Microfinance is an extremely ambitious (and challenging) idea
to achieve financial inclusion. It is also an exciting and very interesting
concept. Microfinance Information Exchange (MIX) is an organization that posts
free global Microfinance data on their website, which includes Microfinance
Institution (MFI) profiles and basic portfolio characteristics.
Basic MIX data is available at http://mixmarket.org/profiles-reports (top right hand corner). For India, it has one data point for every
year from 1995 to 2013, which includes performance measures such as gross loan
portfolio, average outstanding balance, portfolio at risk over 30 days etc. In
addition, it has MFI characteristics such as regulated or unregulated, age of
the MFI, percentage of female staff.
As I was browsing through
the data, I was keeping an eye for MFIs in India and their portfolio over the
last few years. Microfinance industry in India grew significantly from about
2006, as both for profit and non-profit MFIs started catering to the
significant unbanked population. It was deemed as the panacea to all ills, but
somewhere down the line, profit-oriented MFIs resorted to aggressive growth
strategies, partly due to pressure from investors. Consequently, when customers
fell back on their payments, these lenders also resorted to aggressive and
unethical collection practices according to this news item.
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| Knowing that there are several MFI’s catering to the unbanked population in India, I decided to look at the number of loans (to collect) per loan officer from 2003 to 2013. This number more than doubled from 2009 to 2011 (going from 562 to 1433), during the peak of the crisis. Source: MIX Market |
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| In terms of gross loan portfolio, the Microfinance sector continued to grow through 2010/ 2011, hitting a peak of $5.5 billion, with an active loan base of 82 million loans. Source: MIX Market |
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| Surprisingly, there is only a weak correlation (0.3) between number of loans per loan officer and percentage of portfolio over ninety days due. Source: MIX Market |
One possible reason could be that in India, the group loan methodology (introduced
by Grameen Bank) is still very prevalent. This system emphasizes the importance
of punctual payments and the group members feel obligated to repay the loan if
one of their group members is unable to do so. So even though the number of
loans per loan officer was high, this self-driven discipline of the group could
have salvaged the MFIs from having highly delinquent accounts.
