Online published on 28 February, 2020.
Access to institutional finance to the disadvantaged groups has remained a challenge for society, government, policy makers, regulators, donors and NGOs for ages. Microfinance has emerged as a promising way to providethisaccesstothedisadvantaged groups and furtherthe objectiveof financial inclusion and sustainable development. The MFIs working in this industry are still grappling with their own challenges and trade-offs. But this industry still continues to attract new MFIs, who come up with innovative product and service offerings so as to tap a vast untapped clientele base. The broad objective of this study is to examine the nature and consequences of competition and regulatory intervention in the Indian microfinance industry space where the players are struggling with information asymmetry and the presence of diversified institutional objectives. The study is a blend of exploratory, descriptive and causal methodologies, where both qualitative and quantitative data are used to achieve the stated objectives in this dissertation. Empirical examination is based on secondary data which has been obtained from diverse sources. Apart from the MIX market database, which is the major source of data for this study, I have also gathered data from diversified literatures, reports and news clips.
Using data from diverse sources including the MIX market, I have examined the state of the microfinance ecosystem, structure of the microfinance industry, the effect of competition and regulation on the outcomes of microfinance institutions (MFIs) and devised a loan securitisation model for the sustainability of microfinance institutions. The specific objectives are: (i) to examine the nature and dimensions of the Indian microfinance industry ecosystem, (ii) to examine the characteristicsand measure the marketstructureofthe Indian microfinance industry, (iii) toexamine the effect of competition on the outreach, loan repayment, efficiency and financial performance of MFIs in the Indian microfinance industry, (iv) to examine the effect of regulatory intervention on the outreach, loan repayment, efficiency and financial performance of MFIs in the Indian microfinance industry, and (v) to design and develop a comprehensive loan securitisation strategy for the sustainability of MFIs in India.
The results obtained from the study are presented sequentially. The results obtained from the study are presented sequentially. First, the ecosystem of MFIs in India is found to have very complex interactions among the numerous actors who are engaged as core product or service providers, facilitators, clients or beneficiaries, resource providers, competitors, complementary organisations, regulators, opponents and influential bystanders. It is also observed that the capital infrastructure and the context-setting factors such as policy and politics, media and economic and social conditions
are equally important for the MFIs to survive and flourish. The study has contributed towards understanding the complex dynamics of the ecosystem of MFIs, the market structure of the MFI industry and the effect of competition and regulation on MFIs’ outcomes and has extended a loan securitisation model for the financial sustainability of MFIs in India. Based on the findings, it is recommended that (i) a national level comprehensive study be done to understand the reasons for the rising level of non-performing loansand defaults-whether the problemis systemicoridiosyncratic in nature in the Indian MFI industry, (ii) to improve the MFIs’ portfolio loan quality there is a stringent regulation on multiple borrowings, system of proper lending need-assessment, loan monitoring system, arrangement for clients’ education and motivation and a check on unhealthy competition among the MFIs, (iii) while taking any political decision or designing any government policy or regulatory intervention, authorities should examine the effect of such regulation on the MFI loan portfolio quality. The limitation remains with the fact that the study is restricted to some segments of the MFIs in India. Data non availability for a larger cross-section of MFIs and a longer timeline \and access to proper information on MFIs could be considered as limitations of this study. Further, the data obtained from the MIX market essential dataset might have some limitations, where some of the firms might have supplied window dressed data to the repository. Though the model proposed by me is a comprehensive one for the ecosystem of MFIs in India, it does not capture the complex interactions between the various actors and other factors in the ecosystem. These could provide fertile grounds for future research on the ecosystem for MFIs. The study on the market structure of the MFI industry is not free from limitations. It is not only the indicators of measuring market structures and features, but also careful MFI schemes, including an analysis of the biggest firms, type of clients, existence of differentiated product and service offerings and larger market effects of industry that are essential for arriving at the proper microfinance industry structure. However, this is beyond the scope of this study. But there is need of a further strategic and financial analysis before a conclusion on the microfinance market structure in India can be arrived at.
This study may trigger an interest among researchers in the field of MFI in an other country context to understand the dimensions of the MFI ecosystem. The outcome of this study may influence researchers and policy makers to understand the effect of regulation and competition in the MFI industry space here in India and abroad. The policy makers may rethink the regulatory intervention in an appropriate manner. As mentioned earlier, the ecosystem model proposed does not capture the complex interactions between the various actors and other factors in the ecosystem. These could provide fertile grounds for future research on the ecosystem for MFIs. Moreover, researches may be motivated to test the various aspects of this model empirically.
