Microfinance Assignment

Delinquency in India in top 5 MFI’s (Kishan)

Major causes of Delinquency (Kunal)
How Delinquency can be avoided (Kunal)

Submitted to: Prof. Madhur Raj Jain

Submitted by: Kishan Yadav (21F30)
Kunal Purohit(21F32)

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“If you go out into the real world, you cannot miss seeing that the poor are
poor not because they are untrained or illiterate but because they cannot
retain the returns of their labor. They have no control over capital, and it is the
ability to control capital that gives people the power to rise out of poverty.”

― Muhammad Yunus, Banker to the Poor: Micro-Lending and the Battle

Against World Poverty

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Table of Contents

Table of Contents 3
List of Tables 4
List of Figures 5
List of Acronyms 6
Glossary 7
Chapter 1: Introduction 8
Top 5 MFI’s 9
Chapter 2: Causes of Delinquency 10
Chapter 3: Measures to improve Delinquency 17
Conclusion 23
Bibliography 24

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List of Tables

Table 1……………………………………………………………………………14
Table 2……………………………………………………………………………21
Table 3……………………………………………………………………………21
Table 4……………………………………………………………………………21

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List of Figures

Figure 1……………………………………………..9
Figure 2…………………………………………….11
Figure 3…………………………………………….16

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List of Acronyms

PAR: Portfolio at Risk

BSS: Microfinance: Bharata Swamukti Samasthe Trust
CGAP: Consultative Group to Assist the Poorest
PDO: Past Due Obligation
SPA: Social Performance Assessment
ALM: Asset Liability Management
CED: Community Economic Development
IRR: Interest Rate Risk
LRR: Liquidity Reserve Requirement
LLPE: Loan Loss Provision Expense
OOS: Operational Self Sufficiency
WOR: Write Off Ratio’s

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Glossary
Portfolio at Risk: . The value of all loans outstanding that have one or more
installments of principal past due more than a certain number of days. This
item includes the entire unpaid principal balance, including both past-due and
future installments, but not accrued interest.

Values of loans written off: Most MFIs have policies requiring a write-off of all
loans past due more than a certain number of days. It should be noted that a
write-off does not have any bearing on an MFI’s efforts to collect the
delinquent loan or the client’s obligation to pay. It is not uncommon for an MFI
to recover loans after they have been charged off.

Reversal of Interest Accurals: MFIs that recognize interest and fee accruals
revenue from the loan portfolio on an accrual basis record interest when it is
earned, rather than when a cash payment is received from the borrower. If a
loan falls delinquent, it is appropriate at some point to stop accruing more
interest income on the loan and to reverse previously accrued income.

Gross Loan Portfolio: All outstanding principal for all outstanding client loans,
including current, delinquent and restructured loans, but not loans that have
been written off. It does not include interest receivable. It does not include
employee loans

Outreach: Active attempt to find/interact with clients in selected populations,

geographic catchment areas or targeted initiatives. This term will often relate
to impact studies and would also include market research and delinquency
studies

Write Off: When an investment, such as a loan, becomes seriously delinquent

or in default and is determined to be uncollectible, the lender may choose to
charge the outstanding investment amount as an expense or a loss

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Introduction
TOP 5 mfis in india in 2022

1-BSS Microfinance Limited

BSS Microfinance Limited began its microfinance operations in 1999 as a
Trust. The Trust activities were taken over by the Company in April 2008.
Currently, the Company is a 100% subsidiary of Kotak Mahindra Bank Limited
and is carrying on its activities as a Business Correspondent. It focuses on
providing microloans to economically weak women for income- generating
activities to help them come out of poverty. These microfinance services are
then passed on to their families. BSS Microfinance is presently present in four
states - Karnataka, Maharashtra, Madhya Pradesh, and Tamil Nadu. BSS
Microfinance primarily lends only to women through the Group Lending
Program and aims to help women bring in higher profits, achieve a better
quality of life, and better financial management.

2-Annapurna Finance Private Limited

Annapurna Finance Private Limited, founded in 2009 in Odisha, has a loan
portfolio of INR 70 crore (USD 12 million). It focuses on the poor, offering them
a wide range of financial products and services including loans, deposits, and
insurance, to help them establish sustainable livelihoods. It specially aims to
empower women in remote villages who have no access to retail banking or
have been unable to procure a loan due to lack of collateral. The company
provides these women with collateral-free loans enabling them to earn more
and lead self-reliant lives. Annapurna Microfinance serves approximately
50,000 customers across the country.

