PROJECT REPORT :

(Submitted for the Degree of [Link]. Honours

in Accounts & Finance under the University of
Calcutta)

TITLE OF THE PROJECT:

“MICRO-FINANCE INSTITUTIONS & IT’S
NPA MANAGEMENT”

SUBMITTED BY:
Name of the Candidate : SURAJ KHAITAN

Registration Number: 017-1111-0665-18

Name of the College: THE BHAWANIPUIR EDUCATION
SOCIETY COLLEGE
College UID: 0101181906
CU exam Roll Number: 181017-21-1705

SUPERVISED BY:
Name of the Supervisor: Prof. VIVEK PATWARI
Name of the College: THE BHAWANIPUIR EDUCATION

SOCIETY COLLEGE

MONTH & YEAR OF SUBMISSION:

Date: June, 2021

1
 Annexure-IA
SUPERVISOR'S CERTIFICATE:
This is to certify that Mr. SURAJ KHAITAN a student of [Link]. Honours in Accounts &
Finance of THE BHAWANIPUR EDUCATION SOCIETY COLLEGE, under the University
of Calcutta has worked under my supervision and guidance for his Project Work and prepared a
Project Report with the title “MICRO-FINANCE INSTITUTIONS & IT’S NPA

MANAGEMENT” which he is submitting, is his genuine and original work to the best of my
knowledge.

Signature:

Name: VIVEK PATWARI

Designation: PROFESSIOR

Name of the College: The bhawanipur education society college, Kolkata

Place: Kolkata

Date:
 Annexure-IB
STUDENT'S DECLARATION:

I hereby declare that the Project Work with the title “MICRO-FINANCE
INSTITUTIONS & IT’S NPA MANAGEMENT” submitted by me for the partial

fulfilment of the degree of [Link]. Honours in Accounts & Finance under the
University of Calcutta is my original workand has not been submitted earlier to any
other University/Institution for the fulfilment of therequirement for any course of study
T also declare that no chapter of this manuscript in whole or in part has been incorporated
in this report from any earlier work done by others or by me. However, extracts of any
literature which has been used for this report has been duly acknowledged providing
details of such literature in the references.

Signature

Name: SURAJKHAITAN

Registration Number: 017-1111-0665-18

College UID: 0101181906

Place: Kolkata

Date: 11/06/2021
w
 ACKNOWLEDGEMENT

First of all thanks to God, for giving me the strength and will to complete this task just in
time. Even though I faced a lot of difficulties while trying to complete this task, I still
managed to complete it and we are glad about it.

I sincerely thank to all the persons whoever played a vital role in the successful completion
of my project under titled “MICRO-FINANCE INSTITUTIONS & IT'S NPA

MANAGEMENT”. 1 am grateful to the Professors of “THE BHAWANIPUR

EDUCATION SOCIETY COLLEGE” under whose guidance, I completed my successful
project, who devoted their precious time. In spite of, their in busy schedules they always
came forward to guide us in our work whenever needed. I am also thankful to Mr. Rakesh
Agarwal for his constant support.

A special thanks to Mr Santosh Basu, for being such a good guidance to me while I was
doing this task. He had given me an appropriate example and knowledge in order to make
me understand more about this topic. He spends his time to explain the execution of this
idea in all the way

I also appreciate CA Vivek Patwari for his support to me to do this project in all the way
and made it possible. I also want to thank other groups who were willing to share their
information about this topic. They gave us a lot of new ideas about the task.

Also a great thanks to my family and friends who tried their best to give their support either
by giving me a lot of encouragement to keep up with this task or by supporting us
financially and pay all the cost required to complete this task.
 TABLE OF CONTENTS:
S. NO. TITLE PAGE NO.
1. CHAPTER 1: INTRODUCTION

1.1: Background 07-08

1.2: Introduction 09-12
1.3: Rationale of the study 13-13
1.4: Objective of the study 14-14
1.5: Litreture Review 15-16
1.6: Research Methodology 17-18

2. CHAPTER 2: CONCEPTUAL FRAMEWORK

2.1: Overview 20 -20
2.2: National scenario 21-23
2.3: International scenario: 24-24
3. CHAPTER 3: DATA FINDING & ANALYSIS 25- 44

4. CHAPTER 4: CONCLUSION & 46 - 46

RECOMMENDATION
5. BIBLIOGRAPHY 47 -47
6. QUESTIONNAIRE 48-51
v
CHAPTER 1:

INTRODUCTION
 1.1: BACKGROUND
1.1.1: HISTORY
Microfinance is not a new concept. It dates back in the 19th century when money lenders
were informally performing the role of now formal financial institutions. Over the past
two decades, various development approaches have been devised by policymakers,
international development agencies, non-governmental organizations, and others aimed at
poverty reduction in developing countries. One of these strategies, which have become
increasingly popular since the early 1990s, involves microfinance schemes, which
provide financial services in the form of savings and credit opportunities to the working
poor (Johnson and Rogaly, 1997).

In India, the beginning of microfinance movement could be traced to Self Help Group
(SHG) - Bank Linkage Programme (SBLP) started as a pilot project in 1992 by
NABARD. This programme proved to be very successful and has also developed as the
most popular model of microfinance in India. The regulatory framework for microfinance
in India is not unified. Microfinance is provided by commercial banks, Regional Rural
Banks (RRBs), the SHG’s, cooperative societies and institutions (MFIs) that take various
forms, including those of NGO’s and Non-Bank Financial Institutions (NBFI’s). Banks
and NBFI’s are governed by the Reserve Bank of India (RBI), SHGs are regulated by
NABARD, and the cooperatives are governed by Registrar of Cooperative Societies
(RCS) etc.

1.1.2: EVOLUTION OF MICRO-FINANCE IN INDIA

The evolution of Indian Microfinance sector can be broadly divided into four distinct
phases

Phase 1: The Cooperative Movement (1900-1960)

During this phase, credit cooperatives were vehicles to extend subsidized credit to
villages under government sponsorship.
Phase 2: Subsidized Social Banking (1960s - 1990

With failure of cooperatives, the government focused on measures such as nationalization

of Banks, expansion of rural branch networks, establishment of Regional Rural Banks
(RRBs) and the setting up of apex institutions such as the National Bank for Agriculture
and Rural Development (NABARD) and the Small Scale Industries Development Bank
of India (SIDBI), including initiation of a government sponsored Integrated Rural
Development Programme (IRDP). While these steps led to reaching a large population,
the period was characterized by large-scale misuse of credit, creating a negative
perception about the credibility of micro borrowers among bankers, thus further
hindering access to banking services for the low-income people.

