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Microfin may be hot, but India scores below Peru, Bolivia
KOLKATA: In July 2010, when India’s largest micro lender, SKS Microfinance , became the only second microfinance institution ever in the world to launch an initial public offering, investors from the US and the UK showed tremendous interest in raking in the mullah. The country’s microfinance market has grown exponentially over the past couple of years and covered nearly 30 million poor borrowers with nearly . 25,000 crore worth of small loans.

Yet, smaller countries like Peru, The Philippines or Bolivia, are believed to be ahead of India in terms of microfinance business environment, regulatory framework and investment climate, according to a study conducted by Economist Intelligence Unit (EIU), the business information arm of The Economist Group.

India ranks eight in the overall tally, below Pakistan, which is less stable politically and economically. Bangladesh, which has been on the global microfinance map owing to Professor Muhammad Yunus and his Grameen Bank, ranks a poor 33rd and scored lower than it did in 2009.

According to EIU, Pakistan has advanced in terms of regulatory and market reforms. While in its overview on India , EIU wrote: “The microfinance sector has continued to grow rapidly and with it the need for better regulation.” EIU conducted the study in terms of three broad categories: Regulatory framework , institutional development and investment climate.

It noted that the Philippines enjoys the best overall regulatory environment for microfinance, alongside Cambodia and Pakistan. In case of India, the failure to pass the proposed Microfinance Bill, which has been pending in Parliament since 2007, has surely dented India’s microfinance ranking. In the regulatory framework category, it ranks a joint 14th alongside El Salvador, Nigeria and Rwanda .

EIU noted that although the Bill is expected to pass in 2010, it will not cover non-banking finance companies and MFIs registered as not-for-profit entities, thereby ignoring over 80% of the microfinance sector. Bandhan Financial Services CMD Chandra Shekhar Ghosh said: “Pakistan has done well in creating a special regulation for microfinance. But India is well ahead of Pakistan in terms of investment climate and institutional development.”

Incidentally, the rankings reflect Mr Ghosh’s sentiment. For the investment climate category, India ranks 14, ahead of Pakistan’s 20th position. However, so far, as institutional development is concerned, India enjoyed the seventh position , higher than Pakistan’s 12.

The study covered 54 countries and provided a benchmark for business conditions for privately provided microfinance. EIU said most of the research was conducted between August 2009 and May 2010.

About Bangladesh’s microfinance practice, EIU wrote: Bangladesh has a moderately restrictive regulatory framework that serves to constrain a majority of MFIs and has a fairly consolidated market .” Peru retained the first ranking in the second edition of the study while the Philippines and Bolivia swapped positions and finished second and third, respectively . Pakistan and Kenya joined the top 10, displacing Nicaragua and Uganda.
Source :
The Economic Times
 
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