The MFI industry in India has
shown strong growth in the past few years with an upward movement from $0.8
billion in outstanding loans in 2006 to $6.7 billion in 2010. This, along with the strong support of the Indian government for micro-finance,
indicates that the industry will continue to see significant growth in the
future. Currently, there are more than 3,000 MFIs in India and the 10 biggest organizations
represent 75% of the market. This data, the potential growth opportunity, and the size of the untapped
market (only 5% of people in Uttarakhand have access to microfinance) suggest
that entering this market will be feasible and potentially rewarding (social
and financial). In order to be successful within this industry, an organization
needs to be well financed and needs to overcome barriers including trust and
acceptance of customers.
The major MFI competitors in India
include Bharatiya Samruddhi Finance Limited, Share Microfin Ltd, Sa-Dhan Ltd, SKS
Microfinance Ltd., International Development Enterprises (IDE), Bandhan and
Gram Utthan. While these pan India organizations provide financial assistance to rural
areas, they are primarily focused on urban communities; further, their missions
are broad and do not specifically cater to the needs of agricultural customers
for capital intensive projects. The ticket sizes for loans by the existing MFI’s
are considerably lower, have very short payback period and are hence not
suitable for capital intensive projects like Micro irrigation. This is especially true for states in north India including Uttarakhand.
Further, there is a problem with bank loans as they require collaterals like
agricultural land for the loan to be provided.
Additional competitors include
other financial service providers, including local Indian commercial and
development banks as well as self help groups, cooperatives, and other community
savings and loan programs. Some agricultural input suppliers are also beginning
to offer financial services and credit for inputs to agriculture. However overall the
niche of agricultural financing that we will focus on is very much in its infancy
and has a huge untapped potential.
Microfinance lenders hold the
majority of the power due to the extreme needs of customers requiring financial
assistance. With the maturation of the microfinance industry, borrowers have started
getting the ability to obtain loans from multiple organizations, though even
now with the tremendous demand and limited amount of money to lend; this
ability is not significant in most parts of the country.
There is also a problem of
supplier network for Drip Irrigation systems in India which further increases the
cost of supplying such systems. In fact, the Indian government has identified
the areas where this is a problem in categorizing the country in 3 categories
of A, B, C with higher levels of estimated cost of drip irrigation systems in B
& C to the tune of 15% and 25% higher respectively. These higher increases are due to the problems of farmer awareness levels,
proximity to the manufacturing units, distance in transportation, and cost of
drip irrigation systems itself.
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