Microfinance in India – A State of the Sector Report, 2006

This State of the Sector report presents the latest issues, developments, recommendations and achievements of the Indian microfinance sector. The report:

• Synthesizes recent studies that highlight issues on which continued progress depends;
• Identifies knowledge gaps that call for further research, statistical efforts, etc.

The report states that:

• Indian microfinance has grown rapidly towards the goal of financial inclusion;
• However, it needs to pay attention to the following issues:
  • Issues of quality;
  • Improving book-keeping in the self-help-group (SHG) model;
  • Consumer protection issues in the microfinance institution (MFI) model;
  • Extending the depth of outreach and evolving products which are responsive to consumer needs.
• The sector had underestimated the image problem that confronts the business of money-lending;

The report identifies the following trends:

• Increase in bank credit to MFIs;
• Decrease in the constraints for the availability of on-lending funds;
• Greater formalization;
• Expansion of urban microfinance;
• Downscaling;
• Diversity in the financial sources for technical assistance for capacity-building;
• Increase in microinsurance.

The report recommends:

• Creating an awareness of the need to charge cost-covering interest rates;
• Long-term relationship building between MFIs and the government and other stakeholders;
• Transparency and attention to consumer protection;
• The creation of diversity in the sector;
• Improving statistics and information on the sector.