Phase 3: SHG-Bank Linkage Program and Growth of NGO-MFIs (1990 - 2000)

The failure of subsidized social banking triggered a paradigm shift in delivery of rural
credit with NABARD initiating the Self Help Group (SHG) Bank Linkage Programme
(SBLP), aiming to link informal women's groups to formal banks. The program helped
increase banking system outreach to otherwise unreached people and initiate a change in

the bank's outlook towards low-income families from 'beneficiaries' to 'customers'. This
period was thus marked by the extension of credit at market rates. The model generated a
lot of interest among newly emerging Microfinance Institutions (MFIs), largely of non-
profit origin, to collaborate with NABARD under this program

Phase 4: Commercialization of Micro-finance

The First Decade of the New Millennium Post reforms, rural markets emerged as the new
growth drivers for MFIs and banks, the latter taking interest in the sector not only as part
of their corporate social responsibility but also as a new business line. On the demand
side, NGO-MFTIs increasingly began transforming themselves into more regulated legal
entities such as Non-Banking Finance Companies (NBFCs) to attract commercial
investment. The microfinance sector as it exists today essentially consists of two
predominant delivery models the SBLP and MFIs. Four out of five microfinance clients
in India are women
 1.2: INTRODUCTION TO MICROFINANCE

1.2.1: Micro-finance Definition

According to International Labor Organization (ILO), “Micro-finance is an economic
development approach that involves providing financial services through institutions to
low income clients”.

In India, Micro-finance has been defined by “The National Micro-finance Taskforce,

1999 as “provision of thrift, credit and other financial services and products of very
small amounts to the poor in rural, semi-urban or urban areas for enabling them to raise
their income levels and improve living standards”.

"The poor stay poor, not because they are lazy but because they have no access to capital."

1.2.2: Concept of Micro-finance:

1 Itis a tool for empowerment of the poorest.

2 Delivery is normally through Self Help Groups (SHGs).
3 It is essentially for promoting self-employment, generally used for
(a) Direct income generation
(b) Rearrangement of assets and liabilities for the household to participate in
futureopportunities and
(¢) Consumption smoothing.
It is not just a financing system, but a tool for social change, specially for women
Because micro credit is aimed at the poorest, micro-finance lending technology needs
to mimicthe informal lenders rather than the formal sector lending. It has to
(a) Provide for seasonality
(b) Allow repayment flexibility
(c) Fix a ceiling on loan sizes.
 1.2.3: Role of Micro-finance:
According to the research done by the World Bank, India is home to almost one third of
the world’s poor (surviving on an equivalent of one dollar a day). Though many central
government and state government poverty alleviation programs are currently active in
India, microfinance plays a major contributor to financial inclusion. In the past few
decades it has helped out remarkably in eradicating poverty. Reports show that people
who have taken microfinance have been able to increase their income and hence the
standard of living. Thus Microfinance plays a major role in upliftment of Indian economy
in following ways:-

1. Credit to Rural Poor:-

2. Poverty Alleviation

3. Women Empowerment:-

4. Economic Growth:

5. Mobilisation of Savings:

6. Development of Skills:

7. Mutual Help and Co-operation:

8. Social Welfare:

1.2.4: Difference between micro credit and microfinance:

Micro credit refers to very small loans for unsalaried borrowers with little or no collateral,
provided by legally registered institutions. Currently, consumer credit provided to salaried
workers based on automated credit scoring is usually not included in the definition of micro
credit, although this may change

Microfinance typically refers to micro credit, savings, insurance, money transfers, and other
financial products targeted at poor and low-income people.

10
 1.2.5: Activities in Microfinance:
Micro credit: It is a small amount of money loaned to a client by a bank or other institution
Micro credit can be offered, often without collateral, to an individual or through group
lending.

Micro savings: These are deposit services that allow one to save small amounts of money
forfuture use

Remittances: These are transfer of funds from people in one place to people in another,
usually across borders to family and friends. Compared with other sources of capital that can
fluctuate depending on the political or economic climate, remittances are a relatively steady
source of funds.

Product Design: The starting point is: how do MFIs decide what product s to offer? The
actual loan products need to be designed according to the demand of the target market.
Besides the important question of what risks to cover, organizations also have to decide
whether they want to bundle many different benefits into one basket policy, or whether it
is more appropriate to keep the product simple.

Techniques of Product Design: To design a loan product to meet borrower needs it is

important to understand the cash pattern of the borrowers. Cash pattern is important so far as
they affect the debt capacity of the borrowers. Lenders must ensure that borrowers have
sufficient cash inflow to cover loan payments when they are due efficiency depends less on
the delivery model than on the simplicity of the product or product menu. Simple products
work best because they are easier to administer and easier for clients to understand. Another
efficiency strategy is to use technology to reduce paperwork, manual processing and errors
MFIs need to conduct a costing analysis to determine how much they need to earmn
incommission to cover their administrative expenses.

11
1.2.6: MFI’s Products and its Management:

Financial Services Other Financial Services INon Financial Services

1. Credit Services-i Small Micro-insurance, Life Family Health and Sanitation

Credit, Small Business Insurance , Health Insurance Education, Financial

Credit. , Loan for Housing, Education, Micro-

Education, Health. entrepreneur Training

2. Deposit Services -
Voluntari Savings Services,
Manda tory Savings.

Features of Microfinance
It is an essential part of rural finance
It deals in small loans.
It basically caters to the poor households
O

It is one of the most effective and warranted Poverty Alleviation Strategies

It supports women participation in electronic activity.
S

It provides an incentive to grab the self employment opportunities

N

It is more service-oriented and less profit oriented

R

It is meant to assist small entrepreneur and producers.

S

Poor borrowers are rarely defaulters in repayment of loans as they are simple and
R

God-fearing.

