Microfinance institutions and credit penetration: An analysis on Odisha

Purpose: In recent times, the Indian microfinance industry is one of the fastest growing sectors for the development of Indian economy. Basically, the Microfinance Institutions (MFIs) are concentrated only in some specific regions of the country. Using data on MFI penetration and demographic, socioeconomic and historical determinants, this article examines possible explanations for the high concentration of MFIs in the state of Odisha, India.

Design/methodology/approach: The research paper tries to explain the level ofpenetration of microfinance in the states by using regression models.

Findings: Using OLS regressions, found that wealth has a positive and significant correlation to the presence of MFIs. Our analysis suggests that state-level macro factors are significant in explaining the geographical skew. MFIs in India have concentrated in states which are richer, have a good rural infrastructure.

Originality/value: The study provides an insight which would help in framing the necessary regulations to ensure that MFIs operate in all regions of the country.