Indian Microfinance Institutions: Performance of Young and Old Institutions

This study focuses on the performance of Microfinance Institutions of India (MFI) based on their age. Using Life Cycle Approach method, three major classes of MFIs: the old, the mature and the young MFIs are identified. The growth and financial performance of a sample of 40 Indian MFIs were examined. It is a general notion of the industry that the older companies with bigger in size and scale used to financially perform better than the new comers. But in case of microfinance institutions, the scenario was found to be different. It was found that the young MFIs of India are creating better quality asset and growing at a faster rate as compared to the old and the mature MFIs. On average, the portfolio of the young Turks has grown three to five times between 2008 and 2010, with Equitas and Sahayata showing extremely high portfolio growth of 13 times and 16 times, respectively. The portfolio at risk (PAR) > 30 days of young MFIs was also very low and was in the range of 1–1.2 per cent during the year 2008–2011 as compared to the 4 per cent PAR > 30 days of old MFIs. It was also concluded that the mature MFIs are utilizing administrative and personnel expenses in a much better manner. The administrative and personnel expenses, which are measured by ‘Operating Expense/Loan Portfolio’, of the mature MFIs are 8 per cent while the young MFIs are operating at Operating Expense/Loan Portfolio of 13 per cent of the total portfolio size. The old MFIs, by and large, were the laggards in almost all the financial performance indicators.