Microfinance demand touches a new high

Microfinance, which hit headlines after its pioneer Mohammad Yunus won this year's Noble Prize, is growing at a fast pace in India.

The demand for microfinance in the country is a whopping Rs one lakh crore, a recent study by Sa-dhan, a representative body of micro-finance institutions (MFIs) has found. This beats home loan disbursements of Rs 65,000 crore in 2005.

The Sa-dhan report says that assuming loan sizes of between Rs 7,000 and Rs15,000, the service providers will need to lend Rs 37,000 crore to 80,000 crore if a clientele of 5.36 crore below poverty line households is assumed.

Microfinance is fulfilling this demand through two instruments""the self-help groups, which get loans from nationalised banks, and microfinance institutions, which get money from private banks like ICICI.

Nearly 80 per cent Indian MFIs operate as societies and trusts. While 10 per cent of the organisations operate under the company structure, 5 per cent are Section 25 companies, 2 per cent work as cooperatives, another 2 per cent are non-banking finance companies (NBFCs) and 1 per cent are structured as local area banks, according to Sa-dhan.

While there are about 10 lakh self-help groups linked with banks for loans, the MFIs linked with commercial banks, around 800 in number, form 20 per cent of the sector.

The study found that disbursements through the bank-SHG channels have increased from Rs 280 crore in 2001 to over Rs 2,900 crore in 2005. It has predicted that MFIs will have a total outstanding of Rs 4,730 crore by 2010.

The sector has clocked a compounded annual growth rate of 76 per cent between 2001 and 2005 and an outstanding portfolio of Rs 1000 crore by March 2005. A total of 60 per cent funds and disbursed by top ten MFIs, the study has found.

While the study shows that MFIs are growing fast, experts say the sector is being falsely painted as a poor man's bank or as a money lender's delight. It meets the credit needs of the rich and the poor in all areas which are unbanked, says Vijay Mahajan, CEO of Basix, one of the top ten MFIs in the country.

While some MFIs choose to cater to the poor while making the rich pay for it , there is no rule that MFIs have to cater to the poor alone, he added.