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Dangers in Mismanaging the Factors Affecting the Operational Self-Sustainability (OSS) of Indian Microfinance Institutions (MFIs) - An Exploration into Indian Microfinance Crisis

Author

Listed:
  • M Nadiya

    (Doctoral Student at School of Management Studies, National Institute of Technology, Calicut, Kerala, India)

  • Francisco Olivares-Polanco

    (Senior Executive at CorporaciĆ³n Andina de Fomento (CAF), Caracas, Venezuela)

  • T Radha Ramanan

    (Assistant Professor at School of Management Studies & Department of Mechanical Engineering, National Institute of Technology, Calicut, Kerala, India)

Abstract

This paper identifies the factors affecting the operational self-sustainability (OSS) of Indian Microfinance Institutions (MFIs) using multiple regression analysis. It shows revenue generation factor, cost efficiency factor and growth factor to have a positive influence on the OSS of Indian MFIs. Adjusted impairment loan loss allowance ratio, a portfolio risk factor and average loan size per borrower, a development factor, are seen to have a negative influence on OSS of Indian MFIs. The results thus infer five significant factors that Indian MFI managers must concentrate on to enhance the OSS of their organizations. The authors then discuss how mismanaging these five factors can deviate an MFI from its social goal of poverty alleviation. The crisis in Indian microfinance industry is explored to unveil the dangers involved in mismanagement of these factors. The paper concludes by stating that it is imperative for Indian MFI managers to introspect about their lending and recovery practices, so as to ensure that they manage the factors affecting their OSS, without exploiting the poor clientele.

Suggested Citation

  • M Nadiya & Francisco Olivares-Polanco & T Radha Ramanan, 2012. "Dangers in Mismanaging the Factors Affecting the Operational Self-Sustainability (OSS) of Indian Microfinance Institutions (MFIs) - An Exploration into Indian Microfinance Crisis," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 2(3), pages 448-462, July.
  • Handle: RePEc:asi:aeafrj:2012:p:448-462
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    References listed on IDEAS

    as
    1. Alain de CROMBRUGGHE & Michel TENIKUE & Julie SUREDA, 2008. "Performance Analysis For A Sample Of Microfinance Institutions In India," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 79(2), pages 269-299, June.
    2. Navajas, Sergio & Schreiner, Mark & Meyer, Richard L. & Gonzalez-vega, Claudio & Rodriguez-meza, Jorge, 2000. "Microcredit and the Poorest of the Poor: Theory and Evidence from Bolivia," World Development, Elsevier, vol. 28(2), pages 333-346, February.
    3. Qayyum, Abdul & Ahmad, Munir, 2006. "Efficiency and Sustainability of Micro Finance," MPRA Paper 11674, University Library of Munich, Germany.
    4. Nair, Ajai, 2005. "Sustainability of microfinance self help groups in India: would federating help?," Policy Research Working Paper Series 3516, The World Bank.
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