Financial Architecture of MFI-Linked Microfinance Portfolio

Abstract

In India, the microfinance industry has been a strong enabler in the financially underserved, unbankable and unserved rural population at large. The positive role played by microfinance is evident from the awarding of universal banking and small finance bank licenses to the top Microfinance Institutions (MFIs) in India. Over the past few years, the microfinance industry has seen strong growth with the introduction of institutional provisions like revision of RBI guidelines for NBFC-MFI operations, launch of MUDRA bank and small bank licenses. MFIs have consistently added value to customers’ livelihood support system and poverty alleviation through partnerships with various stakeholders like investors, banks, other financial institutions, credit bureaus, NGOs and other emerging agencies. However, the growth has also been accompanied by challenges such as higher cost of funds, increase in risks due to geographical concentration, increase in cash carrying costs, unavailability of quality technology solutions etc. The paper discusses at length the various important premises of Financial Architecture of MFI-Linked Microfinance Portfolio management; especially highlighting such aspects as: Definition, Models of microfinance, Geographical spread of Microfinance, Channels of mobilization of microfinance, Portfolio management of microfinance, Major schemes operated through MFI, MFI’s Alternative Sources of Fund, Loan portfolio of MFIs, Innovations of Partnership Model among MFIs, SBLP; and Financing of Microfinance Through MFIs.