant for the MFIs in India. This study’s goal is to look into the pattern of Indian MFIs’ financial (1) success from 2014 to 2017. The result shows that women are consistently being the highest borrowers.

Assessing the Operational Efficiency of Microfinance Institutions in India Using Data Envelopment Analysis

Assessing the Operational Efficiency of Microfinance Institutions in India Using Data Envelopment Analysis

Exploring the role of microfinance in encouraging entrepreneurship using unsupervised learning

Microfinance institutions in India have a significant role in providing financial services to a large sector of users who would otherwise be unable to access these services. These institutions have an important role in the reduction of poverty by providing small loans to the users. This study examines the impact of microfinance on entrepreneurial activities in Indian context. Two widely used machine learning approaches, Principal Component Analysis (PCA) and clustering have been employed to identify correlation among the microfinance and a set of selected factors. The selected factors have been associated with Gross Loan Portfolio (GLP), since the GLP has been used in the literature as a significant control variable for computing the entrepreneurship level. Initially, PCA technique has been applied to determine main principal components, and then K-Means clustering has been applied to get clusters, in order to get the labelled dataset. The labelled data obtained from K-Means clustering is useful for applying classification techniques, through which we can predict level of entrepreneurship using Supervised Learning. Finally, the results obtained from machine learning algorithms indicate that GLP being the main contributing factor for computing the entrepreneurship level.

Factors Influencing Scaling Strategies of Indian Microfinance Institutions

Efficient selection of scaling strategies can help microfinance institutions (MFIs) to scale up their social impact. There can be various factors affecting the decision of these institutes regarding the selection of either scaling wide or scaling deep strategy. This paper aims at analyzing the effect of institution-specific factors on the selection of scaling strategy of MFIs. Ordinary regression model is used for analysis, as the study considers cross-sectional data of 204 Indian MFIs for the year 2020.The results show that number of branches, number of staffs, gross loan portfolio, impact scaling wide strategy and provision for non-financial services influence scaling deep strategy. India is a developing nation and microfinance institutions play a crucial role in the process of social and economical development of the country. Research on Indian MFIs which can suggest for the consideration of various internal factors in designing scaling strategies will be helpful in deriving maximum benefits from the activities of MFIs.

Sustainability of Indian Microfinance Institutions: Analysis of Financial and Social Super Efficiency

Andhra Pradesh’s microfinance institution (MFI) crisis calls for establishing a balance between financial and social performance to ensure sustainability. The present study analyses the financial efficiency and social efficiency of Indian MFIs during 2015–2020, which is a crucial period, as during this period, Indian MFIs came across some significant changes such as permission to act as business correspondents, Micro Units Development and Refinance Agency (MUDRA) scheme, demonetization and outbreak of COVID-19. Since the relative efficiency scores based upon specific set of inputs and outputs proclaim many MFIs to be fully efficient, super efficiency scores have been computed to discriminate their performance. The results reveal the setbacks to all MFIs during 2016–2017 and 2019–2020 as an immediate impact of demonetization and COVID-19, respectively. Super-efficiency estimates divulge that the fall in financial efficiency was greater than in social efficiency in both the years. Mann-Whitney test reveals significant differences between financial and social efficiency in terms of overall efficiency, however, no significant difference could be observed for managerial efficiency. The results are expected to be fruitful for MFIs striving to maintain a trade-off between the twin objectives as results endorse a positive rank correlation between financial and social efficiency.

Profit-oriented micro-finance institutions in India

Micro-finance institutions (MFIs) as financial intermediaries, help poor to come out of extreme poverty through the purposeful lending to those looking to generate income for the livelihood needs. These micro-finance institutions need good governance to ensure improved performance to achieve sustainability and growth. The review of literature has produced mixed results in studies on the influence of governance on the performance of microfinance institutions. There is no enough research undertaken in measuring the impact of governance on the functioning of microfinance institutions, particularly in the context of ‘Profit-Oriented’ MFIs in India exclusively. This research examined the effect of governance on the overall performance of ‘Profit-Oriented’ micro-finance institutions. Using regression technique, evaluation of governance and performance of ‘Profit-Oriented’ MFIs has been undertaken to check the possible impact and it is being found that governance has an impact on the performance. This research emphasized on the impact of governance on the performance of ‘Profit-Oriented’ micro-finance institutions. The governance and performance indicators, identified as independent and dependent variables respectively, from the review of literature using regression technique. As this research can be useful for the microfinance institutions, as several MFIs are transforming from ‘Non-Profit Oriented ’MFIs to ‘Profit-Oriented’ MFIs in providing micro-finance services.

Role of Indian Microfinance Institutions in Financial Inclusions

Abstract: Microfinance growth is critical to the upliftment of financially excluded from the mainstream. This is evident from their contribution to improving financial inclusion particularly in semi urban and rural locations. Micro Finance players have been actively pursuing activities to balance social and commercial obligations and a key stakeholder in the process customers Financial Institutions and regulators. This paper highlights various aspects of growth of microfinance institution with a wide array of services in India that have consequently brought about significant changes in the lives of economically marginalized people and reduce vagaries of source of income. Keywords- Financial inclusions, microfinance institutions, outreach.

