he future, said management scientist C.K. Prahlad, lies with those that see the poor as their customer. And microfinance institutions (MFIS) have been the biggest beneficiary of this vision. The Nobel Peace award to Mohammed Yunus and his Grameen Bank, the first successful MFI in the world, lends strength to such efforts in India, which is attracting huge amounts through venture capital funding, and is now seen as the only hope for the 97 per cent of the poor, who have zero access to credit.
Of late, the sector has come under heavy flak in some states for exorbitant rates and extortionary recovery practices. India is probably the largest market for microfinance services, attracting unprecedented investors like technopreneur Vinod Khosla. Growth has been a scorching 20 per cent plus, with some outfits growing even at 150-200 per cent. Some 2.23 million self-help groups (SHGs) are now linked to the formal banking sector, compared to 1.16 million in March 2005, says NABARD. Nearly 78 per cent of the members are rural, 95 per cent among them women. Retail banks like ICICI, HDFC, Citibank, ABN-Amro and Stanchart have also entered the fray. With innovative instruments like securitisation of debt and I-cards, ICICI has already cornered 40 per cent of the banks' business. On March 31, 2006, ICICI had 102 MF partners with cumulative outstandings of Rs 2,350 crore against over 3 million low-income clients.
Says Nachiket Mor, executive director, ICICI Bank: "Out of the Rs 40,000-crore annual demand in rural India, barely Rs 2,000 crore is met by banks. Microfinance is still a tiny fraction of this, simply because its growth has been severely restricted. But it remains a sector with huge potential." ICICI estimates the market (including...