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THIS PAPER IS ABOUT CONTRIBUTION OF MICROFINACE COMPANIES TOWARDS INCLUSIVE GROWTH IN INDIA.
FINANCIAL ANALYSIS HAS BEEN DONE OF THE SELECTED MICROFINANCE COMPANIES BY ANALYSING THEIR FINANCIAL REPORTS.
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Research Paper on CONTRIBUTION OF MICROFINANCE TOWARD INCLUSIVE GROWTH
THIS PAPER IS ABOUT CONTRIBUTION OF MICROFINACE COMPANIES TOWARDS INCLUSIVE GROWTH IN INDIA.
FINANCIAL ANALYSIS HAS BEEN DONE OF THE SELECTED MICROFINANCE COMPANIES BY ANALYSING THEIR FINANCIAL REPORTS.
THIS PAPER IS ABOUT CONTRIBUTION OF MICROFINACE COMPANIES TOWARDS INCLUSIVE GROWTH IN INDIA.
FINANCIAL ANALYSIS HAS BEEN DONE OF THE SELECTED MICROFINANCE COMPANIES BY ANALYSING THEIR FINANCIAL REPORTS.
INCLUSIVE GROWTH Mr. Maurya Rambali R. M.COM., M.PHIL., LLB., NET(COMMERCE) rammaurya28@gmail.com 9769539813 c/109. Kunal kutir A, Navghar Road, Bhayandar(E), Mumbai-401105 ABSTRACT Growth is inclusive when it creates economic opportunities along with ensuring equal access to them. There are supply side and demand side factors driving Inclusive Growth. Banks and other financial services players largely are expected to mitigate the access to the financial system. Microfinance institutions are the significant contributors in economic development of a country. The aim of this paper is to enrich the growth and regulation of Microfinance Institutions (MFI) in India. It also highlights the components of assets and liabilities of these institutions. This is also an attempt to judge the financial and operational performance of these institutions from the year 2008 -2012. In the present study statistical tools like, trend analysis, ratios, percentages, mean, standard deviation will be used for descriptive analysis. To accomplish the research objectives, data has been mined from MIX market (www.mixmarket.org) a (Non- Profit Organization), NABARD, Sa-Dhan, CGAP. Data regarding financial performance various ratios and variables are taken into consideration. This work concludes that the performance of MFIs in the period under the study is significant and MFIs contributes significantly for inclusive 2
growth in India. The study considers selected variables and ratios, there are scope to expand the study by considering remained variables and ratios for analyzing financial performances. Here only financial performances of MFIs are studied. More research is needed on the performances of MFI by considering other variable and ratios and analysis of social performance is also required. This paper will be useful for financial institutions, portfolio managers, wealth managers and other investors as well as regulators who wish to have better understanding of MFIs and this will assist MFIs to improve their financial performance. Key words: Microfinance Institutions, Financial performance, Ratio, Inclusive Growth Paper type: Research paper
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1. INTRODUCTION Inclusive growth is a concept which advances equitable opportunities for economic participants during the process of economic growth with benefits incurred by every section of society. The definition of inclusive growth implies direct links between the macroeconomic and microeconomic determinants of the economy and economic growth. The inclusive growth approach takes a longer-term perspective, as the focus is on productive employment as a means of increasing the incomes of poor and excluded groups and raising their standards of living. Inclusive growth focuses on economic growth which is a necessary and crucial condition for poverty reduction. It should also be inclusive of the large part of the countrys labor force, where inclusiveness refers to equality of opportunity in terms of access to markets, resources and unbiased regulatory environment for businesses and individuals. Inclusive growth focuses on productive employment rather than income redistribution. Hence the focus is not only on employment growth but also on productivity growth. Inclusive growth is not defined in terms of specific targets such as employment generation or income distribution. These are potential outcomes, not specific goals. The term "microfinance," once associated almost exclusively with small-value loans to the poor, is now increasingly used to refer to a broad array of products (including payments, savings, and insurance) tailored to meet the particular needs of low-income individuals. People living in poverty, like everyone else, need a diverse range of financial services to run their businesses, build assets, smooth consumption, and manage risks. Microfinance is a source of financial services for entrepreneurs and small businesses lacking access to banking and related services. The two main mechanisms for the delivery of financial services to such clients are: (1) relationship-based banking for individual entrepreneurs and small businesses; and (2) group- based models, where several entrepreneurs come together to apply for loans and other services as a group. A microfinance institution acquires permission to lend through registration. Each legal structure has different formation requirements and privileges. Microfinance institutions in India are registered as one of the following five entities: 4