12
 1.3: RATIONALE OF THE STUDY
In India, microfinance service is majorly provided by two ways. One way is through
SHG- Bank linkage programme and other way is through microfinance institutions
(MFIs) These MFIs has different legal forms and so they have been registered under
different Acts and therefore their reporting standards and methods also differ. Again there
are many MFIs have entered into the sector leading to increased competition among
them.

Thus it has resulted into the cutting of corners in matters of consumer protection —
multiple lending, over-indebtedness and consequently coercive collection practices.
Because of these practices, NPAs in microfinance have been increased significantly in
last decade

Moreover, in India, microfinance has evolved and developed majorly in southern states

and so most of research on MFIs is based on MFIs in southern states

Therefore the rationale behind the selection the research title was to study the less
researched geographical area and less focussed topic of microfinance which is non-
performing assets.
 1.4: OBJECTIVE OF THE STUDY
Object
The following are the objectives of the research:
1. To analyze the financial performance of MFIs in India.

To analyze the NPAs of MFIs in India.

To investigate the causes of microfinance loan default of MFIs in India.

To understand and analyze factors that has resulted into microfinance loan to
overdue/NPA of MFIs in India.

To evaluate and compare different combination of factors which might have lead
to defaults in microfinance loans of microfinance institutions in India.

To understand and derive association between causes of defaults in microfinance

loan and various factors such as socio-economic factors of borrowers, lending
terms and supervision & training of borrowers of microfinance institutions in
India

To know the association between microfinance loan amount and various factors
such as socio-economic factors of borrowers, lending terms and supervision &
training of borrowers of microfinance institutions in India.

To understand and analyze overall loan adequacy with different factors such as
socio-economic factors of borrowers, lending terms and supervision & training of
borrowers of microfinance institutions in India.

14
 1.5: LITRETURE REVIEW
Introduction
The following were the major efforts at research in the subject, which have been referred
for the research purpose.
1. Kumar Vipin et. al. (2015) study concluded that the SHG’s and MFI’s are playing a vital
role in delivery of microfinance services which leads development of poor and low income
people in India. However, slow progress of graduation of SHG members, poor quality of
group functioning, dropout of members from groups etc., have also been reported various
study findings in different parts of the country, which need to be taken into account while
designing the road map for the next phase of the SHG programme.

2. Nikita (2014) study concludes that first time in the year 2012-13 after the launch of SHGs
BLP there is a decline in the number of SHGs who’s saving linked with banks. The study
also finds out there was growth in the loan outstanding of SHG and which was responsible
for increases in NPAs. At last it is found out that the major share belongs to commercial
banks when the agency wise loan issued to MFIL He suggested that steps should be taken to
improve the performances of programs launched under Microfinance time to time.

3. Mahanta et. al. (2012) Study revealed that lending to the poor through microcredit is not the
end of the problem but beginning of a new era. If effectively handled, it can create miracle in
the field of poverty alleviation. But it must be bundled with capacity building programs.
Government cannot abdicate its responsibility of social and economic development of poor
and downtrodden. The absence of any special skills with the clients of microcredit, the fund
is being used in consumption and procurement of non- productive assets.
4. Crabb, P. (2008) Has examined that the relationship between the success of microfinance
institutions and the degree of economic freedom in their host countries. Many microfinance
institutions are currently not self- sustaining and research suggests that the economic
environment in which the institution operates is an important factor in the ability of the
institution to reach this goal, furthering its mission of outreach to the poor. The sustainability
of the micro lending institutions is analyzed here using a large cross- section of institutions
and countries. The results show that microfinance institutions operate primarily in countries
with a relatively low degree of overall economic freedom and that various economic policy
factors are important to sustainability.

Srinivasan, Sunderasan (2007) has examined that micro banking facilities have helped large
numbers of developing country nationals by supporting the establishment and growth of
microenterprises. And yet, the microfinance movement has grown on the back of passive
replication and needs to be revitalised with new product offerings and innovative service
delivery. Renewable Energy systems viz., solar home systems, biogas digesters, etc., serve to
improve indoor air quality, provide superior light and extend working and study hours. Such
applications are not inherently income generating and returns on such investments accrue
from cost avoidance, but should qualify for micro funding, as such 'quality of life'
investments, reflect borrower maturity and simultaneously contribute to MFI sustainability

Robinson, M. (2001) has examined that the timing of this book is excellent it has few close
substitutes in terms of its sweeping overview of the terrain, and the revolution is now so
advanced that the time is right for a history, or at least a retrospective. As with any revolution,
however, splits have emerged within the movement. On one side are those who argue that the
way forward is to require microfinance institutions to meet the test of financial sustainability
essentially, requiring these institutions to cover their costs, even if this means that the very
poorest of the poor remain under-served. Against this, the poverty lending approach
emphasizes the importance of outreach, especially to the very poorest borrowers, as a poverty
fighting approach.

16
 1.6: RESEARCH METHODOLOGY
1. Research Design:
Descriptive research

2. Sources of data collection:

Primary data: It has been collected through self administered questionnaire
Secondary data: It has been collected from financial statements from MFIs, websites of
MIX Market and Sa-Dhan

3. Sample frame:
MFIs in India that are maintaining their financial data and are reporting to either MIX
Market or Sa-Dhan and Borrowers whose account is overdue/ NPA that is default
borrowers of above mentioned MFIs in India.

[Link]
size :
Numbers of Microfinance Institutions studied are three. Following are the name of
institutions:
1. Shri Mahila Sewa Sahakari Bank Ltd. (SEWA)
2. The Saath Saving And Credit Co Op Society Ltd. (SAATH)
3. Prayaas (Organisation for Sustainable Development (PRAYAS)
Numbers of default borrowers selected for pilot survey were sixty five and for final
survey were five hundred and fifty

5. Sampling Method:
MFTs in India were selected based on their year of establishment that is one from each
category of young, mature and old MFI was selected for research. For selection of default
borrowers of above MFI, non random convenient sampling method was applied

17
6. Response Rate:
Response rate is the number of respondents who gave their responses during the survey
out of the total number of respondents that were chosen as sample. In pilot survey,
response rate was fifty eight and in final survey response rate was four hundred sixty
three out of sixty five and five hundred fifty respectively.

