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 sticking feature of the growth is that the Microfinance Institutions (MFIs) are concentrated in only some 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 at the state levels. The purpose of this study is to identify the causes for the regional disparity of the growth of MFIs. The analysis is likely to help in identifying factors which need attention for developing the MFIs in states which are lagging behind and also in framing necessary regulations which can ensure uniform growth of MFIs among all the states. The study 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, lack adequate banking facility and have low human capital.