Indian Microfinance Institutions Research Articles

Microfinance loan officers before and during Covid-19: Evidence from India.

The Microfinance industry has been severely affected by Covid-19. We provide detailed insights into how loan officers, the key personnel linking the lender to its borrowers, are affected in their performance and adapt their work to the pandemic. We use administrative records of an Indian Microfinance Institution and detailed panel survey data on performance, performed tasks, and work organization to document how the work environment became more challenging during the pandemic. Loan officers operate in a setting where work from home is hard to implement due to the nature of the tasks and technological constraints. The usual performance indicators appear to be mainly driven by external factors such as the nation-wide debt moratorium. Loan officers worked similar hours, but engaged less in planning activities and completed fewer of the usual tasks. Work perceptions and mental health of loan officers reflect these changes, and perceived stress was particularly high during the period of the debt moratorium.

Voluntary Disclosures of Indian Microfinance Institutions

The microfinance sector is growing at an astonishing rate in India. Reserve Bank of India, from time to time, comes up with a lot of directions to maintain transparency and governance in the microfinance sector. The current study focuses on the voluntary disclosure (VD) of the Non-Banking Financial Companies- Microfinance Institutions in India. The study constructs an unweighted index to measure the VD scores of the firms. The study also estimates the technical efficiency of the firms in meeting dual objectives of social and financial efficiency of the microfinance institutions. The empirical testing derived the association of the VD score and the efficiency from the data sourced from 2015 to 2019. The findings suggest a negative association between VD and efficiency. The study's major contribution is the type of VD disclosed by the firms. Finding also suggests that firms consider discretionary disclosure a wasteful activity. The dual performance is low but shows a gradual increase. The study is relevant for the policymakers and managers to check the disclosure strategy and the patterns of these firms, which mainly depend on the donors for raising funds for their sustainability.

Analysis of the Double Bottom Line Performance of Microfinance Institutions in India and the Need for Regulation in the Indian MFI Sector

Poverty and Financial exclusion are the greatest challenges facing an emerging economy like India. Many countries, including India, had implemented subsidised credit to irradicate poverty, which only increased the NPA (Non-Performing Assets). MFIs (Microfinance Institutions) were formed to bridge the gap between the formal financial sector and the financially excluded. Social commitment forms one of the basic characteristics of the MFIs, and now its scope is broadening to social performance. However, like any other organisation, to continue their operations in the long run, financial sustainability is a key determinant for MFIs. Thus, the double bottom line commitments imply balancing financial and social performance. Certain developments in recent years brought a fresh focus on the problem of regulation in the field of microfinance. In the present scenario, the Indian MFI sector is largely unregulated. In India, a variety of legal forms of MFIs are found like NBFC-MFIs (Non-Banking Financial Companies-Microfinance Institutions), NBFCs, SHGs (Self Help Groups), Society, NGOs (Non-Governmental Organisations), Trusts, and Sec. 8 Company, etc., among which the lion's share goes to NBFC-MFIs/NBFCs. The paper analyses the double bottom-line performance of MFIs in India using secondary data of Indian MFIs extracted from various reports of Sa-Dhan, the World Bank, and the RBI (Reserve Bank of India). The paper also attempts to highlight the need for a regulatory body to guide, supervise and regulate different players in the Indian MFI sector.

Social Benefits of Financial Performance - an Econometric Analysis of Financial Management of Indian Microfinance Institutions (MFIs)

The microcredit facilities that are imparted by Microfinance Institutions (MFIs) to the low-income clientele, usually in the form of small loans for microenterprise and income-generating activities have been linked with increasing financial inclusion in India. This study explores the econometric relationship among the aggregate gross loan portfolio, operational efficiency and average number of active borrowers of MFIs in India with the understanding that financial exclusion renders the poor vulnerable to monetary shocks. It was observed that healthy aggregate gross loan portfolio (considered here as a proxy for asset position) and operational efficiency (ratio of administrative expenses to financial revenue) of an MFI does not hamper financial inclusion (number of active borrowers) in the society, rather better financial performance of MFIs improves the financial inclusion at the macro level. Hence, financial performance of an MFI does not come at the cost of social performance. The research paper further provides impetus to the policy makers in India to corroborate the MFIs with large asset values to efficiently allocate their resources to sustain a large number of borrowers.