7. Data analysis tools and techniques

In order to classify, interpret and analyze data collected from both primary and secondary
sources, statistical tools and techniques have been used and they are mentioned as under:
= Trend Analysis
= Tabulation and Cross Tabulation Analysis
= Descriptive Statistics
Chi- Square Test
One way ANOVA and Post Hoc Test

Correlation Analysis
Stepwise multiple regression model

In addition to above tools, tables, graphs and charts are used for better representation of

data

8. Interpretation of the data

With the use of analysed data I managed to prepare my project report. But an alalysing of
the data would not help my study to reach towards its objectives. The interpretation of the
data is required so that the others can understand the Crux of the study in more simple
way without any problem. So I have added the chapter of analysis that would explain
others to understand my study in simpler way

9. Preparing research report.

This is the last step in preparing the project report. The objective of the report writing was
to report the findings of the study to the concerned authorities. I have attached all the
requirements with my report.
 CHAPTER 2:

CONCEPTUAL FRAMEWORK
/INATIONAL & INTERNATIONAL
SCENARIO

19
 2.1 OVERVIEW:
Microfinance in India has proved to be a useful tool to eradicate the poverty in India. The poor
section of the society which was considered unbankable by the formal lending institutions, have
now been able to link gradually to banking services through microfinance.

I have studied the non-performing assets of MFIs in Gujarat. There are three main objectives of
the research. The first and second objective analyzes the financial performance and non
performing assets of MFIs in Gujarat respectively through secondary data sources. The third
objective studies and investigates the causes of default in microfinance loan of MFIs in Gujarat
through a survey of borrowers whose account is overdue or NPA. The survey has been conducted
by self administered structured questionnaire.

In order to evaluate financial performance and non performing assets of MFIs, various indicators
has been analyzed for a period of five years. The analysis of these indicators is then represented
through table and chart. In order to achieve third objective, firstly, data collected through primary
source has been analyzed by frequency analysis. Further, to know the factors affecting
microfinance loan default, cross tabulation analysis is conducted. Next to evaluate the association
of causes of default and loan amount with other factors hypothesis has been tested through chi-
square test. One way ANOVA test followed by post hoc test has been applied to understand the
significant difference of overall adequacy factors with other factors. Co-relation analysis and
stepwise multiple regression model has been applied to check the relations and impact between
causes that lead to the overdue or default in microfinance loan and reasons of NPA in
microfinance loan of MFIs in Gujarat

20
 2.2: NATIONAL SCENARIO

2.2.1: Non Performing Assets of Microfinance

Institutions in jar

Financial performance analysis of MFIs in Gujarat

In order to analyze the financial performance of MFIs in Gujarat, MIX Market Model has been
used and accordingly financial performance is analyzed based on eight indicators and a total of
fifteen ratios are calculated under eight indicators. Following table shows various ratios:

Summary of Ratio Analysis measuring financial

performance of MFIs
No. Ratios [ 2016-17 | 2017-18 | 2018-19 | 2019-20 | 2020-21
Financing Structure Indicators
1 | Capital/ Asset Ratio
SEWA 17.81% 20.84% 24.43% 24.03% 21.82%
SAATH 12.50% 13.26% 14.40% 15.40% 12.24%
PRAYAS 29.20% 11.07% 14.24% 23.46% 27.35%
2 | Debt/Equity Ratio
SEWA 462.00% | 380.00% | 309.00% | 316.00% | 358.00%
SAATH 700.27% | 654.12% | 594.40% | 549.29% | 716.97%
PRAYAS 242% 804% 602% 326% 266%
Outreach Indicator
3 | No. of active borrowers
SEWA 30293 23362 29969 16638 14078
SAATH 5908 8251 9563 10701 8221
PRAYAS 8194 10537 14812 16734 17219
Overall Financial Performance Indicators
4 | Return on Assets
SEWA 0.49% 0.58% 0.95% 0.37% -0.41%
SAATH 3.37% 4.50% 0.85% 1.45% 0.31%
PRAYAS 4.17% 8.56% 3.34% 4.76% 5.22%
5 | Return on Equity
SEWA 3.77% 6.02% 5.77% 1.56% -2.54%
SAATH 26.94% 33.94% 5.88% 9.42% 2.51%
PRAYAS 45.44% 44.39% 24.74% 27.87% 18.67%

21
 6 | Operational Self Sufficiency
SEWA 108.54% | 109.47% | 113.53% | 107.15% | 99.46%
SAATH 117.13% | 132.79% | 104.63% | 91.58% | 79.92%
PRAYAS 129.23% | 146.74% | 114.77% | 121.25% | 119.75%
Revenue Indicators
7 | Financial Revenue/Asset
SEWA 9.28% 9.33% 11.20% 10.93% 11.34%
SAATH 15.06% 14.55% 15.72% 17.04% 15.04%
PRAYAS 21.82% | 26.86% | 2594% | 27.18% | 31.64%
8 | Profit Margin
SEWA 7.87% 8.65% 11.92% 6.67% -0.54%
SAATH 2234%| 31.00% 6.82% 8.92% 2.41%
PRAYAS 19.13% | 31.85% 12.87% 17.53% 16.49%
Expense Indicators
9 | Total Expense/Assets
SEWA 8.55% 8.53% 9.87% 10.20% 11.40%
SAATH 12.86% 10.96% 15.03% 17.92% 18.75%
PRAYAS 16.88% 18.30% | 22.60% | 22.41% | 26.42%
10 | Financial Expense/Assets
SEWA 4.04% 3.71% 4.35% 3.94% 4.18%
SAATH 3.07% 2.78% 2.84% 4.23% 4.00%
PRAYAS 7.71% 7.95% 8.34% 7.93% 6.64%
Efficiency Indicators
11 | Operating Expense/Loan Portfolio
SEWA 14.20% 15.45% 15.00% 15.36% 17.18%
SAATH 10.04% 10.82% 17.45% 18.06% | 21.53%
PRAYAS 9.58% 7.58% 11.56% 10.75% 12.18%
12 | Cost per borrower
SEWA 60 62 68 87 147
SAATH 658 702 1134 1393 2381
PRAYAS 496 10 15 13 16
Productivity Indicator
13 | Borrowers per staff member
SEWA 187 136 173 96 77
SAATH
PRAYAS 182 211 279 232 162
Source: Prepared from secondary data sources

