Financial Performance of Micro-Finance Institutions in India

Abstract

Micro-finance institutions (MFIs) in most of the developing countries, including India, are seen as essential tools to eradicate poverty and raise the standard of living of rural poor. Therefore, the sound functioning of MFIs has a huge long-run impact on the outreach of the rural poor. However, the performance of MFIs is often measured in terms of their social impact on the rural poor, while the financial indicators are ignored. In this context, the study analysed the major determinants of the financial performance of the 20 MFIs in India using panel regression. The results of the study revealed that financial indicators such as operating self-sufficiency, return on assets, and size (assets of the MFIs) had a positive impact on increasing the performance of MFIs. Further, the active borrowers increase efficiency, while passive borrowers had a negative impact on the performance of the MFIs. Similarly, a low level of debt to equity ratio, operating expenses to assets ratio, and low percentage of women borrowers could lead to the sound financial performance of MFIs.