Performance Evaluation of Microfinance Institutions in Selected States of India

Abstract

The evolution of the microfinance can be traced back to the year 1900 when credit cooperatives extended subsidized credit to their members to save them from the clutches of the ruthless moneylenders. The Cooperative movement soon transitioned into a subsidized social banking movement when the government took several initiatives including nationalization of commercial banks, the establishment of regional rural banks, setting up of apex institutions like National Bank for Agriculture and Rural Development (NABARD) and Small Industries Development Bank of India (SIDBI) as well as the initiation of various poverty alleviation programs including Integrated Rural Development Programme (IRDP). Consequently, the third phase of the microfinance industry witnessed the introduction of the Self Help Group- Bank Linkage program (SHG-BLP) by NABARD to provide financial services to the voluntarily formed women self-help groups and also link them to the formal banking sector. The ongoing commercialization phase of the industry perceives the industry as a social business established to eradicate poverty by earning profits and maintaining the sustainability of the operating institutions. A metamorphosis has been observed from massive subsidization for loan products from government and other donor agencies to distinct funding source mix inclusive of debt, equity, private investors and retained earnings. Thus, the institutions with a clear focus of profitability attempt to enhance their outreach and reach out to maximum borrower base with their designed loan products and services. Thus, the enhancement of financial performance must be of profound importance to any operating MFI in the country. Hence the first research objective in the present study attempted to formulate the model parameters of performance evaluation both from the perspective of the managers called Financial Performance Indicators (FPIs) and from the perspective of the clients called client perception attributes. The extant literature review reve