Impact of global economic meltdown on microfinance[1]:

+ Impacts:

• Influx of talent to the MFI space
• MFI concepts being validated:
• Groups vs. individual lending
• Small loans, frequent repayment
• High touch lending
• strong credit checks vs. blind reliance on collateral
• Possible establishment of credit bureaus
• Opportunity to attract funds looking for uncorrelated returns to other assets

- Impacts:

• Higher operating expenses due to inflation
• Increase in cost of borrowing and delay disbursements
• Banks demanding personal guaranties of CEOS and MFIs
• Poor borrowers are also hurt by inflation

Sources:
[1] Global Meltdown and Microfinance, Unitus Capital.

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Definition of Microfinance

Microfinance is provision of finance for the poor and low income group people. It is a type of banking service to unemployed/low-income peoples who have no access to financial services.  As per world bank, there are more than 500 million people who have directly or indirectly benefited from microfinance related operations

Microfinance in India[1]

In India, Microfinance began with pilot initiative in 1992. It has expanded its reach to client base of more than 50 Million in 2008. Between 2007-2008 it has witnessed growth rate of 23%. As per world bank report potential market for microfinance in India is INR 2,40,000 Cr. ($ 55 B). Currently only INR 20,000 Cr. is under microfinance and hence there is huge opportunity for future growth in India. In 2008, India has seen impressive growth in microfinance lending, SHG (Self Help Groups)  have seen steady growth of 18% over 2007, while MFIs (Microfinance Institutions) have seen vigorous growth of 40%. More and more players are entering MFI segment leading to increased competition in the sector.

Sources:
[1] State Of Microfinance, Publications, Microfinance India.

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