3-CreditAccess Grameen Limited

CreditAccess Grameen was visualized by Mrs. Vinatha M. Reddy and founded
in May 1999 in South Bangalore as a T. Muniswamappa Trust project. Over
time, the microfinance activities of the trust were taken over by CreditAccess
Grameen company. CreditAccess Grameen focuses on women’s upliftment
and caters to the need for timely and affordable credit for India’s poor and

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low-income households. It offers income generation loans, home
improvement, emergency, and family welfare loans. It also offers non-financial
assistance like workshops. CreditAccess Grameen has over 900 branches in
more than 230 districts with over 29 lakh borrowers.

4-Arohan Financial Services Limited

Arohan began microfinance operations in 2006 in Kolkata but was eventually
bought by IntelleCash Microfinance Network Company Pvt Ltd with 56%
stakes in September 2012.Among the products that Arohan provides to
financially disadvantaged customers are - credit products like
income-generating loans and other loans for household purposes, and
insurance products including healthcare and life insurance covers through
Indian insurance companies that Arohan has tie-ups with. Arohan also offers
term loans to microfinance institutions. Arohan Financial Services Limited is
the largest NBFC MFI in eastern India and is a subsidiary of The Aavishkaar
Group. It has been certified as one of the Best Workplaces in Microfinance
India 2020.

5-Asmitha Microfin Ltd.

Asmitha Microfin Ltd. founded in 2002 is considered one of the best
microfinance companies in India. Headquartered in Hyderabad, it aims to
provide small loans to the poor village women to start a small business and
become self-reliant. With its presence in 13 states of India, the sole aim of

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Asmitha Microfin Ltd is to help women living below the poverty line who don’t
have the access to traditional banks and uplift their lives.

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Causes of Delinquency

Delinquency is the state of affairs that happens once loan payments are
overdue. It may also be remarked as arrears or late payments, measures the
proportion of a loan portfolio in danger. Delinquency is measured as a result of
it indicates associate raised risk of loss, warnings of operational issues, can}
facilitate predicting what proportion of the portfolio will eventually be lost as a
result of itnever gets repaid.

There ar 3 broad styles of delinquency indicators: assortment rates that

measures amounts really paid against amounts that have fallen due; arrears
rates measures due amounts against total loan amounts; and portfolio in
danger rates that measures the outstanding balance of loans that don't seem
to be being paid on time against the outstanding balance of total loans.

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Internal Causes
Failure to stick to line out loaning policies; this whereby a loaning officer
grants a loan to a recipient while not the complete issues united within the
loaning policy of the establishment is also owing to past expertise and
relationship. The economic conditions square measure dynamic per se
granting a loan basing on past expertise might end in loan delinquency.
Insider loaning : this happens once loan is given resolute workers such
managers, administrators among others while not following correct loaning
procedures.Improper appraisal techniques by loaning officers;
this is once a loaning officer conducts appraisals of the viability of the loans
purpose, might return up with inappropriate judgement touching on problems
like productivity of the business and therefore the progress being created. this
could end in the loaning officer failing to notice variations between the
proposal and what's on the bottom. therefore this may end in post payments
of loans borrowed.Deficient analysis of project viability; within the case
wherever management came up with choices to grant a loan basing on
ineffective project viability analysis. typically the expected returns from the
project is also slowly accomplished therefore late reimbursement of the loan.

External Causes
Changes in government policies : the govt might negatively interfere with the
operations the receiver from that money flows for the repayments of the loans
area unit expected to be generated, as an example increase in company
taxes. Increase in taxes can cause high prices burden leading to skinny
maintained ratio. Thus, the compensation might not be created in accordance
with the in agreement terms resulting in loan delinquency.

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Individual crisis : unheralded individual crisis might junction rectifier to loan
delinquency. The crisis might embrace death of a close to relative, discharged
from work, remuneration reduction among others. this may cause the profits
generated or the quantity borrowed being employed to cater for those
unforeseen commitments thus failure to fulfill loan compensation deadlines.

Natural disasters : natural disasters like floods, drought and earthquakes

might hinder the watching the progress of the project, for instance appraisal
visits might foiled by such disasters. this might additionally have an effect on
the infrastructure of wherever the borrowers project is geographically settled.
as an example if the receiver was in agriculture and has been full of one or
additional of the disasters, his or her yields are going to be suppressed thus
the receiver might hunt for alternative secondary sources of compensation
which needs right smart quantity of your time, therefore delayed
compensation.

