Penetration of MFIs among Indian states: an understanding through macro variables

The Indian microfinance industry witnessed one of the fastest growths in the recent times. However, the striking feature of this growth is that the Microfinance Institutions (MFIs) are concentrated only in some specific regions of the country. There is a huge geographical skew in the distribution of the MFIs. In this paper, an attempt has been made to explain these geographical skew by using the macro variables of the states. The objective of the study is to identify the causes for this regional disparity in the growth of MFIs.

We try to explain the level of penetration of microfinance in the states by using regression models.

Our analysis suggests that state-level macro factors are significant in explaining the geographical skew. MFIs in India have concentrated in states which are richer, have good rural infrastructure, but lack in adequate banking facility, and have low human capital.

The study provides an insight which would help in framing the necessary regulations to ensure that MFIs operate in all regions of the country.