Financial Performance of Micro-Finance Institutions in India

Micro-finance institutions (MFIs) in most developing countries, including India, are seen as essential of the tools to eradicate poverty and raise the standard of living of rural poor. Therefore, the sound functioning of MFIs has a huge long-run impact on the outreach of the rural poor. However, the performance of MFIs is often measured in terms of their social impact on the rural poor, while the financial indicators are ignored. In this context, the study analysed the major determinants of the financial performance of the 20 MFIs in India using panel regression. The results of the study revealed that financial indicators such as operating selfsufficiency, return on assets, and size (assets of the MFIs) had a positive impact on increasing the performance of MFIs. Further, the active borrowers increase efficiency, while passive borrowers had a negative impact on the performance of the MFIs. Similarly, a low level of debt to equity ratio, operating expenses to assets ratio, and low percentage of women borrowers could lead to the sound financial performance of MFIs.

THE DETERMINANTS OF MICROFINANCE INSTITUTIONS EFFICIENCY: THE ROLE OF WOMEN BORROWERS

Microfinance institutions (MFIs) are instrumental in enabling the economic empowerment of women. We examine the efficiency and performance of 84 Indian MFIs from 2016 to 2018 using a two-stage double bootstrap approach. Our results show that MFIs with increased outreach and actively target female borrowers achieve higher efficiency. Furthermore, we find larger MFIs and higher leverage intensity to be positively associated with efficiency. Government policies should be encouraged to support current MFIs to grow larger, actively target female borrowers and increase outreach to the poor to support India’s financial inclusion agenda and facilitate the economic empowerment of women whist revitalizing less efficient MFIs.

Enhanced job satisfaction under tighter technological control: The paradoxical outcomes of digitalisation

AbstractVia a multiple case study of work in microfinance institutions in India, this paper reports on the experiences of field officers and branch managers following work digitalisation. It identifies and explains an intriguing post‐digitalisation paradox of reported increased job satisfaction and tighter technological control diminishing branch managers' work‐life balance. The paradox draws attention to the significance of context in workers' experiences of mobile digital technologies (MDTs) and contradicts previous studies on workers' positive experiences of adopting MDTs: the workers in this study did not experience greater autonomy or flexibility but reported enhanced employment security and status. The paper also adds to literature on employment relations following work digitalisation by revealing powerful enforcement of technological control, with ‘WhatsApp’ identified as a key managerial tool used for surveillance and discipline, and worker resistance at the margins.

Scaling Social Enterprises through Product Diversification

Scaling has remained a challenge for social enterprises, which strive to balance social impact with financial performance to facilitate sustainable development. Product diversification, a common scaling strategy in commercial enterprises, has been recently proposed as a strategy to scale social enterprises while keeping their dual goals in balance. We empirically investigate this using a combination of qualitative and quantitative analyses of microfinance institutions in India. Our inductive analysis reveals that product diversification in social enterprises varies along two dimensions—relatedness and locus of impact—to give four distinct diversification strategies. Each of these strategies impacts the social and financial goals of the organization differently. To scale successfully, social enterprises need to deploy a deliberate and dynamic mix of product diversification strategies. The paper makes an important contribution to the field of social entrepreneurship by exploring how diversification strategy can help social enterprises scale. It also provides important insights to social entrepreneurs on how they should deploy a mix of diversification strategies to maintain a balance between their social and financial goals.

Business Models in Social Entrepreneurship – Linking Founder Imprinting and Financial Performance

We examine the relationship between founder imprinting and the financial performance of their social enterprises (SEs) and the important role of business model choice in shaping it. We do this by studying microfinance institutions (MFIs). We argue that business imprinting on the founders influences their business model choice (target market) for their social enterprises. This choice is vital for explaining the subsequent financial performance of their SEs. The enduring effect of business imprinting is such that it leads to a lower likelihood of them selecting rural customers as their target market. This in turn influences their ability to generate interest income from their loan portfolio as well as to manage their business risk, due to the prevailing institutional context. The results obtained from a generalized multilevel structural equation model on data based on Indian MFIs between the years 2013 and 2018 support our hypotheses. Overall, our findings have important theoretical and practical implications for business models and social entrepreneurship literatures.

