Indian Microfinance sector growing at 76% CAGR: Sa-Dhan
May '2008

  •  Microfinance cover to grow 26 times to 40 Crore people by 2018.
  •  Expected Annual demand pegged at Rs 25k Crore by 2012.

New Delhi, May 19, 2008: The microfinance sector in India is growing at an compounded annual growth rate (CAGR) of 76% and is estimated to reach to at least Rs 25,000 crore (from existing Rs 2,700 crore) in the next four years, with potential microfinance client base estimated at 30 to 40 crore from the current 1.5 crore poor people according to an annual study by Sa-Dhan, the association of community development finance institutions.

"A significant higher figure is almost inevitable," according to an annual study by Sa-Dhan, the association of community development finance institutions. The study estimates that in the next decade, the potential MF-client base may be estimated at 30-40crore (300-400 million). Among these, around 10 crore will live below the poverty line. Estimates of the arising micro-credit demand differ in assumed client-numbers (respective households) and time-horizons. By 2012, an annual demand of at least INR 25,000 crore (6.25 billion US-$ at a conversion rate of 40 rupees to a dollar) can be expected.

This finding is a part of the latest issue of the annual side-by-side (SBS) report 'Maturing Microfinance Emerging Challenges - 2007', a unique survey (fifth in series) by Sa-Dhan which presents collective picture of the microfinance sector analyzing and informing stakeholders and practitioners on the performance and progress of CDFIs. The study takes in to account data submitted by about 83 MFIs as on December 2007.

The economic growth, poverty alleviation and microfinance in India have been nestled into a supportive policy and bullish economic outlook. Reasoning how the operational growth has been very robust, the report says: "The government is committed to support microfinance sector, so also the Reserve Bank of India providing necessary incentives to the microfinance asset class, along with the banking sector which too, has followed suit in extending debt to such portfolios. Even the rating agencies and other third party agencies have widened the understanding and information of the work of this sector."

Microfinance in India has given the world an impressive success story about growth and profitability of microfinance institutions and providing over 10 crore people with access to micro credit - many to thrift, some to insurance and a few so far to remittance transfers.

Fundamental factors of economic growth - among others, exports, service markets, infrastructure investment, demography, and overall political stability - are suggesting a long-term real GDP-growth rate of 7% p. a. This has provided an enabling environment for poverty alleviation that has resulted in human poverty shrinking by roughly one quarter. The Human Poverty Index (HPI) stands now at 0.35, which means about 1 out of 3 Indians faces shortcomings of education, health and/or income. India has recorded substantial progress on the UN's Millennium Development Goals (MDG), which aims at halving extreme poverty by 2015.

Many MFIs have had an impressive expansion in the delivery of services. MFIs today operate hundreds of branches, employing thousands of staff across different states. Some are heading for or have already passed the one-million-client-outreach, according to the report.

However, the report says the successful growth of the industry will require that all levels of accountability be met to the satisfaction of different stakeholders. "External accountability to be provided by client success stories, internal accountability by the organizational hierarchy, forward accountability to be provided by continuous innovation and downward accountability to be provided by delivering effective and transparent services to end clients."