State of the economy : business cycles (boom, depression and recovery)

have an effect on delinquency in many ways in which. in an exceedingly
depressed economy, the chance recently compensation is comparatively high
as compared to associate economy at boom or recovery stages of trade cycle.
this is often in the main as a result of economies in depressed state face
liquidity challenges thus the expected returns from borrowers comes are going
to be negatively affected resulting in delinquency.

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Transaction prices of the loan : several transactions prices related to the
receiver might find yourself reducing the quantity left accessible even before
the execution of the project, for instance a receiver desires Rs4,00,000 to
finance his or her project of that Rs40,000 are going to be related to dealings
prices thus the project are going to be funded with Rs3,70,000 than the
desired amount. If the project isn't absolutely capitalised, the feasibleness of
the project compromised or the receiver can realize alternative sources to
sufficiently fund the project. Thus, the compensation of the loan are going to
be delayed.

Table 1 According to M- CRIL indices Indian MFIs since October 2010 shows a declining
trend. In 2011-12,24 of the largest MFIs in India declined by 21%.

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Delinquency causes much suffering primarily to the financial organization.
These embrace deceleration portfolio rotation, delayed earnings, increase in
assortment prices, decreasing in operation spreads, inflicting disposition
programme to lose quality, threatens semipermanent institutional viability, loan
loss provision, loss of non-recoverable portion of the outstanding loan, written
off loans need decapitalisation of the establishment among others.

Slowing portfolio rotation : delayed repayments can negatively have an effect

on the establishments returns from its investments (loans). This hinders the
flexibility of the firm in granting different loans to different
different borrowers with various investment portfolios. This hinders the unfold
of risk through smothered diversification.

Increase in assortment prices : late repayments of loans could raise

assortment prices that ar inclusive of visits, analysis and legal prices. for
instance within the case wherever the establishment had set to sell its debtors
through debt factorization which is able to subject to a reduction so a price to
the establishment. Also, within the event wherever a court is needed to
produce a judgement on however the establishment are going to be repaid, so
procedures concerned ar pricey to the firm.

Threatening semipermanent establishmental viability : delinquency leads to

the institution losing confidence in terms of its property. The delayed
repayments suppress the long run growth prospects of the establishment as a
results of delayed investments in different areas. This leaves the property of
the establishment questionable.

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Lending programmes lose quality : the reliableness of each disposition policy
programme is heavily stapled on the time issue for reimbursement of the loan.
The deviation between the expected reimbursement amount and therefore the
actual reimbursement amount can render the disposition system ineffective.
within the event recently transfer of the loan obligations by the receiver, the
time issue thought-about initially place are going to be discredited so going
away the programme not reliable.

Delayed earnings : each business is driven by earnings from its operations. so

once disposition, a establishment expects earnings to be received on or
before the united reimbursement date. Any late reimbursement can subject
the establishment to suffer from failing to fulfill its obligations and
commitments in time for instance statutory obligations like taxes.

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Measures to Improve Delinquency

Prevention is best than cure! MFIs ought to style their portfolio in such the
simplest way that it will cut back the possible possibilities of delinquency. The
ways to manage delinquency ar loan product style, shopper screening and
credit committees, however just in case of MFIs excluding preventive
techniques it‘s necessary to develop appropriate ways. really delinquency isn't
principally because of unhealthy shoppers however as a result of the lack of
MFIs to devise correct ways and enforce them.
Institutional culture, employees orientation, shopper orientation, Rescheduling
or refinancing is few of the strategies for in delinquency management.

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● Institutional culture: Develop a culture that enforces intolerance towards
nonpayment of loan on due date. Immediate follow au courant all late
payments with needed field employees which might involve giving
correct updates and reminder to the shopper regarding maturity for loan
installment and therefore the quantity due, following up thoroughly by
employees to repay the loan on time through direct conferences with
shoppers and additionally through panchayats.

● Staff orientation: coaching of employees to discourage any quite

delinquency are going to be effective. this may be done by introducing a
variable pay element as associate incentive for maintain portfolio quality.
It shouldn't be based on industrial banks strategy to sell loans, rather
quality maintenance than amount is very important in MFIs. Recognition
for high performers would go an extended approach in motivating
workers.
● Client orientation: shoppers ought to be correct orientation regarding the
regarding the loan reimbursement schedule, procedure and penalties
concerned. Building a picture of intolerance to late payments is
incredibly important. A mixture of incentives like larger loans, follow up
loans, interest rebates, info and support to urge govt. subsidies and
funds, and disincentives like like penalty fees, no a lot of loans,
assortment of collateral and action.

