State of the Sector 2010 N.Srinivassan 15 November Microfinance India Summit - 15 November New Delhi

Overall developments Growth continued – with moderation Expansion to states outside southern region SHG program morphing in to a welfare framework MFIs intensify commercialization Escalating competition in urban locations Increasing commercial interest in equity and loan funding (till recently) Intense media scrutiny – searching for the hidden flaws Negative news upstages the positive 2 Microfinance India Summit - 15 November New Delhi

Some numbers Growth % No of borrowing members - SHGs -mn No of MFI customers - mn Outstanding Bank loans to SHGs Rs bn Outstanding MFI loans to customers Rs bn *36 * Does not include portfolio managed on behalf of other institutions Rs 42 bn 3 Microfinance India Summit - 15 November New Delhi

Some more numbers Total microfinance clients exceed 100 mn MF outstanding as % of bank credit 1.4 Total bank loans to MFIs – Rs 14 bn Average per capita MFI loan – Rs 6060 Average per capita SHG loan – Rs 4450 Equity inflow through PE/VC – $ 209 mn 4 Microfinance India Summit - 15 November New Delhi

Growth in MFI outstanding loans overtakes growth in SHG loans. Comparison of growth rates 5 Microfinance India Summit - 15 November New Delhi

Quality of growth Continued focus on outreach - not deepening Concern for avoidance of multiple loans and excessive debt – slow percolation to field Emergence of ring leaders Loan shopping and MFI hopping by customers Repayment rates fall in 2009 Operational cost declines in a number of MFIs Increased profitability and sustainability 6 Microfinance India Summit - 15 November New Delhi

Investment climate Very positive till five months back 29 equity deals – smaller MFIs also get funded Public sector banks enter MFI financing More securitization and assignment deals (Rs 42 billion in value) SKS’ successful IPO for $350 mn Post AP sentiment negative 7 Microfinance India Summit - 15 November New Delhi

Social performance Some efforts on responsible finance More interest in SPM ratings Poor not first-choice clients Pricing – high and opaque in many MFIs Recent initiatives in reduction of interest Some movement on product diversification Competition erodes lending disciplines Performance not aligned to mission Donors/funders gradually warming up to SPM 8 Microfinance India Summit - 15 November New Delhi

Policy and regulation Financial inclusion got more attention than Microfinance Corporate BCs, separate fees towards BCs’ costs - make branchless banking attractive Review of priority sector norms causes concern Reported advisory on interest rate restrictions Malegam committee a welcome step When are we getting a comprehensive regulation in place? 9 Microfinance India Summit - 15 November New Delhi

Concentration risk Andhra Pradesh Tamil Nadu Karnata ka West Bengal Orissa Number of poor families No of microfinance clients (SHG+MFI) MFI clients to poor households ratio MFI clients to total households ratio Total MF loans o/s (SHG+MFI) Average loans per poor household Microfinance India Summit - 15 November New Delhi

Challenges Competition – not only among MFIs but from state run programs too Political risks – possible contagion effect in other states Imminent breakdown of credit discipline Rerating of risks by banks Concentration in some states- over leveraged customers Image rebuilding – to take huge effort and cost Near future is about coping – not initiating 11 Microfinance India Summit - 15 November New Delhi

Future Figure out purpose of MF as a business Send out positive messages Counsel patience in investors Invest in customer comfort Set high standards of customer protection Establish and comply with ethical code of conduct Weed out deviant institutions Dialogue with government and invite regulation Centre, State govts and RBI to articulate their vision of microfinance 12 Microfinance India Summit - 15 November New Delhi

A fresh start needed Without customers at the core microfinance is not relevant - Revisit the mission Not only MFIs, even government programs should rethink their purpose Thanks 13 Microfinance India Summit - 15 November New Delhi