5th Eastern India Microfinance Summit 2019
“Microfinance – Contributions to Financial Inclusion; Opportunity and Challenges Ahead”
Kolkata, December, 2019: Microfinance institutions for decades have positively impacted financial inclusion, savings and lending, especially in semi-urban and rural locations. The last five years have seen a massive push from the government to improve financial inclusion on all three pillars of financial access – credit, savings and insurance. Association of Microfinance Institution (AMFI) – West Bengal & KPMG organised summit at the heart of the city that held discussions on the improvement seen in the inclusion of microfinance across various fronts, the role of data and technology, role of the SROs, challenges ahead etc. Shri. Debashis Sen, IAS, Additional Chief Secretary, Information Technology and Electronics & E-Governance, Govt. of West Bengal, Chairman & Managing Director, WBHIDCO, Ajit Kumar Maity, Chairperson of AMFI-WB, Mr. Chandra Shekhar Ghosh, MD, Bandhan Bank, , Mr. Subrata Mondal, CGM, NABARD, , Mr. Monoranjan Mishra, CGM, DNBS Department, RBI Head Office, Mumbai, Mr. Hauzel. Thangzaman, CGM and Officer In-Charge for West Bengal, Sikkim and Andaman-Nicobar Islands, RBI Regional Office Kolkata, Ms. R. Prabhabati, DGM, SIDBI, were present for the inaugural session of the summit along with other dignitaries.
Mr. Harsh Srivastava, CEO, Microfinance Institutions Network (MFIN), spoke on the role played by microfinance industry in furthering inclusion, while DR. Soumya Kanti Ghosh, Group Chief Economist, State Bank of India, HQ, Mumbai, spoke on economic trends and the impact on the people served by the MFI industry.
The summit brought in the improvement seen in the financial inclusion across various fronts which augured well for the microfinance sector in the form of new growth avenues.
· MSME credit expanded to Rs 13.6 Lakh Cr, CAGR of 14% from 2015.
· Accounts under Pradhan Mantri Jan Dhan Yojana more than doubled from 14.5 Cr to 31.4 Cr in 2018
· Micro-insurance products saw 36% CAGR with 6 Cr new lives insured in 2018.
· Rural houses built under PMAY, IAY schemes stood at 44.5 lakh units in 2018 (CAGR of 55%)
With a relatively lower interest rate regime, Microfinance portfolio has grown CAGR of ~30% in the last 3 years across NBFC-MFIs, SFBs and Banks. While SFBs enjoy less regulatory restrictions than NBFC-MFIs; they are adapting to the increased compliance. As MFIs seek to continue on the growth path, the MFIs are evaluating geographical expansion, product portfolio expansion opportunity to cross sell, upsell non–lending products, investment in technology, strategic alliances with Fintech players etc.
Any slowdown or perceived slowdown in the Indian economy or in specific sectors of the Indian economy adversely affects the Microfinance industry. Overleveraging of borrowers by MFIs and SFBs is seen to be prevalent across states and is likely to affect asset quality. Over the last decade, events including and not limited to political and regulatory changes, social disturbances, religious or communal tensions, natural calamities, and various other factors have adversely affected the operations and performance of Microfinance lenders. The sector has time and again demonstrated that the ability to tackle these events risks and resume on the growth path. However, there is a need for the Microfinance lenders to arrive at a model by which they will be able to minimize the impact of these events on their ability to continue serving the financially underserved.
Data and Technology has played a major role in driving growth for the microfinance sector that has improved the effectuality of the sector. The success of the model, MFI industry or institution per se has always been around customer centricity. While most MFIs have adopted cashless disbursements, they are continuously exploring opportunities to leverage technology through every stage of the lending value chain. While implementation of core banking systems and loan management systems are underway at many MFIs, there is a need to digitize across the value chain focusing on customer on boarding, underwriting, collections and governance mechanisms. Digital is emerging as a key enabler in microfinance and may see adoption by other players in the near future. The focus of technology strategy continues to be increasing operating efficiency, cost reduction, arranging wide cross-sell, and data analytics with clear goals. Technology will play a pivotal role in delivering a profitable and scalable model as increase in competition and rise in borrowing costs will add pressure to the margins going forward. Other MFI players are also excelling in using data and technology, thus offering a huge opportunity as well challenges for the sector.
Microfinance also has role in balancing the social and commercial roles in the current landscape. Microfinance industry have always strived to make a difference in the lives of their customers and yet run a sustainable business. Faced with challenges of reducing interest rates in the market, microfinance industry has seen introduction of various process improvement measures. Use of technology coupled with customer education has led to lower delinquency and higher profitability, while also educating the customer about responsible use of funds.
The SROs and Regulators plays in imperative role in the current landscape. Besides NBFC MFIs, the industry has attracted interest from a number of players like banks, small finance banks, fin-tech players and NBFCs, leading to improved access for the customer. This period of dynamic change might be an opportune time for the regulators to re-evaluate certain rules such as the lending cap on NBFC MFIs. SROs have also played an active role in the evolution of microfinance sector by encouraging players to adopt a common code in order to prevent over-indebtedness and adopt fair practices. The microfinance sector has weathered many a crisis, thanks to timely intervention by the regulators who have instilled prudence and provided an enabling regulatory environment. In the current scenario, the industry looks up to the regulators and SROs for an evolved regulatory guidance – one that offers a level-playing field across the types of microfinance lenders, encompassing lending caps and household indebtedness – a measure that can ensure all risks are managed pro-actively.
Beyond Lending: The next frontier in microfinance is to explore avenues beyond credit and achieve financial inclusion in a holistic manner. As indicated by several studies, the impact on the poor is higher if other services are made available beyond micro-credit. Micro-insurance is emerging as a promising new avenue and as of 2018, 20 MFIs have provided health insurance products to over 9 lakh customers while over 51 lakh customers have been provided with non-health products by 33 MFIs. As the competitive intensity for MFIs increase, the pressure on margins will increase considerably. So, the need for the MFIs to focus on non-interest income/ credit plus products becomes very important. MFIs can enhance the penetration of insurance in General and Life insurance sector with simple, contextual and small ticket size products, based on the needs of the segment.
The Association of Microfinance Institutions (AMFI-WB), AMFI-WB has been organizing the Eastern India Microfinance Summit over the past five years and it proposes to recognize contribution of various institutions towards Microfinance and are reaching out to all players within the Microfinance domain covering Universal banks, SFBs and MFIs & other players in microfinance domain. The summit will also honour institutions with awards for performance in microfinance based on three categories:
1. NBFC; NBFC-MFIs (members only)
2. NGO-MFIs (members only)
3. SFB, Banks & Other FI including non-members