Borrowers’ credit risk factors, perception towards repayment interventions and moral hazard in loan delinquency: an investigation of Indian microfinance institutions

ABSTRACT The study explores the borrowers’ credit risk factors, perception towards repayment interventions, and the problems of moral hazard affecting delinquency in uncollateralized loans issued by the Microfinance Institutions (MFI). It employs the partial least square structural equation modelling to develop a buyer-side perception-behavioural model for borrowers’ loan delinquency behaviour. The findings indicate that the borrowers’ perception towards MFI loan repayment interventions and group homogeneity significantly reduces the moral hazard problem leading to a lower delinquency rate. The household socio-economics characteristics also seem to have a significant association with the borrowers’ loan delinquency. Identification of borrowers’ credit risk factors and the interlinkage between borrower’s perception towards repayment interventions, group homogeneity, and moral hazard in loan delinquency can provide critical insights that MFIs can consider while disbursing uncollateralized loans to control the default risk.

Impact of Efficiency on Voluntary Disclosure of Non-Banking Financial Company—Microfinance Institutions in India

This paper investigates how the financial and social efficiency of firms influence the extent of the voluntary disclosure of Non-Banking Financial Companies–Micro Financial Institutions (NBFC-MFI). The study constructed an unweighted index of voluntary disclosure to estimate the level of voluntary disclosure of all of the included firms from the years 2015–2019. The financial and social efficiency, which is analogous to the technical efficiency of production theory and analyses both sustainability and outreach, respectively, was estimated using data envelopment analysis (DEA). The panel data analysis was completed, and a positive association of financial efficiency was estimated. The social efficiency was found to have no relationship to the voluntary disclosure level. This paper contributed to the literature by providing new determinants of voluntary disclosure. The study examines the econometric model and suggests that financially sustainable firms that utilize these resources well are more open to outsiders, while socially efficient firms are reluctant to voluntary disclosure, which also includes social activities, and consider this as a wasteful activity. The findings of this study are relevant to industry practitioners and regulators, who need to think upon the sustainability of this crucial sector by meeting the dual objectives of financial and social performance. This study is helpful to all stakeholders as well as for the government, who can use the results to design additional rules for the NBFC–MFI. This study will also help firms to design disclosure strategies to ascertain goodwill and less cost of capital, with easy access to funds.

Productivity growth, catching-up and technology innovation in microfinance institutions in India: evidence using a bootstrap Malmquist Index approach

PurposeThis paper aims to examine the total factor productivity (TFP) change and its components: efficiency change and technical change in microfinance institutions (MFIs) in India operating from 2005 to 2018. The study also scrutinizes the variations in productivity levels across the distinct organizational form and size groups of MFIs. In addition to this, the authors identify the contextual factors that determine TFP growth, catching-up and technology innovation in MFIs.Design/methodology/approachThe study employs a smooth homogeneous bootstrap estimation procedure of Simar and Wilson (1999) for obtaining reliable estimates of Malmquist indices –productivity and its components – in a data envelopment analysis (DEA) framework for individual MFIs. In order to identify the determinants of productivity change and its components, the study follows Simar and Wilson's (2007) guidelines and applies a bootstrap truncated regression model. The double bootstrap procedure performs well, both in terms of allowing correct estimation of bias and deriving statistically consistent productivity estimates in the first and root mean square errors in the second stage of the analysis.FindingsThe empirical results reveal that the MFIs have shown average productivity growth of 6.70% during the entire study period. The observed productivity gains are primarily contributed by a larger efficiency increase at the rate of 4.80%, while technical progress occurs at 2.3%. Nonbanking financial companies (NBFC)-MFIs outperformed non-NBFC-MFIs. Small MFIs show the highest TFP growth in terms of size groups, followed by the large MFIs and medium MFIs. The bootstrap truncated regression results suggest that the credit portfolio, size and age of MFIs matter in achieving higher productivity levels.Practical implicationsThe practical implication drawn from the study is that the Indian MFI industry might adopt the latest technology and innovations in the products, risk assessment and credit delivery to improve their productivity levels. The industry must focus on enhancing the managerial skill of its employees to achieve a high productivity level.Originality/valueThis study is perhaps the initial attempt to explain the productivity behavior of MFIs in India by deploying a statistically robust double bootstrap procedure in the DEA-based Malmquist Productivity Index (MPI) framework. The authors estimate the bias-adjusted productivity index and its decompositions, which represent more reliable and statistically consistent estimates. For contextual factors responsible for driving productivity change, the study deploys a bootstrap truncated regression approach.

