Understanding the ecosystem of microfinance institutions in India

Abstract

Purpose This paper aims to build upon the various studies conducted on the ecosystem and expands the understanding of the ecosystem of microfinance institutions (MFIs) in India. The discussions in this essay entail a literature review that analyzes the discourse on the ecosystem of MFIs, and based on this an attempt has been made to conceptually design a model for the ecosystem of MFIs in India. Design/methodology/approach The authors design the “Indian microfinance ecosystem model” based on the actors in the broader financial ecosystem (Bloom and Dees, 2008; Ledgerwood and Gibson, 2013) and the capital infrastructure and the context-setting factors of the social entrepreneurship ecosystem (Dees et al., 2008) that best describes the Indian MFI scenarios. Findings The ecosystem of MFIs in India is found to be very complicated. The interactions among numerous actors – who are core product or service providers, facilitators, client, beneficiaries, resource providers, competitors, complementary organizations, regulators, opponents and influential bystanders. The authors also observed that the capital infrastructure and context-setting factors such as policy, politics, media, economic and social conditions are equally crucial for the MFIs to survive and flourish. Moreover, the ecosystem is also dynamic and could change with the environmental conditions and entry of new entrants into the ecosystem. Research limitations/implications Understanding the ecosystem of MFIs from the strategic perspective would also be of interest to stakeholders such as donors, investors, banks, government and so on. For MFIs, knowing their place in the ecosystem is an essential step in determining their strategy. Practical implications Understanding the elements of the ecosystem would help MFIs to assess whether they have achieved the minimum critical environmental conditions in the ecosystem for their business model to succeed. Social implications Better understanding of the ecosystem will help create social benefits through better service delivery to the low-income population. Originality/value Expands the existing business ecosystem literature by extending it to the social policy, social entrepreneurship and more specifically to the microfinance sector. Fills a void in ecosystem literature by designing a comprehensive ecosystem model of MFIs in India. Understanding the ecosystem would help market system actors and facilitators to understand what they have to do to achieve their objectives of participating in the ecosystem. Knowing their place in the ecosystem is an essential step in determining what they should do and how they should do it. In addition to MFIs, it could have important implications for policymakers, particularly the government, that are trying to achieve financial inclusion.

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“…Regarding density, we observe an increase in the number of players in ecosystems (Alijani & Karyotis, 2019;Lai, 2020;Senyo et al, 2022). Taxonomies of FE participants include banks, nonbank financial institutions (venture capital, hedge funds, asset managers), Bigtech, Fintech startups, state entities, industry partners, financial regulators, investment community, B2B, social entrepreneurs and non-profit organizations, and customers (Alijani & Karyotis, 2019;Dalal, 2022;Grafe, 2020;Lehner, 2021;Moskalenko et al, 2022;Purkayastha, Tripathy, & Das, 2020;. The increased number of actors is due to new, ICT technology-based entrants and a broadened opportunity to participate in financing projects by established entities using technology means, such as incumbent banks offering online services or mobile banking, and international development institutions.…”

“…Five main types of actors in Fintech ecosystems: banks, non-bank financial institutions (venture capital, hedge funds, asset managers), Bigtech, Fintech startups, state entities (Lai, 2020) Ecosystem of microfinance institutions (MFIs) in India Lax regulations and ill competition among MFIs led to the microfinance crisis that spilled over from the local level to the entire India. (Purkayastha et al, 2020)…”

“…(Turcan & Deák, 2022) Financial ecosystem in the Middle East and North Africa Regulators constraining Fintech; the call for the support of Fintech expansion by regulators (Zalan & Toufaily, 2017) China ecosystems centered around Alibaba and Tencent Financial industry transformed not only by Fintech startups, but also BigTech as cross-sector players. Regarding the composition of actors, the research reports old or incumbent actors, such as banks and financial advisors (Lai, 2016), and new ones, including Fintech, Bigtech and individuals or peers acting as crowd suppliers of financing (e.g., crowdfunding or P2P lending platforms) (Alijani & Karyotis, 2019;Grafe, 2020;Purkayastha et al, 2020;. Another taxonomy of actors includes human and nonhuman entities, with the latter exemplified by algorithms and robo-advisors (Carolan, 2019).…”

“…Overall, on the supply side, actors' configurations are increasingly open and not bound to territories, going through different spatial, sectoral, and ownership dimensions (Beaverstock et al, 2013;Grafe, 2020;Senyo et al, 2022;. On the demand side, actors are still defined by their spatial contexts and place-based heterogeneous needs (Carolan, 2019;Purkayastha et al, 2020;Senyo et al, 2022). Consequently, the observation of FE is often pessimistic with respect to conflicting goals and interests among banks, Fintech and Bigtech, as well as between territorial communities suppliers of financing that impose private efficiency goals and external interests (Grafe, 2020;Soloviev, 2018;Tan, 2022;Turcan & Deák, 2022).…”

An integrated framework for analysing performance indicators of Indian microfinance institutions: a multi-stakeholder perspective

“…As a financial institution, financial performance is considered as the first priority by the industry expert. Earlier MFIs used to operate mostly on grants and donor's money which usually do not carry any cost (Purkayastha et al, 2020;Yaron and Manos, 2007). However, at present most of the MFIs are for-profit organisation and professionally managed with huge investment (Ambarkhane et al, 2018).…”