on Government Organizations engaged in microfinance (NGO-MFIs), comprised of Societies and Trusts -level cooperative acts, the national level multi-state cooperative legislation Act (MSCA 2002 ), or under the new state-level mutually aided cooperative acts (MACS Act) -for-profit) -profit Non-Banking Financial Companies (NBFCs) -MFIs For some, microfinance is a movement whose object is "a world in which as many poor and near-poor households as possible have permanent access to an appropriate range of high quality financial services, including not just credit but also savings, insurance, and fund transfers." [1] Many of those who promote microfinance generally believe that such access will help poor people out of poverty, including participants in the Microcredit Summit Campaign. For others, microfinance is a way to promote economic development, employment and growth through the support of micro-entrepreneurs and small businesses. Microfinance is a broad category of services, which includes microcredit. Microcredit is provision of credit services to poor clients. The inclusive growth approach takes a longer term perspective as the focus is on productive employment rather than on direct income redistribution, as a means of increasing incomes for excluded groups. Inclusive growth is, therefore, supposed to be inherently sustainable as distinct from income distribution schemes which can in the short run reduce the disparities, between the poorest and the rest..Growth is inclusive when it creates economic opportunities along with ensuring equal access to them. Apart from addressing the issue of inequality, the inclusive growth may also make the poverty reduction efforts more effective by explicitly creating productive economic opportunities for the poor and vulnerable sections of the society. The inclusive growth by encompassing the hitherto excluded population can bring in several other benefits as well to the economy. There are supply side and demand side factors driving Inclusive Growth. Banks and other financial services players largely are expected to mitigate the supply side processes that prevent 5
poor and disadvantaged social groups from gaining access to the financial system. Access to financial products is constrained by several factors which include: lack of awareness about the financial products, unaffordable products, high transaction costs, and products which are not convenient, inflexible, not customized and of low quality. Financial Inclusion promotes thrift and develops culture of saving and also enables efficient payment mechanism strengthening the resource base of the financial institution which benefits the economy as resources become available for efficient payment mechanism and allocation. If we are talking of financial stability, economic stability and inclusive growth with stability, it is not possible without achieving Financial Inclusion. Thus financial inclusion is no longer a policy choice but is a policy compulsion today. And banking is a key driver for inclusive growth. However, we must bear in mind that apart from the supply side factors, demand side factors, such as lower income and /or asset holdings also have a significant bearing on inclusive growth. Owing to difficulties in accessing formal sources of credit, poor individuals and small and macro enterprises usually rely on their personal savings or internal sources to invest in health, education, housing, and entrepreneurial activities to make use of growth opportunities. 2 PROBLEMS OF THE STUDY
The problem of this research paper is to enrich the growth and contribution of Microfinance Institutions (MFI) in inclusive growth of India, during the year 2008 to 2012. 3 OBJECTIVES OF THE STUDY The objectives of the present study are as follows: 1) To analyze the financial performance and growth of MFIs in India. 2) To examine contribution of MFIs towards Inclusive Growth in India. 4. HYPOTHESIS OF THE STUDY The following are hypotheses related to present study. Hypothesis 1 H 0 : There is no significance difference between the ratios of MFI from the year 2008 to 2012 in India. H 0 : There is significance difference between the ratios of MFI from the year 2008 to 2012 in India. 6
5. RESEARCH METHODOLOGY OF THE STUDY The research methodology of the study consists of: a) Sample frame b) Selection of the sample c) Data required d) Sources of Data e) Research Variables for analysis f) Statistical tools
