MFIs must increase range, volume of services

Monday, June 4, 2007

Micro Finance Institutions (MFIs) can play a vital role in bridging the gap between demand and supply of financial services if the critical challenges confronting them are addressed.

The first challenge relates to sustainability. It has been reported that the MFI model is comparatively costlier in terms of delivery of financial services. An analysis of 36 leading MFIs by Jindal and Sharma shows that 89% of the MFIs sample were subsidy dependent and only 9% were able to cover more than 80% of their costs. This is partly explained by the fact that while the cost of supervision of credit is high, the loan volumes and loan size is low. It has also been commented that MFIs pass on the higher cost of credit to their clients who are “interest insensitive” for small loans but may not be so as loan sizes increase. It is, therefore, necessary for MFIs to develop strategies for increasing the range and volume of their financial services.

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Source: The Financial Express (link opens in a new window)