22
Analysis of Non-performing assets of MFIs in Gujarat
There are no unique rules and regulations for MFIs and so each MFI classifies their loan asset as
per the rules prescribed under its legal form. In order to study these MFIs, it is required to bring
all MFIs at equal platform. Hence for research purpose, non performing asset of MFI is defined
as per the guidelines given by RBI to NBFC- MFI. NPAs of MFIs are studied by taking eight
ratios for a period of five years. Following table shows the ratio analysis:
Summary of Trend Analysis of Ratios measuring NPAs of MFIs
No. Ratios 2016-17 | 2017-18 | 2018-19 | 2019-20 | 2020-21
1 Gross NPA Ratio
SEWA 8.97% 6.97% 6.24% 6.28% 5.90%
SAATH 0.06% 0.07% 0.07% 0.07% 0.08%
PRAYAS 0.00% 0.26% 0.22% 0.24% 0.20%
2 Net NPA Ratio
SEWA 2.89% 2.09% 2.40% 2.86% 2.27%
SAATH 0.06% 0.07% -1.07% -0.23% -0.02%
PRAYAS -2.02% -2.78% -1.45% -0.95% -0.27%
3 Stress Asset Ratio
SEWA 2.81% 2.42% 2.49% 2.75% 2.44%
SAATH 0.06% 0.06% 0.05% 0.05% 0.05%
PRAYAS 0.00% 0.25% 0.25% 0.36% 0.34%
4 | Sub-standard Asset Ratio
SEWA 43% 49% 47% 50% 38%
SAATH 21% 15% 15% 15% 15%
PRAYAS 0% 100% 52% 100% 9%
S Doubtful Asset Ratio
SEWA 57% 51% 53% 50% 62%
SAATH 79% 85% 85% 85% 85%
PRAYAS 0% 0% 48% 0% 91%
6 | Provision Coverage Ratio
SEWA 70% 72% 63% 56% 63%
SAATH 0% 0% 1591% 451% 126%
PRAYAS 0% 1138% 753% 491% 235%
7 Write-off Ratio
SEWA 0% 0% 0% 0% 0%
SAATH 0% 0% 0% 93% 54%
PRAYAS 100% 0% 42% 32% 30%
(Source: Prepared from secondary data sources)
 2.3: INTERNATIONAL SCENARIO
JOURNEY OF THE WORLD’S LARGEST MF PROGRAMMEWITH 1
CRORE SHGS

1987 NABARD partners with NGO MYRADA to pilot SHG Bank linkage
1991 RBI announced to all scheduled Banks a Pilot project by NABARD for financing 500 SHGs
1992 NABARD launches the pilot SHG Bank Linkage Programme

1993 RBI enabled Savings Bank A/c in the name of the SHGs
1995 Working group set up under Chairmanship of Shri S K Kalia, MD, NABARD

1996 RBI mainstreamed SHGBLP as a regular priority sector lending

1655 Gol announced in the Union budget that NABARD would endeavour to ensure credit linkage of 2 lakh
SHGs in a period of 5 years

1999 Gol launched SGSY holistic programme for purveying credit to all rural poor especially BPL families
through the SHGs

2000 Dedicated MFDEF was created with a corpus of R100 crore

2005 Dream of 1 million SHGs achieved in 2003, 3 years ahead
2006 RBI announces use of Business Correspondence and facilitators for Rural Branchless Banking

P NABARD implements Micro Enterprise Development Programme with a thrust on livelihood for
matured SHG members
2006 JLG Scheme for SF / MF/ landless farmers launched by NABARD
2007 NABARD Support to MFIs for Capital support RFA/Rating

2008 FIF and FIFT funds set up in NABARD with an overall corpus of R500 crore
2008 NABFINS, subsidiary for financial services in microfinance and agriculture established by NABARD
2009 JLG Scheme for Non-Farm activities with grant assistance for promotion of JLGs

2012 Product level changes in SHG BLP launching of SHG -2

2012 WSHG Scheme of DFS . Gol in 150 backward and LWE affected districts implemented

T Launching of National Rural Livelihood Mission and implementing of interest subsidy scheme under
NRLM for SHGs
s NABARD implemented Livelihood and Enterprise programme (LEDP) for end to end solutions for
sustainable livelihoods for SHGs
SHG BLP Strategic Advisory Board was constituted in NABARD for strategic action plan for SHG
2015 BLP growth

2015 EShakti portal pilot launched as a pilot for digitisation of SHG records in 2 districts

2016 EShakti extended to additional 23 districts in India

2017 EShakti extended to additional 75 districts in India
2018 EShakti portal leveraged for Gol Social Securities Schemes like PMIDY, PMIBSY, PMITBY, APY

Source: [Link]

24
 CHAPTER 3:

DATA FINDING &

ANALYSIS
 3.1: ANALYSIS OF PRIMARY DATA:

In order to fulfill objective, survey has been conducted through self administered structured
questionnaire. Data collected through questionnaire is analyzed as under:

3.1.1: Analysis of the responses of questionnaire (Frequency analysis):

For the purpose of classification and analyses of the data collected through survey, frequency
analysis is used. Next the frequency analysis is represented through charts so that one can clearly
able to see the number of responses in various categories. Frequency analysis is shown both in
absolute numbers and as a percentage of total responses of particular question.

