Sa-Dhan, the national association of Community Development Finance institutions held its 12th Annual General Body meeting on August 31st Hotel ‘The Capital’ in Bangalore.
150 present member organisations providing Microfinance and development services considered and adopted auditor’s reports as well as director’s reports. This was followed by an overview of the performance of 262 members as well as non members reporting to Sa-Dhan. Key highlights were a client outreach of 26.7 lakhs and a total (on balance sheet) loan portfolio of 18,344 crores . The northern and western regions of India will be the next growth drivers, while growth in the South is slowing down. An in depth analysis was done on 140 data contributors. Out of them, 52, 9 % per cent of the data contributors apply the group model replicating the Grameen bank of Bangladesh. This group lending model is supposed to overcome the problems of commercial banks in providing credit to the poor. The detailed report ‘Sa-Dhan Quick Review 2010’ will be available as hardcopy in beginning of September 2010.
Special prominence was given to amendments of the Memorandum of Association which will now include rules that open avenues for strict enforcement of the Code of Conduct. The Code of Conduct lays down operational guidelines for delivering Microfinance to poor sections of rural and urban India, it is seen by many experts as a milestone in the development of Microfinance in India. The data which will be collected on Code of Conduct is part of a larger set of Social Performance data which will -in addition to financial data- enable the public to understand the complex environment in which Microfinance is operating.
Sa-Dhan with its 237 members covers a broad range of legal forms and approaches to development finance. It is a premier partner to talk to for RBI, government as well as other institutions when discussing about Microfinance. Thus, the adoption of the annual programme was of special interest for many stakeholders. The AGM ended with the election of Governing board members.
Financial data supplement
- 262 members and non members of Sa-Dhan reported for the year ending March 2010
- Their total client outreach is 26.7 lakhs
- Their total (on balance sheet) loan portfolio is 18,344 crores
- Emerging trends:
* Steady decline in dominance of Southern region
* Eastern region has seen a rapid growth in recent years but still a long way to go to catch-up South
* Northern and Western regions are likely to be the next growth drivers
* Dismal growth in North-Eastern region, especially outside Assam
* Assam alone accounts for nearly two-third of outreach and portfolio of North-Eastern region - A sample of 140 data contributors has been analysed for distribution of MFIs, Growth, portfolio quality, yield, operational expense, balance sheet distribution and leverage and profitability
- The key findings are given below
- Distribution of the analysed 140 MFIs
* Many large south based MFIs are now expanding to other regions, particularly East, that boosted the growth there
* Small MFIs constitute more than 50% of the sample, while large constitutes less than 16%
* Close to half of the MFIs in the sample have been added in the last five years
* Good mix of mature and young MFIs
* The dominance of ‘not-for-profit’ MFIs in terms of number is declining gradually in favour of NBFCs.
* Nearly half of the nascent and young MFIs have directly registered themselves under ‘for-profit’ legal form (NBFC)
* The classical ‘Grameen Bank Model’ emerged as the most preferred model among MFIs
* Individual lending model is also gaining ground, mainly as an alternative delivery model to old clients
* Ten Largest MFIs constitute about 80% and 76% of the sector’s portfolio and client outreach respectively
* Barring SKDRDP, nine out 10 largest MFIs are NBFC.
* NBFC-MFIs alone covers about 89% of the total loan portfolio of all MFIs in India - Growth of MFIs (lending portfolio growth)
* No significant correlation was found between age of MFI and its scale of operations
* New MFIs have also grown rapidly and attained medium to large size in a few years
* The large MFIs explore new frontier of scale every year
* For last five years they have consistently defied the rule that growth rate retards, once a critical size is attained
* They have highest median growth rate among all size categories of MFI, followed by small MFIs with portfolio base between Rs1 – 10 Crores.
* One of the reasons behind high median growth rate of small MFIs are young NBFCs growing at rapid pace
* As expected, portfolio growth rate is highest among ‘for-profit’ MFIs (NBFCs).