Corporate governance practices and its impact on the financial performance of microfinance institutions in India

The Cadbury report (1992) has defined corporate governance as the “system by which companies are directed and controlled”. Explicitly CG is the framework in which stakeholders’ interests are to be balanced. Good governance practices have been observed as the key ingredient of microfinance institutions (MFIs) as it ventures to aid social and financial objectives. In this paper, we have examined the corporate governance practices in microfinance institutions (MFIs) and investigated the impact of corporate governance on the financial performance of the microfinance institutions (MFIs). Keyboard features are(board size, independent directors, independent audit committee) that have effects on the financial performance of the microfinance institutions of India. We have used 60 Indian companies as a sample and took 600 observations from selected companies, the time duration of the study is from 2016-2021. The audit committee has a negative impact on the performance, it doesn’t help in improving the monitoring and transparency of the firm. We found that the board size and audit committee have a significant impact on the performance, the corporate governance has a moderate impact on the financial performance of the Micro financing institutions.

Effect of Capital Structure on the Financial and Social Performance of Indian Microfinance Institutions

This study investigates the effect of capital structure on the social and financial performance of microfinance institutions (MFIs), which have a double bottom line objective of outreach and financial sustainability. Generalized method of moments (GMM) and instrumental variable (IV) estimation were used on the panel data set of 46 non-banking finance companies (NBFCs)-MFIs from 2013–2014 to 2018–2019. NBFC-MFIs are formed after the transformation of NGO-MFIs to access market-based sources of funds to increase their outreach. The results show that Indian MFIs are highly leveraged and have bidirectional causality between capital structure and financial and social performance variables. The study found a positive and significant relationship between capital structure and social and financial dimensions of the NBFC-MFIs. It shows that NBFC-MFIs can maintain the dual objectives even after transformation. The study contributes to the scarce literature by emphasizing the role of capital structure on the performance of MFIs, which are playing an essential role in financial inclusion.

A STUDY ON FINANCIAL PERFORMANCE OF S.M.I.L.E MICROFINANCE LIMITED

Microfinance at first has been a type of deliberate assistance to the most denied populace. In any case, today it addresses a market answer for alleviation of destitution and goes about as a turn of events and financial device in achieving monetary consideration in India. Microfinance has arisen as a practical choice to come to the until recently unreached for their social and financial strengthening through friendly and monetary inter- mediation. The establishments that are giving microfinance administrations, for example, reserve funds, credit, protection and settlement administrations to poor are called Microfinance Institutions (MFIs). The review focuses on investigating the monetary presentation of S.M.I.L.E MICROFINANCE Restricted. The information have been gathered from the Microfinance Information Trade from the financial year 2015 to 2019. The measurable devices, to be specific, Descriptive insights and development rates have been utilized for investigating the information.. As far as in general monetary execution, Indian MFIs have better ROE and OSS. Indian MFIs have shown higher monetary income by resources, the yield on gross portfolio (ostensible) and lower working cost by resources, yet at the same time it couldn't cover the complete cost and monetary costs. In truth, Indian MFIs have uncovered better effectiveness and efficiency as estimated by working cost by advance portfolio, normal compensation by GNI per capita and advances per staff part.

Factors Affecting Social and Financial Efficiency of MFIs: DEA and Tobit Approach

This study aims to examine the factors that affect the social and financial efficiency of Indian Microfinance Institutions (MFIs). Relative efficiency of 38 non-banking financial companies (NBFC)-MFIs has been measured using the non-parametric data envelopment analysis (DEA) approach. The determinants of social and financial efficiency of MFIs have been identified using censored Tobit regression. The study findings indicate that NBFC-MFIs are financially more efficient than social. Regression analysis results reveal that age and size are important variables of financial efficiency while leverage and size are social efficiencies. This may be the first extensive study measuring the determinants of efficiency on financial and social dimensions separately for Indian NBFC-MFIs. This study contributes to the scarce literature by providing the role of efficiency in the sustainability of MFIs in the long run.

Efficiency Wage and Productivity in the Indian Microfinance Industry: A Panel Evidence

Enhanced productivity remains a crucial agenda for firms to attain cost and competitive advantages in the market. Hence, the main purpose of this study is to investigate the effects of efficiency wage (EW) on the productivity of microfinance institutions (MFIs) with respect to their dual objectives, namely, outreach (depth and breadth) and financial sustainability. Unbalanced panel data of 179 Indian MFIs were collected over the period 2010–2018 from the Microfinance Information Exchange (MIX) market platform (now obtainable from the World Bank catalogue). Under a static model setting (fixed effects model), the observed relationship between EW and MFI’s productivity is mixed. On the one hand, EW exhibits a strong and statistically significant positive relationship with the breadth of outreach, even after considering various control variables and alternative proxies of EW. On the other hand, EW shows no positive influence on the MFIs’ depth of outreach; rather, it results in a mission drift of MFIs, with the poorest of the poor being neglected (weak and insignificant for proxy of EW). Concerning the financial sustainability of MFIs, EW exhibits a positive and statistically significant effect, except for the profitability dimension when an alternative proxy of EW is used. A two-step system generalized method of moments (GMM) performed to limit endogeneity problems also validates most of our findings. The outcomes of this study could help MFIs’ managers in designing appropriate financial packages to enhance MFIs’ productivity and subsequently attain the dual objective of outreach and sustainability.