3.1.2: Factors affecting microfinance loan default (Cross tabulation ana

There are various factors that lead to microfinance loan default. Through cross tabulation
analysis, two and more factors are combined to analyze why microfinance loan became default.
Cross tabulation analysis helped to find out whether two or more factors are related to each other
and if yes how the relationships among different factors lead to defaults in microfinance loan
Cross tabulation analysis is done by comparing both two and three factors at a time

3.1.3: Analysis of relationship of causes of microfinance loan default with

other factors (Testing of Hypothesis by Chi Square Test)

Different causes of microfinance have been clubbed under ten different categories using
summated scale and then their relationship is analyzed with other factor. The study helped to
know whether any factor like socio-economic, loan terms, decision related factors, training and

supervision related factors follow a relationship with particular or few cause of microfinance loan
default. Following is the results of hypothesis tested using two variables:

26
 3.1.4: Results of test of Hypothesis (Chi Square Test)

Hypo- Variable Variable p Value | Decision of Null

thesis Hypothesis
Socio-Demographic Factors
1. | Causes of Default | Age 304 Accepted
2. | Causes of Default | Education 654 Accepted
3. | Causes of Default | Marital Status 007 Rejected
Economic Factors
4. | Causes of Default | No. of earning family members 493 Accepted
5. | Causes of Default | Individual economic activity 145 Accepted
6. | Causes of Default | Family economic activity 691 Accepted
7. | Causes of Default | Individual income 095 Accepted
8. | Causes of Default | Family income 435 Accepted
Microfinance Loan related Factors
9. | Causes of Default | Number of borrowing cycle 163 Accepted
10.| Causes of Default | Loan amount 253 Accepted
11.| Causes of Default | Time period since loan taken .004 Rejected
12.| Causes of Default | Installment Amount 042 Rejected
13.| Causes of Default | No. of installments .000 Rejected
14.| Causes of Default | Purpose of loan 018 Rejected
15.| Causes of Default | Type of borrowing .008 Rejected
Factors related to microfinance group loan
16.| Causes of Default | Group formation 000 Rejected
17.| Causes of Default | Homogeneity factor .000 Rejected
18.| Causes of Default | Status of group loan 000 Rejected
Factors related to repayment of microfinance loan
19.| Causes of Default | No. of installment paid 000 Rejected
20.| Causes of Default | Time period since payment of last | .001 Rejected
installment
21.| Causes of Default | Amount of last installment 020 Rejected
Factors related to decision regarding microfinance loan
22.| Causes of Default | Person who took last loan .000 Rejected
23.| Causes of Default | Person who used last loan 000 Rejected
24.| Causes of Default | Person responsible to pay .000 Rejected
installment
Factors related to training and supervision of borrowers
25.| Causes of Default | Receipt of training and .105 Accepted
information
(Source: Prepared through primary data sources)

27
 3.1.5: Analysis of relationship of microfinance loan amount with other factors
(Testing of Hypothesis by Chi Square Test)
In this section different factors are linked with microfinance loan amount to see their
relationship. This study helped to identify any loop hole from MFI during the decision of
sanctioning of microfinance loan amount. While deciding microfinance loan amount, MFI should
take into consider age, income, economic activity, borrowing cycle, etc of borrower and her
family members and after that MFI should provide proper training and supervision based on their
loan amount. Thus, in order to verify above relationship, following hypothesis are tested:

Results of test of Hypothesis (Chi Square Test)

Hypo Variable Variable p Value | Decision of Null

thesis Hypothesis
Socio Demographic Factors
26.| Loan Amount | Age 543 Accepted
27.| Loan Amount Education .868 Accepted
Economic Factors
28.| Loan Amount | No. of earning family members 417 Accepted
29.| Loan Amount Individual economic activity .635 Accepted
30.| Loan Amount Family economic activity 072 Rejected
31.| Loan Amount Individual income 359 Accepted
32.| Loan Amount Family income 000 Rejected
Microfinance loan related Factors
33.| Loan Amount No. of installments 000 Rejected
34.| Loan Amount Purpose of loan 016 Rejected
35.| Loan Amount Type of borrowing .000 Rejected
36.| Loan Amount | Status of group loan 000 Rejected
37.| Loan Amount | No. of installment paid 000 Rejected
Factors related to training and supervision of borrowers
38.| Loan Amount Receipt of training and 000 Rejected
information
39.| Loan Amount No. of meetings conducted 278 Accepted
40.| Loan Amount Frequency of staff visit .607 Accepted
(Source: Prepared through primary data sources)

28
 3.1.6: Analysis of overall adequacy factor with other factors (Testing of
h othe sing one way ANOVA
Three questions related to adequacy factors were combined using summated scale. These overall
adequacy factors have been compared with other factors to check the similarity and difference of
this thinking with various other factors. For this purposel3 hypotheses has been framed and
tested using one way ANOVA test. Further, post hoc test is applied on those hypotheses were
significant different is found in order to identified the groups that have similarity or differences
Following is the summary of result of hypotheses test.
Result of test of hypotheses (One way ANOVA test)

Hypo- Variable Variable Sig. Decision of Null

thesis Value Hypothesis
Socio Economic Factors
43.| Adequacy factors | Age 0.036 Rejected
44.| Adequacy factors | Education 0.000 Rejected
45.| Adequacy factors | Individual income 0.000 Rejected
46.| Adequacy factors | Family income 0.000 Rejected
Microfinance loan related Factors
47.| Adequacy factors | Number of borrowing cycle 0.143 Accepted
48.| Adequacy factors | Loan amount 0.027 Rejected
49.| Adequacy factors | Installment Amount 0.546 Accepted
50.| Adequacy factors | No. of installments 0.440 Accepted
51.| Adequacy factors | Purpose of loan 0.364 Accepted
Factors related to repayment of microfinance loan
52.| Adequacy factors | No. of installment paid 0.368 Accepted
53.| Adequacy factors | Time period since payment of last 0.227 Accepted
installment
Factors related to training and supervision of borrowers
54.| Adequacy factors | No. of meetings conducted 0.000 Rejected
55.| Adequacy factors | Frequency of staff visit 0.000 Rejected
(Source: Prepared through primary data sources)

29
3.1.7: Analysis of relationship and impact of borrower’s causes/ situations that
lead to arrears/default on reasons behind NPA in microfinance loan
In the examination, different situation or causes have been recognized which lead to the
foundation and affected reasons of NPAs in microfinance loan. These situations or causes are
combined under three major heads. These Combined situations or causes affecting reasons of
NPA are: Overall situation or causes where no income or less income was generated, overall
situations or causes where income was generated but utilized in other things and combined
miscellaneous causes. Likewise, intra co-connection among these parameters has been examined
through co-relation analysis.

