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COMPARATIVE STUDY OF MICROFINANCE INSTITUTIONS IN INDIA

Article · March 2021

DOI: 10.6084/m9.figshare.14258150

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Sambodhi ISSN: 2249-6661
(UGC Care Journal) Vol-44 No.-01 (XXVI) January-March (2021)
COMPARATIVE STUDY OF MICROFINANCE INSTITUTIONS IN INDIA

*Dr. R. Saminathan, **R. Madhankumar

*Associate Professor& Head, PG & Research Department of Commerce, Government Arts and
Science College,(Formerly Bharathidasan University Constituent College)
Kumulur, Lalgudi, Tiruchirappalli (Dt), Tamilnadu
**Research Scholar at Bharathidasan University, Assistant Professor in CommerceKLE Society’s
Degree College, Nagarbhavi, Bangalore

Abstract
The point of the scrutiny is to understand the working of microfinance, explanations behind the
destruction in the implementation and its commitment towards monetary spread. This paper
investigates the budget report of two microfinance organizations. The microfinance organizations
have contributed a lot towards the general upliftment of individuals living in regional zones. The
microfinance organizations additionally give assets to poor people (particularly focusing on ladies in
the general public) and different other money related and non- monetary administrations. The money
related execution of the chosen organizations has been breaking down dependent on couple of
techniques. The issue looked by MFIs has been featured and answers for defeat such issues have
been brought out.

KEYWORDS: Microfinance, MFTs, India, Poor, People

I. Introduction
Microfinance Institutions help in starting the manageable assets so as to boostfiscal help to the
poorfundamentally to decrease their poverty. Financial organization is a body that gathers cash from
different sources and places them into different resources, for example, bonds, stocks, credits or bank
stores with the rationale to win benefits as premium and profit. They go about as a middle person
body between moneylenders and borrowers, or savers and financial specialists. There are different
budgetary establishments in the market with the target of giving monetary help to different
associations however one of the critical money related organizations can be microfinance
foundations, since its primary goal is to give monetary help to poor ranchers, independent company
and family ladies. Because of presentation of microfinance foundations, the poor area of the general
public was given budgetary help to enhance their monetary and financial circumstance. Microfinance
establishment assumes imperative job for neediness lightening in creating nations like India. In mid
1960s the interest of the corporative saving money part was in charge of meeting the credit require in
the rustic territories of India, because of mechanical upgrade in the rural area, it was normal that
business banks would assume a crucial job in giving credits through its branch extension and direct
loaning. One of the significant reasons of the nationalization of business bank in mid 1960s was to
improve the stream of budgetary credit to provincial family units by misusing middle people and
cash loan specialists and so forth

II. REVIEW OF LITERATURE

(Sunitha, 2014) The researcher in this research paper talk about the percentage of people who do not
access to the financial services and bank facilities in India (50000 out of 6 lakh villages in India) and
researcher also talks about the importance of credit loans to the poor as compared to subsidies
provided by the government and the problem faced by the poor due to non-availability of financial
services in the backward areas forcing them to borrow from moneylenders with high interest and
pushing them into debt trap. The researcher also talks about the sanction of loans by MFIs in a group
which is known as JLG (Joint Liability Group).

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 Sambodhi ISSN: 2249-6661
(UGC Care Journal) Vol-44 No.-01 (XXVI) January-March (2021)
(Radhakrishna, 2012) In this research paper the researcher talks about the rapid growth in the
expansion of MFIs in India and how there is a change in the functioning of MFIs which has turned
into accelerating the improvements in governance, responsible finance practices and regulatory
capacity. The community based micro finance institutions showed a positive impact on the
performance of the MFIs. The importance of SHGs (Self Help Group) in facilitating funds amongst
poor and has reduced the burden from MFIs and other banking sectors is also discussed.
(Verma & Aggarwal, 2014)In this study the researcher aims to study the concept of microfinance
and Microfinance Institutions and its impact on financial inclusion with special focus on poverty
alleviation and women empowerment in India. In this paper the researcher says that MFIs plays a
crucial role in financial inclusion and societal development. The researcher also recommends various
ideas regarding the growth and sustainability of MFIs to facilitate greater financial inclusion.
(Lensink, 2018)The stability of microfinance institutions is of paramount importance for inclusive
growth and financial stability. Risk management in MFIs remains, however, a major challenge for
their sustainability. In this article the researcher also talks about the skills, which clients (poor) are
already specialised in rather than wasting time in teaching them new things. Poor must be trained in
those things which will help them in making best use of the loan taken by the institution which will
improve their financial conditions and will pool them out from poverty.
(Agarwal & Sinha, 2010) In this the researcher talks about the problems faced by microfinance
institutions due to absence of dedicated legislation on working and management of microfinance
institutions and even talks about the non-financial parameters been opted to measure the performance
of MFIs. The researcher also says that how MFIs are used as tool for the introduction of new
government policies and schemes to facilitate poor in much better way and concludes that most of
the best performing MFIs have adopted various business models for its survival and sustainability.

