Efficiency Analysis of Microfinance Institutions (MFIs) in India Using DEA

Introduction

Poverty is the main cause of concern in improving the economic status of developing countries. A microfinance institution (MFI) is an organization that offers financial services to low income populations. Microfinance Institutions (MFIs) provide small loans to poor people, who can offer little or no collateral for getting loans. Most of them give loans to their members and many offer insurance, deposit and other services. They deliver economic services to low-income and poor families who do not have access to proper financial organizations (Qayyum & Ahmed 2006). The term microfinance refers to small-scale financial services (both credit and savings) that are extended to the poor in rural, urban and semi-urban areas. The poor people need microfinance for undertaking economic activities, smoothening consumption and mitigating vulnerability to income shocks (in times of illness and natural disasters), and increasing savings and supporting self-empowerment. The MFIs have been providing the rural poor access to the formal banking system and have made commendable achievements in terms of gender sensitization, empowerment and poverty alleviation.

Though MFI in India was introduced in 1974 Self Employed Women’s Association (SEWA) in Gujrat, the momentum was achieved only during the 1990s. These have pumped huge funds to the sector and have subsequently enabled MFIs to increase their scale of operations of MFIs have increased through innovative partnership models between the banks and the MFIs. Microfinance in India is synonymous with micro credit. In India most micro finance loans are in the range of Rs.5000 to Rs.20000. CRISIL (Credit Rating Information Services of India Limited) estimates that around 120 million households in India continue to face financial exclusion. A total of 166 MFIs are currently operating in the 29 States in India with number of being branches 11,644. Of those MFIs, 62 MFIs (38%) are operating in two to five states, while 79 MFIs (48%) have confined their operations to only one state. Women clients constitute 97% of the total clients of MFIs. A very interesting trend is seen in the rural-urban focus of MFIs in India. The share of rural clientele which was 69% in 2012 come down to 38% in 2016. Gross Loan Portfolio in Urban areas is RS.63853 crore which constitute 28% in 2016. States with higher portfolio are Karnataka, Tamil Nadu, Uttar Pradesh, Maharashtra, Madhya Pradesh, Bihar, West Bengal (Sa-Dhan, 2016). The growth of the MFIs in terms of outstanding loan, loan disbursed and client outreach is presented in Figure 1.

Figure 1.

Growth in microfinance sector in India

Source: NABARD (2016)