A study on exogenous factors influencing the Indian Microfinance Institutions

The commercial banking sector does not consider the poor easily bankable due to the high risk factor in the absence of collateral. Microfinance has come in as a potential alternative to address this problem. The key to growth and sustainability of the sector is sufficient and consistent inflow of funds and efficient operation of the microfinance institutions. Research evidence shows that high levels of demand for micro credit reflects a huge gap between supply and demand for credit, which is estimated at around US$ 250 billion. In such a scenario, the efficiency of microfinance institutions in being able to use every bit of input by converting it into loans and reducing their costs of operation and inefficiencies become extremely important. One of the important factors that determine the efficient operation of Microfinance institutions are the influence of indirect exogenous variables on the performance of the institutions. This study aims to understand those influencing factors which affect the productivity of Indian Microfinance institutions. The study is based on the financial data of 36 Indian Microfinance institutions for the period 2005 to 2008, a period where the sector reached its peak in terms of growth in gross loan portfolio.