III. RESEARCH DESIGN

Title: “Comparative studies of Microfinance Institutions in India”
Statement of problems:
The MFIs need lots of financial assistance from various other banking industries for lending
activities. One of the biggest confront faced by the MFIs is high transaction and operating cost. The
institution provides financial support to client at low interest rate which has been proven as a
challenge behind the survival of the MFIs with the non-profit motive there is a decline in the growth
rate of these institutions. As MFIs companies provide financial assistance with lower collateral to the
client which stops MFIs to facilitate them with various other financial services. The biggest
challenge faced by the MFIs is the misappropriation of funds allocated to the clients. One of the
reasons behind the failure of MFIs institutions is because of poor rules and regulations framed by the
government.

Objectives:
 To understand the functioning of MFIs.
 To study the failure of few microfinance institutions.
 To study the comparative financial data of the selected companies with quantitative and qualitative
approach.

Methodology:
For making the comparative studied of MFIs companies the data has been collected from the
authorized websites for the period 2015-2016 to 2017-2018.
To satisfy the objective of research the following strategies would be used:
Profitability ratios (Quantitative approach):
 Return on assets ratio: ROA ratio is also called as return on total assets; this ratio indicates the total
percentage of profit of a company in relation with overall companies’ resources. Higher Return on

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 Sambodhi ISSN: 2249-6661
(UGC Care Journal) Vol-44 No.-01 (XXVI) January-March (2021)
Asset ratio is more favourable for the investors. This ratio helps the management and investors of the
company to find how well the company is converting its investment in assets into profits. It is
calculated as follows: Return on assets ratio= Net Income/Average Total Assets*100
 Capital Employed: It is the total value of all assets employed in the business. It is calculated by
subtracting Current liabilities from the total assets. Capital Employed = Total Assets-Current
Liabilities
 Net worth: Net worth is the amount by which the total assets exceed by its liabilities (total liabilities
– currentliabilities). Net worth includes its long-term liability and excludes current liabilities and
other liabilities.Net worth=Total Assets- Liabilities
 Return on Investment ratio: This ratio indicates the amount the return earned (based on Profit before
tax) on the amount invested in the company. It is calculated as follows Return on Investment ratio
(ROI) = Profit before tax/Capital Employed*100
 Profit after Tax: It’s the amount of profits earned by company after deducting the total amount of tax
paid.
1. Village financial Service Ltd.
Profit after Tax (PAT)
Financial Year Amount in crore
2015-2016 2.68
2016-2017 8.34
2017-2018 16.84
2018-2019 29.23
2019-2020 35.06

Village financial service ltd.

40 35,06
35 29,23
30
25
16,84
20
15 8,34
10
2,68
5
0
2015- 2016- 2017- 2018- 2019-
2016 2017 2018 2019 2020
Amount in crore 2,68 8,34 16,84 29,23 35,06
Amount in crore Linear (Amount in crore)

Asset Tourn over Ratio

Year Sales Total Assets Sales/Total Assets
(Amount in Crore) (Amount in Crore)
2015-2016 42.3199 296.9370 0.142521
2016-2017 74.4612 458.4002 0.162437
2017-2018 111.5524 737.2920 0.151300
2018-2019 187.2034 968.3895 0.193314
2019-2020 212.6218 1007.5687 0.211025

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 Sambodhi ISSN: 2249-6661
(UGC Care Journal) Vol-44 No.-01 (XXVI) January-March (2021)
Return on Investment
Capital
Current
Total Assets Employed Profit Before
Liabilities ROI
Year (Amount in (Amount in Tax (Amount in
(Amount in (C/D)
Crore) (A) Crore) C Crore)(D)
Crore) (B)
= A-B
2015-2016 296.937 141.776 155.161 3.8324 40.4866
2016-2017 458.4002 239.9223 218.4779 9.4098 23.2181
2017-2018 737.292 379.5308 357.7612 15.1819 23.5650
2018-2019 968.3895 515.7426 452.6469 38.4958 11.7583
2019-2020 1007.5687 471.2939 536.2748 48.0624 11.1579

