ACCESS Development Services, a nonprofit offering consulting services to microfinance institutions (MFIs), has released its “State of the Sector Report 2010,” (not yet available online) which questions whether MFIs are responsible lenders, citing “supernormal” profits for Indian MFIs compared to Indian commercial banks. Furthermore, the report asserts that many MFIs are not passing on the benefits of increased lending volumes and lower operating costs to borrowers through lower interest rates. Specifically, of the 31 MFIs studied, only 5 reduced costs to borrowers through a reduction of operating costs resulting in lower portfolio yields. Fourteen MFIs instead increased profits through lower operating costs, thus increasing their portfolio yield. Twelve of the MFIs did not lower operating costs and increased interest rates charged to borrowers. ACCESS Development Services interprets these results as an indication that “responsible finance has a long road to travel before reaching customers.”
A differing opinion comes from Chandra Sekhar Ghosh, Chairman and Managing Director of Bandhan Financial Services Private Limited, an MFI based in Kolkata, India, who reportedly believes that MFIs can only reduce rates gradually, if at all, as they must plan for uncertainty in an industry that has much of it. Additionally, Subhankar Sengupta, Managing Director of Arohan Financial Services Private Limited, another MFI based in Kolkata, asserts that it is “impossible” for MFIs to raise lending rates if bank rates rise, thus making it risky for MFIs to lower them if it appears that the cost of funds will rise in the near future.
About ACCESS Development Services: ACCESS Development Services, which is based in India, is a not-for-profit organization that offers consulting services to microfinance institutions (MFIs) through various means. It offers capacity building and technical services on topics such as operational organization, portfolio management, and financial management. It also works to facilitate funding to 130 member MFIs through the ACCESS Microfinance Alliance (AmFA). Lastly, it organizes the Microfinance India Summit annually in order to provide the microfinance community the opportunity to meet and learn from each other, participate in discussions and debates on key issues and be exposed to the international experiences and innovations. ACCESS Development Services was founded in 2006.
About Bandhan Financial Services: Bandhan Financial Services Private Limited is a microfinance institution (MFI) based in Kolkata, India. It was founded in 2002. As of December 31, 2009, it operates in 14 states in India with 1,008 branches. It offers loans for microenterprises as well as for individuals to pay for health emergencies. According to the Microfinance Information Exchange (MIX), the microfinance information clearinghouse, Bandhan Financial Services reported a gross loan portfolio of USD 333 million, total assets of USD 424 million and 2.3 million active borrowers in 2009.
About Arohan Financial Services: Arohan Financial Services is a microfinance institution (MFI) based in Kolkata, India. It offers loans and life insurance primarily in urban areas of eastern India. It was founded in 2006. According to the MIX Market, the microfinance information clearinghouse, Arojan had USD 8.7 million in total assets, a USD 8.2 million gross loan portfolio and 86,273 borrowers as of 2009. In the same year it reported 3.53 percent return on assets (ROA) and 14.93 percent return on equity (ROE).
By Christopher Maggio, Research Associate
Live Mint article: “Responsible micro-lending has a long road to travel, says study”: http://www.livemint.com/2010/11/24222920/Responsible-microlending-has.html?atype=tp
MICROCAPITAL BRIEF: State of the Sector 2009, a Report by ACCESS Development Services, Studies Microfinance in India: https://www.microcapital.org/microcapital-brief-state-of-the-sector-2009-a-report-by-access-development-services-studies-microfinance-in-india/
MicroCapital Universe Profile: ACCESS Development Services: https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=ACCESS+Development+Services
MicroCapital Universe: Bandhan Financial Services: https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Bandhan+Financial+Services+Private+Limited
Browse the MicroCapital Universe and add your entry to the wiki at: https://www.microcapital.org/microfinanceuniverse/
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