a) SAMPLE FRAME: The sample frame is the list of target population. The sample frame in this study is all Micro financial institutions in India. b) SELECTION OF THE SAMPLE: For the purpose of the study researcher has taken 17 MFI working in India. For the present study researcher has obtained the names of the MFI from Mixmarket website, an organisation which has reliable and authentic source of information relating to MFIs of different countries. c) DATA REQUIRED: Study is empirical in nature because it depends upon the collected data, therefore researcher require such data which shows the financial performance like financial statements, Balance Sheet, Profit and Loss Account, financial reports etc. of the sample MFIs. d) SOURCES OF DATA: Secondary source: Studies of overall composition of MFIs are based on:- i. Mixmarket website, Sa-Dhan website ii. Annual reports of NABARD (National Bank for Agriculture and Rural Development) iii. Report on Status of microfinance in India from 2007-08 to 2012-13 published by NABARD. iv. Magazines- Bank Quest, IIBF vision, Yojana etc. 7
v. Research papers related to microfinance and inclusive growth. vi. Reference books related to MFI and inclusive growth. vii. Newspaper articles. e) RESEARCH VARIABLES AND ANALYSIS: Research variables: Variables are the objects of the research that can be measured. There are some variables which will be used for analysis to measure financial performance and growth of MFIs by the researcher. Those variables are as follows: 01 Capital Asset Ratio (CA) 02 Debt to Equity Ratio (DE) 03 Gross Profit Margin (PM) 04 Number of active borrowers (NOAB) 05 Return on Asset Ratio (ROA) 06 Return on Equity Ratio (ROE) 07 Operating Expenses / Loan Portfolio Ratio (OELP)
Research variables are analyzed in order to accomplish the objectives of the study. Various statistical tools are used to test the hypothesis framed. In order to examine the contribution of MFI to Inclusive growth it will be seen that if the ratios are significantly differs during the period of study that is 2008to 2012 then it can be understood that MFIs contribution is significant in Inclusive growth in India. Since the ratios which are selected are indictor of financial viability and shows the performance of MFIs in India, therefore if these ratios are significantly differ during the period of study it means they are financial viable and helps to increase financial inclusion which is one of the factor for inclusive growth. f) STATISTICAL TOOLS: For the purpose of analysis, for various ratios mentioned below, average of five years ratio i.e. 2008 to 2012 is found for each group separately. To examine whether these ratios differ significantly between different years, One way 8
Analysis of Variance (ANOVA) is applied. In addition of this Krushkal- Wallies test is also applied in order to overcome the precondition of normal distribution in case of ANOVA. 6. SIGNIFICANCE OF THE STUDY: The present study is significant because of the following reasons: 1) This study and its outcomes will be a tool for the MFIs. a) To have a clear view about its current performance and risk (strength and weaknesses). b) To motivate the entire institutions towards performance improvement. c) To follow up its development, assess progress in achieve sustainability. d) To present itself to potential funders. 2) It might be a tool for investor: a) To identify potential investment. b) To follow up the MFIs they are investing into. 3) It might be a tool for the government while framing regulation regarding operation of MFIs. 7. SCOPE OF THE STUDY The scope of the present study is restricted to India. Under the present study few MFIs are considered for the accomplishment of research objectives. For the purpose to analyses and examining financial performance and growth of MFI, selected variables are taken into consideration. 8 LIMITATIONS OF THE STUDY: Despite all sincere efforts in order to collect relevant information and data there will be some limitations such as: 1. Due to limitation of time and money, study covers only 17 MFI in India. 9
2. The study reveals only financial performances of MFI and social performances of MFIs are excluded. 3. Under the study researcher has taken only 6 (six) of the ratios of sample MFIs. 9. ANALYSIS Inferential Analysis: With a view to accomplish the stipulated set of hypothesis of the study parametric test ANOVA and non parametric test Kruskal-Wallis Testis used. The ANOVA and Kruskal-Wallis tests do not identify specific significant comparisons. The statistical tests indicate whether at least one group mean is statistically significantly different from the mean for the other group(s). If the F- value (or Chi-square) is significant, then we utilize statistical comparison tests to identify individual significant differences. We test the differences among the five years (2008, 2009 2010, 2011 AND 2012) using ANOVA as well as Kruskal-Wallis tests. Both the tests applied for each parameter separately. The results are presented in Tables 2 and 3.