Net Worth
Financial Year Net Worth
2015-2016 41.5235
2016-2017 47.3916
2017-2018 81.7547
2018-2019 125.9825
2019-2020 161.0460

N ET WOR TH
161,046
125,9825
81,7547
47,3916
41,5235

2 0 1 5-2016 2 0 1 6-2017 2 0 1 7-2018 2 0 1 8-2019 2 0 1 9-2020

In the Financial year 2015-16 Village financial service had net worth of Rs. 41.52 Crore and
gradually their Net worth has increased to Rs. 161.04 Crore for the year 2019-2020. Each year Net
worth of the company has increased. The revenue of the Village financial service ltd., has increased
to Rs. 212.62 Crore. Every Year there is an increase in revenue of Village financial service. The
asset turnover ratio of the company had fluctuation in the year 2017-2018 there after is was in
increased. The Return on Investment in the year 2015-16 is 40.48 where as ROI in 2019-2020 is
11.15.
1. Samasta Microfinance Ltd.
Profit after Tax (PAT)
Financial Year Amount in crore
2015-2016 1.4655
2016-2017 0.8089
2017-2018 2.5829

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Sambodhi ISSN: 2249-6661
(UGC Care Journal) Vol-44 No.-01 (XXVI) January-March (2021)

2018-2019 53.2091
2019-2020 107.3035

SAMASTA MICRO FINCACE

Profit after Tax (PAT)
107,3035

53,2091

1,4655 0,8089 2,5829

2015-2016 2016-2017 2017-2018 2018-2019 2019-2020

Asset Tourn over Ratio

Year Sales Total Assets Sales/Total Assets
(Amount in Crore) (Amount in Crore)
2015-2016 19.1598 98.4864 0.194542597
2016-2017 32.0382 225.7578 0.141914034
2017-2018 95.9805 740.5318 0.129610234
2018-2019 333.6521 1903.9009 0.175246569
2019-2020 574.8246 2661.9399 0.21594199

Return on Investment
Capital
Current
Total Assets Employed Profit Before
Liabilities ROI
Year (Amount in (Amount in Tax (Amount in
(Amount in (C/D)
Crore) (A) Crore) C Crore) (D)
Crore) (B)
= A-B
2015-2016 98.4864 50.9615 47.5249 1.8929 25.1069
2016-2017 225.7578 90.7768 134.981 0.6234 216.5239
2017-2018 740.5318 417.8556 322.6762 4.3795 73.6788
2018-2019 1903.9009 1331.4532 572.4477 72.4306 7.9034
2019-2020 2661.9399 1985.6387 676.3012 140.3297 4.8194

Net Worth
Financial Year Net Worth
2015-2016 84.8565
2016-2017 161.4046
2017-2018 623.5956
2018-2019 1664.3227
2019-2020 2152.7846

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 Sambodhi ISSN: 2249-6661
(UGC Care Journal) Vol-44 No.-01 (XXVI) January-March (2021)
In the Financial year 2015-16 Samasta Micro finance had net worth of Rs. 84.85 Crore and gradually
their Net worth has increased to Rs. 2152.78 Crore for the year 2019-2020. Each year Net worth of
the company has increased. The revenue of the Samasta Micro finance., has increased to Rs. 574.82
Crore. Every Year there is an increase in revenue of Samasta Micro finance. The asset turnover ratio
of the company had fluctuation in the year 2017-2018 thereafter is was in increased. The Return on
Investment in the year 2015-16 is 25.10 where as ROI in 2019-2020 is 4.81.
V. QUALITATIVE APPROACH
Theoretical approach of analysing company’s performance basically means the external and internal
factors other than financial data that affects the performance of the companies. There are few
external and internal factors taken into consideration for the evaluation of the performance of
companies.
1. Government policies: Control of the microfinance business to date has pursued an unpleasant
example in which organizations depending on other individuals’ cash (e.g. benefactor bolstered
NGOs) are lawfully enrolled, be that as it may, not be controlled or directed; organizations utilizing
individuals' cash (e.g. banks) are liable to prudential control and supervise. The changing idea of the
microfinance business in particular the push toward store preparation requires administrative change
to keep up the prudential honesty of the money related framework.