* Large equity infusion in recent years has helped them to leverage their capital to finance their portfolio growth
* Globally, India tops the list in terms of amount of institutional equity investment made in MFIs
* Despite being small in number, the MFIs following ‘Individual Banking’ have registered highest growth rate
* Among the 10 largest MFIs (with growth rate >100%), six of them have adopted the Grameen Bank model - Portfolio quality PAR 60 ( portfolio at risk: outstanding balance of all loans in arrears for more than 60 days divided by total outstanding portfolio)
* Median PAR60 of entire sample being 0.4%
* Reasonably good loan asset quality across size, legal form and delivery model
* No clear pattern evolved in portfolio quality in terms of size of MFIs.
* Among the sample, portfolio quality is best among the Grameen Replicators and poorest among the MFIs following Individual Banking
* MFIs with high loan sizes have poorest portfolio quality - Portfolio yield
* Median portfolio yield of the sample is 26.6%
* In general, the portfolio yield of Indian MFIs are among the lowest in the world
* MFIs at the two end of spectrum - 10 largest MFIs and 10 smallest MFIs have the highest median yield
* No direct correlation can be drawn between size of an MFI and its portfolio yield
* Only 20% of the largest MFIs have yields less than 20%, 70% have yield over 30%, none have yield over 40%
* Median yield is highest for the for-profit MFIs (28.6%) and least for the mutual benefit MFIs (19%) - Operational expense ratio (OER: total administrative expenses excluding financial costs divided by average outstanding loan portfolio)
* The median OER of the sample is 10.3%
* Indian MFIs are among the most efficient in the world
* Nearly 60% of them have an OER below 15% and about 32% of them have an OER below 10%
* About 80% of the MFIs with an OER of less than 5%, follow the SHG model.
* However, about 55% of the MFIs having OER above 20%, follow the Grameen Model
* None of the large MFIs have an OER greater than 20% - Balance sheet distribution and leverage
* A typical Indian MFI put about 82% of their total assets in loan portfolio, while liquid assets account for 12%
* The utilisation of assets have become better as the MFIs moves from small to large
* The not-for-profit MFIs have performed better than the for-profit MFIs, in terms of asset utilisation
* The not-for-profit MFIs have also performed better than the for-profit MFIs, in terms of leveraging their capital
* Reasons could be attributed to minimum capital adequacy norms (statutory) for NBFCs and also many of the NBFC-MFIs are young in age, hence limited or no credit repayment history - Profitability
* About 80% of the MFIs in the sample are operationally self-sufficient
* 50% of the MFIs working exclusively in the North-Eastern region are not operationally self-sufficient
* The median Return on Assets and Equity for the sample is 1.6% and 11.5% respectively
* ROA and ROE increases gradually with size of MFI, as Yield increases and OER decreases in same order
* In terms of legal form, the median ROA & ROE of ‘for-profit’ MFIs is lowest among all legal form. It is because most NBFCs are new and yet to reach high profit volume - Overall summary
* The Indian microfinance sector is one of the fastest growing and most keenly watched microfinance market in the world
* It is commendable not because it managed to sustain the growth level for past few years but it manages to grow despite all odds
* The growth is primarily led by NBFCs with infusion of private equity. India tops the global list of recipients of commercial capital for microfinance
* The growth has also seen moderation in the regional skewedness of concentration of microfinance services
* While growing at rapid pace, the Indian MF sector has defied many conventional rules of business, like, inverse relationship between size and growth rate, correlation between age and size, etc.
* The famous Pareto’s 80-20 principle also holds good for Indian MF sector – Nearly 80% of the portfolio is held by the 10 largest MFIs
* Indian MFIs are not only most efficient MFIs but their portfolio yield is also among the lowest in the world
* The portfolio quality level has also come back on track after the debacle in some pockets last year
* They have also done well in terms of asset utilisation
* Efficient allocation of resources has also contributed in improving the profitability outlook of the sector
* About 80% of the existing MFIs have achieved operational self-sufficiency
* Their ROA is also impressive, which has attracted both critics and investors
* To grow while being transparent and display responsible behaviour is the need of the hour