Table 2
ANOVA Test Results
Capital /asset ratio Debt to equity ratio Number of active borrowers Return on assets Return on equity Profit margin Operating expense/ loan portfolio F-value 0.866 0.99 0.37 0.54 0.99 0.62 0.50 P value 0.4879 0.4195 0.8903 0.7109 0.4213 0.6471 0.7353 Difference Insignif icant Insignifi cant Insignificant Insignifi cant Insignific ant Insignif icant Insignificant (Working note is given in appendix)
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Table 3 Kruskal-Wallis Test Results
Capital /asset ratio Debt to equity ratio Number of active borrowers Return on assets Return on equity Profit margin Operating expense/ loan portfolio H 0.645 2.894 3.138 2.790 2.261 1.812 0.682 P -value 0.9580 0.5757 0.5350 0.5936 0.6879 0.7703 0.9535 Difference Insignif icant Insignific ant Insignifica nt Insignifi cant Insignif icant Insignif icant Insignificant (Working note is given in appendix) 10. FINDINGS AND CONCLUSIONS: In table 2 we report the ANOVA test result for each parameter. From the table 2 it is found that p value for each parameter is greater than the level of significance at 0.05. This indicates that all the selected ratios for this study differ insignificantly between various categories. Hence we failed reject the null hypothesis for each parameter. To overcome the assumption of normal distribution in case of ANOVA, Kruskal Wallis test is also applied. In table 3 we report the Kruskal-Wallis test result for each parameter. It is interesting to note that by applying both the techniques all ratios null hypothesis is accepted. From the above discussion it follows that for different categories; there exists insignificant difference in various ratios. On the basis of the study, it can be concluded that there exists an insignificant difference in the ratios of MFIs when all categories are taken together; null hypothesis is accepted for all the selected ratios indicating thereby that there does not exist a significant difference. We conclude that group means are statistically insignificant. Hence there is no significance difference between the mean values of ratios of MFI from the year 2008 to 2012 in India. From this it follows that the ratios for all categories of MFIs are generally indifferent during the study period. On the basis of selected sample MFIs and selected ratios, It is concluded that contribution of MFIs in Inclusive growth is not significant during the period 2008 to 2012 11
APPENDIX 1) Capital/asset ratio NAME OF THE MFI 2008 2009 2010 2011 2012 AVERAGE
Source SS df MS F p- value Treatment 0.186125 4 0.0465312 0.87 .4879 Error 4.296946 80 0.0537118
Total 4.483071 84
Kruskal-Wallis Test
Median N Avg. Rank YEAR
0.28 17 43.88 2008
0.32 17 46.24 2009
0.27 17 40.82 2010
0.29 17 43.65 2011
0.27 17 40.41 2012
0.28 85 Total
0.645 H
4 d.f.
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.9580 p-value
9) DEBT TO EQUITY RATIO
One factor ANOVA
Mean n Std. Dev YEAR
4.253 15 4.1738 2008
3.502 15 2.6614 2009
3.247 15 1.6452 2010
2.239 15 1.5434 2011
4.780 15 6.5252 2012
3.604 75 3.7981 Total
ANOVA table
Source SS df MS F p- value Treatment 57.0824 4 14.27060 0.99 .4195 Error 1,010.3876 70 14.43411
Total 1,067.4700 74
Kruskal-Wallis Test
Median n Avg. Rank YEAR
3.89 15 40.07 2008
2.66 15 37.23 2009
2.76 15 39.57 2010
2.16 15 30.23 2011
3.05 15 42.90 2012
2.66 75 Total
2.894 H (corrected for ties)
4 d.f.