2. Competitions: The competition enhances the performance of the MFIs. Due to increase in the
competition amongst MFIs borrowers are getting better services and better facilities to improve their
economic situation. Due to increase in the competition amongst the MFIs companies, MFIs
companies have started managing their operational cost but not the cost of borrowings. It has been
proved by the researcher that this rise in the competition also has a negative impact on the
company’s overall profit percentage.

3. Institutions rules and regulations: One of the factors the affects the performance of the MFIs
companies are the internal rules and regulations of the institution itself. The internal rules and
regulations affect the performance as well as the overall profit of a company. It has been noticed that
MFIs are not taking appropriate records and data because of nit availability of better facilities which
affects the organizations performance and leads to lack to information of the clients. It has been
proved by the researcher that better internal rules and regulations will improve the performance of
the MFIs.

4. Diversification: There diversification means the services and activities performed by the MFIs
company other than the main objective. It has been noticed that nowadays MFIs are indulged in
various other services like consultancy, advisors’ services and many other services as well. It has
been noticed that these services have helped in the improvement of the MFIs companies. But it has
been noticed that due to diversification the MFIs companies have been diverted from their main
objective which is to provide financial assistance.
Comparison between village financial servicer ltd., and Samasta Micro Finance ltd., in the F.Y 2015-
16 the net worth Village finance service ltd. 41.52 in the F.Y and their net worth in the year 2019-
2020 is 161.04, the company has shown a tremendous growth in the Net worth and Samasta Micro
Finance ltd with net worth of 2015-16 84.55 and net worth of 2152 for the F.Y 2019-2020 had shown
decrease in the ROI. The profit of the four year of Village financial service ltd. Shown increasing
trend where as Samasta Micro Finance show first three-year normal profit rate there after it was
increased due to branch expansion in south region of India. The Return on Investment on these two
micro finances is decreased due to branch expansion and borrowings.
VI. FINDINGS & SUGGESTIONS:
From previously mentioned task we get think about financials execution of microfinance
organizations' by breaking down information for five periods. We have discovered that Village

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 Sambodhi ISSN: 2249-6661
(UGC Care Journal) Vol-44 No.-01 (XXVI) January-March (2021)
financial service ltd., has most elevated in total assets and furthermore more branches when
contrasted with other MFI. Benefit after expense of each of the two organizations has increment in
the year 2019-2020 Among every one of the four Village financial service let., has the most elevated
benefit and the minimum Revenue gaining organization contrasted with every one of the two money
related establishments is Village financial service The Return on Investment of all the two MFIs
have diminished in FY 2019-2020 contrasted with FY 2015-2016, decline consequently on
speculation implies the organizations are not ready to create enough benefits through ventures made.
In other hand the Return on Investment of another two organizations has expanded.

VII. CONCLUSION:
Micro-credit aims to provide lifeline to borrowers by providing loans at lower interest rates thereby
reducing the need of moneylender and improving the standard of living. If India wants to move from
developing to developed countries, the poverty alleviation and reduction of income inequality are to
be of most priority. The MFI’s industry has great potential and can bring about economic
development in country by focusing on rural class. The MFI’s sector has further growth and should
thereby ensuring regulatory framework for smooth functioning by the support of the government.
The MFI’s are meeting vertical and horizontal axis for upliftment of society. The paper focuses on
analysing the position of two financial institutions and their performance from FY 2015 to 2020.

Reference:
 Radhakrishna, M. (2012). Performance of Microfinance Institutions in India. IRACST-International
Journal of Computer Science and Information Technology & Security (IJCSITS) (Vol. 2). Verma, S.,
& Aggarwal, K. (2014).
 Financial Inclusion through Microfinance Institutions in India. International Journal Of Innovate
Research & Development, 3(1), 178–183. Lensink, R. (2018).
 Provisioning and business cycle : Evidence from Provisioning and business cycle : Evidence from
microfinance institutions, (April 2018), 1–44. Agarwal, P., & Sinha, S. (2010).
 Financial Performance of Microfinance Institutions of India. Delhi Business Review-2, 11(2), 37–
46. Retrieved from http://dbr.shtr.org/V_11n2/v11n2d.pdf
 https://samasta.co.in/
 https://village.net.in/

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