A Comparative Study of Microfinance Institutions of India, Pakistan and Bangladesh: Philosophy, Methodology and Performance

Abstract

This thesis is about comparative analysis of microfinance institutions of three major countries of South Asia which are India, Pakistan and Bangladesh. At present microfinance is very common in these countries and many microfinance institutions are operating in each country; maximum number of microfinance borrowers i.e. 58.6 million and average loan balance, which is USD 144, are in South Asia and so it is the most sensitive part of the world in terms of poverty. The comparison of the microfinance institutions is done on the basis of philosophies of these institutions, the working methodologies and models of microfinance these MFIs have adopted and the performance of these institutions. Performance of microfinance institutions is measured using four parameters, which are sustainability/profitability, outreach, operational and financial efficiency and compliance. Comparison is done first of the three countries and then of the microfinance institutions of each type, categorized as NGOs, NBFIs, Cooperatives and Credit Unions, Banks and others. Data is taken from the Microfinance Information Exchange for a period of 11 years from 161 MFIs, 99 MFIs of India, 25 MFIs of Pakistan, and 37 MFIs of Bangladesh. Assets, Average deposit balance per depositor, Average deposit balance per depositor / GNI per capita, Average loan balance per borrower, Average loan balance per borrower / GNI per capita, Borrowers per staff member, Borrowings, Capital/asset ratio, Cost per borrower, Debt to equity ratio, Depositors per staff member, Deposits, Diamonds, Equity, Financial expense/ assets, Financial revenue/ assets, Gross Loan Portfolio, Number of active borrowers, Number of depositors, Operating expense/ assets, Operating expense/ loan portfolio, Personnel, Portfolio at risk greater than 30 days, Provision for loan impairment/ assets, Return on assets, Return on equity, Women borrowers, Write-off ratio, and Yield on gross portfolio (nominal) are used as the variables of various areas of performance. The endogenous variables are Return on Assets and Return on Equity for sustainability, number of borrowers per staff member for operational efficiency, cost per borrower for financial efficiency, and number of active borrowers for outreach. Panel data analysis is done after checking the assumptions. Normality of data is checked using Jarque-bera test and linearity using normal probability plot. Variance Information Factors of variables are seen to find out multicoliearity and scattered diagram for detecting Heteroskedasticity. Hausman Test is applied to find out the suitability of Fixed or Random Effect Model. In addition to this descriptive analysis of the variables is also done. This study concludes that there are many models of microfinance prevalent in the three A COMPARATIVE STUDY OF MFIs OF SOUTH ASIA 13 countries. Due to requirements of fund providers and also to pay interest to the depositors, in case of MFIs where savings are also a part of microfinance, sustainability is the main issue and Institutionists’ Approach is more commonly followed. Very few MFIs follow Welfarists’ Approach due to high financial operational costs of MFIs. Very few common factors were found in relevant Fixed or Random Effect models in each area of analysis, both in the grouping of countries and also the institutions type.