Impact of Competition on Efficiency of Microfinance Institutions: Cross Country Comparison of India and Bangladesh

Increased competition coupled with commercialisation in the Indian microfinance sector has brought about many major transformations. From an impact-driven development programme, microfinance institutions (MFIs) today emerged as commercially oriented profit-making entities. In addition to bringing their commercial and social objectives into balance, MFIs today are striving for efficient level of operation. Efficiency in the level of operation of MFIs allows them to remain competitive and attain financial sustainability. However, it is also imperative for MFIs to remain socially committed towards the ultimate mission of reaching the poorest at the bottom of the pyramid. Hence, it is of research interest to see the trade-off between MFIs’ social objective of spreading outreach and at the same time remaining financially sustainable. Against this backdrop, this article is devoted to study the potential impact of competition and commercialisation on efficiency of MFIs in India and Bangladesh. The study is carried over 75 MFIs altogether over the period of 8 years from 2009 to 2016. The data have been collected from microfinance information exchange database. Efficiency is measured through technical efficiency (TE) scores as estimated under data envelopment analysis. In order to establish the association between competitions, which is estimated by the Herfindahl–Hirschman index (HHI), tobit regression is used. The study evidenced increasing level of competition in the sector over the years, but it is more pronounced in India as against Bangladesh. In order to analyse the trade-off, TE scores are separately estimated under both financial and social measures. TE score is found to be higher in case of social measures of efficiency as against financial efficiency. Further, under both the measures, competition is found to be having a significant impact on both financial and social efficiency.

Role of human and structural capital on performance through human resource practices in Indian microfinance institutions: A mediated moderation approach

Although much has been written about the effects of human capital (HC) on firm performance, little attention has been paid to the interactive effect of HC and structural capital (SC) on performance through human resource practices (HRPs). The population of this study is consisting of Indian microfinance organizations. Nonetheless, in the process of bringing financial stability which is critical for MFIs to expand their outreach, they sometimes gradually tend to drift from their social mission. Keeping the mission drift in mind, performance is understood in terms of both financial and social performance. The structural model has been tested using partial least squares (PLS) as the statistical tool. The results show that HC and SC have a significant impact on performance. Further, the finding of this research shows a mediated moderation of HRP and SC to performance. This implied organization of assorted combinations of HC and SC would have distinct HRPs or organization of varied HC would have diverse HRPs and organization of discrete SC would process HRPs differently and thus resulting in different level of performance.

Covid-19 pandemic: Challenges and ways forward for the Indian microfinance institutions.

To contain the spread of the Covid‐19 pandemic, the mandated social distancing and restricted market activities have adversely affected the employment and earnings of the poor who are considered the targeted beneficiaries of the Microfinance Institutions (MFIs). The MFI operation and more specifically fresh lending are under serious threat as the mode of operations primarily involve physical interaction while distributing credits at the clients' doorsteps, conducting periodic group meetings and carrying out regular collections. This short article attempts to analyze the various challenges that MFIs may encounter in their current and future operations due to the ongoing pandemic. It discusses how the government initiated coping mechanisms may help MFIs overcome or minimize the pandemic challenges. At the same time, MFIs' efforts towards continued services are expected to create a win‐win situation.

An integrated framework for analysing performance indicators of Indian microfinance institutions: a multi-stakeholder perspective