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 ● Rescheduling or refinancing: Rescheduling a loan refers to extending
the loan term or ever-changing the payment schedule whereas
refinancing is providing associate quantity of loan additionally to the first
loan quantity. But MFIs got to take caution in rescheduling or refinancing
loans because it ought to be administered solely in extreme
circumstances

Lenders devise various institutional mechanisms aimed at reducing the risk of

loan default. These include pledging of collateral, third-party credit guarantee,
use of credit rating and collection agencies, etc.). Bad loans can be restricted
by ensuring that loans are made to only borrowers who are likely to be able to
repay, and who are unlikely to become insolvent. Credit analysis of potential
borrowers should be carried out in order to judge the credit risk with the
borrower and to reach a lending decision. Loan repayments should be
monitored and whenever a customer defaults action should be taken. Thus
banks should avoid loans to risky customers, monitor loan repayments and
renegotiate loans when customers get into difficulties (Ameyaw-Amankwah,
2011).

MFIs need a monitoring system that highlights repayment problems clearly

and quickly, so that loan officers and their supervisors can focus on
delinquency before it gets out of hand. Proper and adequate appraisal is key
to controlling or minimising default. This is the basic stage in the lending
process. The appraisal stage is the heart of a high quality portfolio. This
includes diagnosing of the business as well as the borrower. Before beginning
the process of collecting information on the client for the purpose of
determining credit limits, the loan officer should have specific information
available which will guarantee that the data and figures provided by the client

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will have a pro-margin error. The majority of the information is obtained by the
loan officer through direct interaction with the client in such a way that each
loan analysis provides valuable insights for evaluating the application for the
future client. However, most clients withhold a great deal of information
making the evaluation a difficult and unreliable exercise. Furthermore, the
loan officer should visit the home or the work place of the client with the main
objective of determining whether the client needs the loan programmes or not.

This information will help the loan officer to assess the ability to effectively
utilise the loan.The time to assess the applicant’s credit worthiness also
matters. He argues that the longer it takes to assess the applicant, the better.
This is because he believes that a shorter time is not enough to fully assess
the applicant. It is necessary to analyse the client before a loan is issued; the
applicant has to be screened to assess his or her credit worthiness. That is
the ability to repay the loan, the business and the guarantee to secure the
repayment of the loan.

The loan default in Uganda has identified loan appraisal as the key factor. In a
number of cases, the information received is not verified, in some cases the
information received is doctored or falsified. It must therefore be emphasised
that credit risk analysis is another important element in loan appraisal. When
lending out money, the lender should consider the borrowing proposition and
subsequent repayment in isolation from security. It should be noted that, the
borrower should be screened basing on the future and the past. Lending
should be based on capital, character, capability, purpose, amount,
repayment, term and security. Basing on the knowledge above, the lender
should investigate on the customer’s record, ability and experience. Security
tends to come towards the end and is considered only after the borrowing

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proposition has met the criteria. This process of appraising the client will help
the officer to assess the ability of the borrower to utilize the loan effectively.
Furthermore; the loan officer will be able to predict the likely changes or effect
on the business for which the money is being lent out. Another stage in the
lending process which is critical to minimising default is the disbursement
stage.

This stage is regarded as the most demanding to borrowers which often times
leads to failure to meet their loan obligations. This is because most of the
financial institutions take long to disburse funds to successful applicants. This
affects the borrowers in that they take long to buy inputs needed to carry out
their activities hence end up spending it unnecessarily. The most affected are
those involved in the agricultural sector because their activities are usually in
line with the prevailing weather conditions. If the people involved in the
agricultural sector receive the loan late, this will delay the planting season
hence they end up not making any profit in time or may yield less as a result
they are not able to pay their loans in time.

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Conclusion
Microfinance is unquestionably attending to modify Indian economy with its
reach to the poorest and rural population within the country. however
delinquency should be dealt in an exceedingly wiser and economical manner
as delinquent loans play a crucial role in AN MFIs expenses, income and gain.
Efforts and methods that area unit created according to amendment within the
MFI situation suggests that, more cost, less obtainable resources to achieve
new shoppers and launch new merchandise. Delinquency will result in slower
turnover of the loan portfolio and inability to fund expenditure thanks to
reduced money flows, additionally compensation of funds borrowed becomes
tough. Its necessary to understand and estimate early warning signals of
delinquency, control and manage it appropriately for growth and survival.

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