Next multiple regression models have been applied to understand & analyze the impact of
independent variables like overall situation where no or less income was generated, overall
situation where income was utilized for other things and combined miscellaneous causes on
dependent variable overall reasons for NPA in microfinance loan

The entire multiple regression model analysis is classified in “3” parts. In the first part it is very
important to check how many factors are significant with the dependent variable. This analysis is
derived in model summary. Secondly, it has also been tested whether the combine influence of
which independent variable create significant impact on overall reasons of NPA with ANOVA
analysis. In the third part, impact of each individual factor on dependent variable which is overall
reasons of NPA has been derived with the help of the regressions coefficient chart and co-
linearity chart. Four hypotheses has been framed and tested through above model summary and
ANOVA analysis.

30
 CHART 1: GROSS LOAN PORTFOLIO OUTSTANDING:

Chart 1: Gross Loan Portfolio Outstanding

250,000 1
b
10%
2,00.000

——
11%
y 150000
g
5
~
1.00.000 4

50.000 4

0+
Mar-19 Mar-20

WNBFCMFls ®Banks — ESFB NBFC mOthers

Source: MFIN micrometer (Issue 33)

Source: https:/ [Link]

INTERPRETATION
NBFC-MFTs and Scheduled Commercial Banks (SCBs) hold a major chunk of the microfinance
portfolio, with a combined share of 72 per cent as on March 31, 2020. The remainder is held by
Small Finance Banks (SFBs), NBFCs and others (including not-for-profit MFIs). While NBFC-
MEFIs held the pole position in terms of GLP as on March 31, 2019, they ceded market share to

SCBs during 2019-20, which is largely attributed to the merger of a large NBFC-MFI with a
SCB2. Apart from the MFI led model, National Bank for Agriculture and Rural Development
(NABARD) has pioneered the Self Help Group-Bank Linkage Programme (SHG-BLP), which
also contributes to the overall microfinance universe. As on March 31, 2020 there were 56.77

lakh SHGs, with loans outstanding of %1.08 lakh crore under SHG-BLP

31
 CHART 2: PORTFOLIO GEOGRAPHICAL DISTRIBUTION

Chart 2: Portfolio Geographical Distribution

®East
and North-cast ®South ®™West ®North ®WCentral

Sources MFIN micrometer (Issue 33

INTERPRETATION
In terms of geographical spread, East, North-East and South India account for 67 per cent of
MFIs’ loan portfolio while the remaining 33 per cent is spread across West, North and Central
India (Chart 2). Among different states, Tamil Nadu holds the largest share of microfinance loan
portfolio followed by West Bengal and Bihar.

32
 CHART 3: Portfolio Delinquency: The Demonetisation Experience

Chart 3: Portfolio Delinquency-Overall

10
Per cent

e & el
BEEFEEE g
—— PAR31-180 ——BAR 30
‘Sources CRIF MicroLend (Volumes 1-X)

INTERPRETATION
MFTs largely serve in rural and semi-urban areas. The penetration of digital infrastructure in such
areas is low and internet connectivity is poor. This lack of access is accentuated by low literacy
levels among microfinance borrowers, who are generally daily wage earners and tend to transact
in cash. Therefore, MFI operations have traditionally been cash-intensive. Consequently,
demonetisation in November 2016 imposed a cash crunch on MFI sector.
SURVEY REPORT (FROM 250
RESPONDENTS)

2. GENDER

W Male

W Female

[]
[]

3. Age

' Below 20 years

20 years & above
-

4. Did you ever take credit from MFI?

34
 5. Which type of credit source you use?

W FORMAL

W INFORMAL

[]
[]

6. Up to what limit you want to take

credit from MFI?

WX10,000

W<10,000 and
above
67% 3

7. For how long time period did you

take credit?

m<1year
2% ® 1year & above
58% L]
[}
 8. What is the purpose of taking
credit?

10% W Education

20% 40% W Housing

= Emergencies
30% W Others

9. Up to what extent you repaid your

credit?

5% m Fully paid
155
W Half paid
20% 60% More than half

mNot paid

10. Do you think you fully utilised credit

taken by you?

20%

80%

36
 11. Are you aware of the duration and
amount of loan you have taken?

27%

73%

12. Are you aware of the interest rate

charged on your loan?

15%

85%

13. Are you aware of the consequences of

non-repayment of loan?
 PERCEIVED SATISFACTION LEVEL FROM
DIFFERENT SOURCES OF FINANCE
14. Adequate information is provided by the creditor
Agree
g
oo

Strongly Agree
Neutral
Disagree
0o

Strongly Disagree
o

14. Adequate information is provided by the

creditor.

W Agree
m Strongly Agree
» Neutral

m Disagree
u Strongly Disagree

38
15. Procedures for raising loan are convenient
[ Agree
Strongly Agree
o

Neutral
o

Disagree
o

Strongly Disagree
o

15. Adequate information is provided by the

creditor.

m Agree
m Strongly Agree

W Neutral
W Disagree
Strongly Disagree

39
16. Time taken to access credit is less and reasonable

Agree
oo

Strongly Agree
Neutral
o

Disagree
o

Strongly Disagree
o

16. Time taken to access credit is less and

reasonable

m Agree
m Strongly Agree
= Neutral
W Disagree
W Strongly Disagree

40
17. Loan amount received is enough to meet the needs

Agree
oo

Strongly Agree
Neutral
o

Disagree
o

Strongly Disagree
o

17. Loan amount received is enough to meet

the needs

W Agree
m Strongly Agree
= Neutral
m Disagree
Strongly Disagree

41
18. There are multiple loan duration options available

Agree
oo

Strongly Agree
Neutral
o

Disagree
o

Strongly Disagree
o

18. There are multiple loan duration options

available

W Agree
m Strongly Agree
= Neutral
m Disagree
Strongly Disagree

42
19. Rate of interest charged by the creditor is justified

Agree
oo

Strongly Agree
Neutral
o

Disagree
o

Strongly Disagree
o

19. Rate of interest charged by the creditor is

justified

m Agree
m Strongly Agree
= Neutral
W Disagree
W Strongly Disagree
20. Suitable schemes are available as per needs of the borrower
ul Agree
Strongly Agree
o

Neutral
o

Disagree
o

Strongly Disagree
o

20. Rate of interest charged by the creditor is

justified

m Agree
m Strongly Agree
® Neutral

m Disagree
= Strongly Disagree

44
 CHAPTER 4:

CONCLUSION
&
RECOMMENDATION
 4.1: CONCLUSION
Based on the above analysis of the secondary and primary data, following are the findings with
respect to research objectives

Objective 1 : To analyze the financial performance of MFIs in Gujarat

Objective 2 : To analyze NPAs of MFIs in Gujarat

Objective 3 : To investigate the causes of microfinance loan defaults of MFIs in Gujarat

The research study had three main objectives and six sub objectives which were successfully
achieved. The findings of each objective helped to get insight of the working and status of
microfinance institutions in Gujarat

Present research was focused on investigating causes of NPA by surveying default borrowers.
Further research can be conducted by surveying MFI’s staff at various level of organization
structure.