PurposeAn amalgamation of Decision-Making Trial and Evaluation Laboratory (DEMATEL) and Analytical Network Process (ANP) has been performed to develop a decision-making framework for improving the overall performance of the microfinance institutions. A primary survey was conducted to collect real-time data from the heterogeneous stakeholders of microfinance institutions across India. The validation of the proposed framework is performed by comparing the results against the conventional method of Analytical Hierarchy Process (AHP).Design/methodology/approachThis study identifies various dimensions and indicators for measuring the performance of Indian microfinance institutions. Additionally, the ranking and prioritisation of the performance dimensions and indicators is obtained by considering the mutual interrelation between them.FindingsThe study indicates that there exists a significant dyadic relationship between financial performance and social performance for improving the overall performance of the microfinance institutions. Governance is found to unidirectionally influence both financial and social performance. Among all the considered dimensions, financial performance of a microfinance institution is the most critical dimension for improving the overall performance. The top five performance indicators of the Indian microfinance institutions are funding source, borrowing and overhead cost, size of the firm, end-use of the money and depth of outreach.Research limitations/implicationsThe study was conducted in the context of Indian microfinance institutions; hence the scope of generalisation of the results is limited. This research considers both subjective and objective aspect of the performance dimensions and indicators from the perspective of multiple stakeholders (i.e. firm, society and regulator). The integrated framework is expected to aid in improving overall performance of microfinance institutions by focusing on the most critical (high prioritised) performance indicators.Originality/valueAn integrated DEMATEL-ANP framework is used in the domain of microfinance to assess the performance dimensions. This study is unique in terms of analysing performance of microfinance institutions from the perspective of heterogeneous stakeholders.

Organizational sustainability and performance improvement in microfinance institutions (MFIs): managerial insights of what, why and how

PurposeThe special importance of microfinance institutions (MFIs) in the context of emerging economies is well acknowledged. The success of MFIs is country, culture and context-specific. This study aims to capture the organizational sustainability viewpoint of MFIs through the experiences and insights of the managers engaged in running MFIs in an emerging market.Design/methodology/approachThe study follows a qualitative approach and collects primary data through insightful interactions with the senior managers of various Indian MFIs, followed by thematic analysis to identify the factors impacting the sustainability of MFIs. It is supplemented by an extensive systematic literature review to enrich the findings. The identified factors are then analyzed through the lens of a balanced scorecard (BSC) approach to developing a framework in assessing the performance of MFIs operating in similar to this study’s context.FindingsThe authors observe that the majority of the studies on MFI sustainability are financial outcome centric. This study adds value by exploring a holistic and organization-centric approach drawing support from stakeholder theory, which emphasizes that the shareholders, employees and customers are equally important for the sustainability of the MFIs.Research limitations/implicationsWhile the identified sustainability factors would help the practitioners focus upon the factors of improvement, the BSC framework would facilitate the conduct of performance review and taking related decisions thereon for the sustainability of MFIs.Originality/valueTo the best of the authors’ knowledge, this study is the first of its kind to attempt to assess the MFI organizations striving for sustainability through the lens of BSC framework.

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

Ownership and performance of microfinance institutions: Empirical evidences from India

The study examines the efficiency differences across the ownership structure of Indian microfinance institutions (MFIs) operating during the year 2005/06 to 2017/18 in response to regulatory reforms initiated by the Reserve Bank of India (RBI) in the year 2011. We remove the outliers from the dataset first. Thereafter, we employ the bootstrap data envelopment analysis (DEA) to assess the bias-corrected efficiency scores. To identify the performance determinants, we use bootstrap truncated regression. The empirical results suggest that the performance difference between NBFCs and Non-NBFC MFIs is not statistically significant in the sample period. Further, the study finds that the size and ownership structure of MFI has a positive and statistically significant impact on the efficiency level. Although the coefficient of PAR30 (Portfolio at risk, 30 days) is statistically insignificant, however, the results conclude that the deteriorating credit quality has hindered the efficiency level. The Indian MFI industry needs to focus on the adoption of more innovative technology and partnership with FinTech (financial technology) firms to reduce the transaction costs and service time. The RBI essentially endorses the regulatory-sandbox practices to offer micro-financial services to the poor.

Efficiency of microfinance institutions of South Asia: a bootstrap DEA approach

The microfinance institutions (MFIs) operate with the dual goals; financial sustainability and social outreach. Therefore, the present paper aims to assess the twin objectives of MFIs operating in the selected four South Asian countries (i.e., Bangladesh, India, Nepal and Pakistan) during the financial year 2010 to 2015. First, we remove the outliers from the dataset by following Banker and Gifford (1988) and Banker and Chang (2006) guidelines. Thereafter, the study use bootstrap data envelopment analysis (DEA) by designing two separate models to measure bias-corrected financial and social efficiency estimates. The empirical results confirm that the South Asian MFIs remain more financially efficient than socially during the study period. Further, the Indian MFIs outperform in terms of both the aspects followed by Nepali and Bangladeshi MFIs, respectively. However, the Pakistani MFIs are the least performers in terms of both social outreach and financial sustainability.