bu i ld i ng an i nc lu s i ve f i nanc i a l s e ctor i n i nd i a
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or 16 per cent of the portfolio of all MFIs—both for
profit and non-profit segments taken together.
Based on the analysis of a select set of 25MFIs, CRISIL
(2014) reports that the share of microfinance issuances
in the total asset-backed security rated issuances rose to
17 per cent in 2013–14 from 9 per cent in 2010–11.
In terms of number microfinance constituted about 35
per cent of all transactions in the domestic securitization
market. The fact that loans to MFIs qualify as priority
sector loans is the major trigger for this trend. Secondly,
CRISIL data shows that there is an increasing preference
for multi-originator transactions—pooling of small
quantum of assets from multiple originators—as it could
enhance originator and geographical diversification and
reduce costs and risk. In 2013–14, 56 per cent of all the
deals involved multiple originators. Also, the number of
originators increased from 9 to 26 between 2010–11 and
2013–14.
The study argues that the current level of capitalization
is adequate and expects the equity infusion to be around
Rs. 18 billion in the coming two years. The gearing ratio
increased from 3 to 5.4 between 2011–12 and 2013–14,
and the net worth from Rs. 20 billion to Rs. 44 billion.
The NBFC-MFIs are also found to have capital adequacy
ratios above what has been prescribed by the regulator,
i.e., 15 per cent. However, for the sector to maintain
its current momentum regular capital infusion is the
most vital. Depending solely or mainly on equity may
be counterproductive in the long run as increased equity
infusion would eventually dilute promoters’ shareholding
in MFIs, which is already low. This could limit the capac-
ity of MFIs to raise equity in the long term. That might
set a vicious circle in motion.
It is also argued that the RBI directive capping the
margin of large MFIs (with portfolios above Rs. 1 billion)
at 10 per cent and the interest rate 2.75 times the base
rate of the top five commercial banks may affect the prof-
itability of MFIs. The annual seminar in ‘Risks in Micro-
finance’ conducted by College of Agricultural Banking
and M CRIL held in April 2012 hence recommended
getting rid of interest cap to enable MFIs to cover reason-
able operating expenses and provisioning requirements.
Also, some liquidity gap funding arrangement for MFIs
needs to be made by NABARD or SIDBI. Securitization
is not an appropriate model for supporting MFIs.
One of the greatest roadblocks to fully realising MFIs’
financial inclusion role, according to industry leaders, is
that they are operating a single product industry. Samit
Ghosh of Ujjivan elaborates: ‘You can name the loans
whatever you want—income generation, family loans
or anything else. The structure of the product is the
same and it serves only one purpose, which is cash flow
management tool for the poor. It is a credit card’
20
. The
larger urban-based MFIs who are keen to offer financial
services to niche segments like micro entrepreneurs feel
constrained by the RBI regulations that restrict loan sizes.
They have been lobbying for removal of such barriers and
for making priority sector a level playing field between
banks and MFIs.
4.13 PRODUCTIVITY AND PORTFOLIO
QUALITY: PROMISING TRENDS
The limited analysis based on MIX data clearly shows
the general robustness of operational efficiency of all
size classes of MFIs, though there are marginal variation
across them (Table 4.23). The profitability of MFI too
has improved between 2013 and 2014, especially in the
case of large MFIs with GLP more than Rs. 10 billion and
the medium sized institutions with GLP Rs. 2 billion and
Rs. 5 billion. What is also to be noted is the slight increase
in the financial expense ratio, which indicates that MFIs
spend more now to source their capital.
The productivity ratios have all increased between
March 2012 and March 2014 across size classes (Table
4.24). Overall a typical branch of MFI handles 540 more
clients in 2013–14 compared to 2011–12. This gain was
the contribution of the large MFIs who improved their
branch productivity by an average of 642 clients. The
productivity of loan officers in smaller MFIs improved
over the three years, but not as much as what the medium
and larger ones could achieve. The rise in GLP per branch
was to the extent of Rs. 2.5 million for all MFIs. In terms
of GLP size classes it varied between Rs. 1.3 million for
smaller MFIs to Rs. 3 million for the medium-sized ones.
The improvement in performance of the productivity
ratios has been driven primarily by the compulsion on the
part of MFIs to achieve sustained growth in a competitive
and increasingly regulated market. But competition and
indiscriminate business expansion could in turn increase