In this study research analyzed the defaulters of microfinance loan. Further comparative research
can also be carried out by analyzing regular borrowers.

The research study was limited by geographical region and also time period. This scope can be
widened for further study.

The study is focused on loan services of microfinance institutions. Further the other services of
microfinance can also be studied in order to have overall impact of microfinance on poor.

4.2: RECOMMENDATION
Based on the findings of the research, suggestions have been given to MFIs on precautionary
steps to be taken to avoid the defaults in microfinance loan and also the factors to be considered
while deciding loan amount at the time of disbursement.

46
 BIBLIOGRAPHY OR
REFERENCES
NEWSPAPERS/ MAGAZINES
Vg The Economic Times
> Business World

REPORTS

» Microfinance in India: A State of the Sector Report

» Rural Credit and Microfinance : An RBI Report

WEBSITES
Vg [Link]

> [Link]
[Link]
[Link]
[Link]
[Link]

[Link],
[Link]
[Link]
[Link]
[Link].
WWW. [Link]

47
 QUESTIONNAIRE
Hello people, I am SURAJ KHAITAN, a [Link] (H) 6" Semester student of “The
Bhawanipur Education Society College, kolkata”. This google form is a part of my
research project. It would be really helpful if you just spare out 5 minutes to take a part
in this survey and share your experience on the “MICRO-FINANCE
INSTITUTIONS & IT’S NPA MANAGEMENT”.

Your response will be highly appreciated

*Required

PART A
DEMOGRAPHIC PROFILE OF THE RESPONDENTS
1. Gender: (i) Male [___| (i) Female |}

2. Age: (i)<20( (i) 20-30_JGii)3040( _ | Gv)40< ]

3. Marital status: (i)Single ] (ii) Married | (iii) Widow = (iv) Divorce O

4. Type offamily: (i)Joint[) (ii) Nuclear|

] (iii) Extended

5. Education: (i) llliterate(] (ii) Matric [__](iii) Higher education[ __(iv) Graduation]
(v) Post-graduation () (vi) Vocational__] (vii) Other[]

6. Occupation: (i) Employed( (i) Self-employed [ (iii) Labour [_J

(iv) Housewife = (v) Unemployed [ (vi) Professional (] (vii) Family owned =
business [ ] (viii) Retired

48
 PART B
SURVEY QUESTIONS
1. Didyou take credit? (i) Yes___J (ii)No[__J

2. Which type of credit source you use? (i)Formal [ | (ii) Informal ()

3. Up to what limit you take credit? (i)< 10000 [ (ii) 10000-20000 ] (iii) 20000~ (.
40000 (iv) 40 J00000 (v) 1000___ 150000 [ booo<

4. For how long time period did you take credit? (i) <month ] (ii) I month-6 months =
(iii) 6 months- lyear [ | (iv) lyear- 2 years[ |(v)2years—5years| ] (vi) 5 years O

5. What is the purpose of taking credit? (i) Emergencies ()} (ii) Housing/housing ()]
repairs [ JEducation (iv]__Jsumption I marriage

6. Up to what extent you repaid your credit?

(i) Fully paid[:(ii) Half paid D(iii) More than half [} (iv) Not paid ()]

7. Do you think you fully utilised credit taken by you? (i) Yes [ | (ii)No ]

8. Are you aware of the duration and amount of loan you have taken? (i) Yes(__J (i) No[__]

9. Are you aware of the interest rate charged on your loan? (i) Yes[ | (ii) No (]

10. Are you aware of the consequences of non-repayment of loan? (i) Yes[| (ii) No[|

49
 PART C
PERCEIVED SATISFACTION LEVEL FROM DIFFERENT SOURCES OF FINANCE
Sr. Statements Agree Strongly | Neutral | Disagree Strongly
No. agree Disagree

1 | Adequate information is provided by the

creditor
2 | Procedures for raising loan are
convenient
3 | Time taken to access credit is less and
reasonable
4 | Loan amount received is enough to meet
the needs
5 | There are multiple loan duration options
available
6 | Rate of interest charged by the creditor is
justified
7 | Suitable schemes are available as per
needs of the borrower
8 | Terms and conditions of the creditor are
satisfactory
9 | Time taken to get the loan sanctioned is
reasonable
10 | File charges and other paperwork costs
are tolerable
11 | Demand for collaterals is enforced by the
agency
12 | Requirement of guarantee is enforced by
the agency
13 | Compulsory saving requirements
14 | Loan Repayment policy of creditor is
liberal
15 | Loan utilisation check from the agency is
strictly followed
16 | Transportation cost to visit the financing
agency is affordable
17 | I am well aware of the Consequences of
non-repayments
18 | The creditor gives you due recognition
and respect
19 | Complaints/problems are well
entertained by creditor
20 | When you meet the creditor’s staff their
behaviour is friendly and warm
 PART D
PERCEIVED LEVEL OF IMPACT ON THE RESPONDENTS AVAILING MICRO
CREDIT:

Sr. Statements Agree Strongly | Neutral | Disagree Strongly

No. agree Disagree

1 | Micro financing has aided in poverty

reduction
2 | Micro financing has contributed in
improvement of income level
3 | Micro financing has contributed in
improvement of consumption level
4 | Micro financing has contributed in
improvement of social status
5 | Micro financing has enhanced awareness
of social issues
6 | Micro financing has increased exposure
to the outside world
7 | Micro financing has helped in building
confidence of the borrower
8 | Micro financing has contributed in
Increasing the decision making power of
the user
9 |Micro financing has resulted in
enhancing recognition in the family