Microfinance in India and Latin America - Mutual Learning

This paper compares the microfinance sectors in India and Latin America based on the survey of the literature as well as the quantitative data analyses using the panel data of microfinance institutions (MFIs). First, we have found that in India, the better macro institutional quality such as rule of law, political stability, regulation quality, and control of corruption, is more important in improving the financial sustainability of MFIs, proxied by return on assets, debt to equity ratio, operating expense ratio, and portfolio at risk. Second, our analyses suggest that the improvement in financial sustainability of MFIs will reduce poverty and inequality at country levels – in both India and Latin America, while there is some trade-off between the financial sustainability and outreach of each MFI. We have also found that overall financial development is crucial to improving the financial sustainability of MFIs. For the development of microfinance sector, overall financial development, including establishing better financial infrastructure, will play an important role, particularly in India.