Indian MFI at crossroads: sustainability perspective

Pinky Dutta (Scholar, based at the Department of Business Admininstration, Tezpur University, Tezpur, India)
Debabrata Das (Department of Business Admininstration, Tezpur University, Tezpur, India)

Corporate Governance

ISSN: 1472-0701

Publication date: 30 September 2014



The purpose of this paper is to examine the factors affecting the financial sustainability of the Indian Micro Finance Institutions (MFIs) post-Andhra Pradesh (AP) crisis


Regression analysis is used to test the significance of the independent variables on the variable of interest, i.e. the operational self-sustainability. Three-stage regression analysis, i.e. Partial F-test, residual analysis and Box–Cox-type transformations is applied to see the impact of the variables on financial sustainability of the Indian MFIs. The study is based on the data of the Indian MFIs during three fiscal years from 2010-2011 to 2012-2012 reported in the Microfinance Information Exchange (MIX).


The authors’ results indicate that in 2010-2011, the linear regression model seems to be good fit to the data, whereas in 2011-2012 and 2012-2013, the appropriateness of the linear regression models seems questionable (the error distribution seems to be skewed). It is observed that square root of the dependent variable exhibits adequate fit for 2011 and 2012. Therefore, a substantial change in the model for estimating sustainability of Indian MFIs is observed in the post-AP crisis era. It is observed that portfolio quality and capital management are important determinants for the financial sustainability of the MFIs.

Practical implications

This study identifies the factors affecting the sustainability of the Indian MFIs, especially after the reforms following the AP crisis in India. The study suggests that from 2012-2013, the factors such as write-off ratio, capital-to-asset ratio, ratio of financial revenue to assets and provision for loan impairment-to-asset ratio are the main factors which have significant impact on the operational self-sufficiency (OSS) of Indian MFIs. This indicates that the quality of portfolio must be improved to reduce the vulnerability of the Indian MFIs.

Social implications

After the AP crisis, the performance of Indian MFIs is stabilized to a greater extent. The various performance indicators are improving.


The paper provides a detailed comparative analysis of the factors effecting financial sustainability of the Indian MFIs, before and after the regulatory reforms in 2011. A substantial change is observed after 2011-2012. Such a study on the Indian microfinance sector seems to be new (to the best of the authors’ knowledge).



The authors are thankful to Dr. Santanu Dutta for his suggestions and help with the statistical analysis.


Dutta, P. and Das, D. (2014), "Indian MFI at crossroads: sustainability perspective", Corporate Governance, Vol. 14 No. 5, pp. 728-748.

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