.5757 p-value
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10) NUMBER OF ACTIVE BORROWERS
One factor ANOVA
Mean N Std. Dev YEAR
225,963.3 14 381,846.62 2008
395,195.2 14 641,302.60 2009
552,177.9 14 906,531.90 2010
485,056.3 14 952,599.88 2011
560,192.7 14 1,171,020.09 2012
443,717.1 70 839,463.95 Total
ANOVA table
Source SS df MS F p- value Treatment 1,075,344,835,073.63 4 268,836,208,768.407 0.37 .8309 Error 47,548,936,594,001.90 65 731,522,101,446.183
Total 48,624,281,429,075.50 69
Kruskal-Wallis Test
Median n Avg. Rank YEAR
83,528.50 14 27.93 2008
128,041.50 14 34.93 2009
203,536.50 14 41.14 2010
148,076.00 14 37.07 2011
113,540.50 14 36.43 2012
133,615.00 70 Total
3.138 H
4 d.f.
.5350 p-value
11) RETURN ON ASSETS
One factor ANOVA
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Mean n Std. Dev YEAR
-0.01403 10 0.155451 2008
0.01025 10 0.078982 2009
0.01917 10 0.033841 2010
-0.05912 10 0.211552 2011
-0.02577 10 0.117841 2012
-0.01390 50 0.131733 Total
ANOVA table
Source SS df MS F p- value Treatment 0.038626 4 0.0096565 0.54 .7104 Error 0.811704 45 0.0180379
Total 0.850330 49
Kruskal-Wallis Test
Median n Avg. Rank YEAR
0.02 10 27.70 2008
0.03 10 30.35 2009
0.02 10 26.15 2010
0.01 10 22.30 2011
0.01 10 21.00 2012
0.02 50 Total
2.790 H (corrected for ties)
4 d.f.
.5936 p-value
12) OPERATING EXPENSE/ LOAN PORTFOLIO
One factor ANOVA
Mean n Std. Dev YEAR
0.21441 10 0.336130 2008
0.14183 10 0.152066 2009
0.12518 10 0.095217 2010
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0.12710 10 0.064535 2011
0.12031 10 0.064350 2012
0.14577 50 0.171595 Total
ANOVA table
Source SS
df MS F p- value Treatment 0.061477 4 0.0153693 0.50 .7353 Error 1.381318 45 0.0306960
Total 1.442795 49
Kruskal-Wallis Test
Median n Avg. Rank YEAR
0.12 10 27.40 2008
0.10 10 22.80 2009
0.11 10 24.50 2010
0.12 10 27.10 2011
0.10 10 25.70 2012
0.11 50 Total
0.682 H
4 d.f.
.9535 p-value
13) RETURN ON EQUITY
One factor ANOVA
Mean N Std. Dev YEAR
0.17478 10 0.458017 2008
0.12965 10 0.209951 2009
0.10435 10 0.138115 2010
27.71684 10 87.580248 2011
0.07910 10 0.138799 2012
5.64094 50 39.156200 Total
ANOVA table
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Source SS Df MS F p- value Treatment 6,091.864764 4 1,522.9661911 0.99 .4213 Error 69,035.328972 45 1,534.1184216
Total 75,127.193736 49
Kruskal-Wallis Test
Median N Avg. Rank YEAR
0.13 10 27.60 2008
0.15 10 30.45 2009
0.09 10 24.20 2010
0.07 10 23.30 2011
0.06 10 21.95 2012
0.10 50 Total
2.261 H (corrected for ties)
4 d.f.
.6879 p-value
14) PROFIT MARGIN
One factor ANOVA
Mean n Std. Dev YEAR
-0.58741 14 2.252808 2008
-0.08594 14 0.670818 2009
0.11954 14 0.169385 2010
-0.36363 14 1.600852 2011
-0.08501 14 0.665959 2012
-0.20049 70 1.294098 Total
ANOVA table
Source SS df MS F p- value Treatment 4.272787 4 1.0681968 0.62 .6471 Error 111.280743 65 1.7120114
Total 115.553530 69 21
Kruskal-Wallis Test
Median n Avg. Rank YEAR
0.16 14 39.86 2008
0.17 14 37.93 2009
0.10 14 36.18 2010
0.07 14 31.32 2011
0.11 14 32.21 2012
0.12 70 Total
1.812 H (corrected for ties)
4 d.f.
.7703 p-value
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