Disclosure and Financial Performance: A Crosssectional Study of Microfinance Institutions of India

For a country like India, poverty remains to be one of the biggest policy concerns. Amongst various measures to eradicate it, Microfinance, of late, has provided a ray of hope. The Task Force on Supportive Policy and Regulatory Framework for Microfinance constituted by NABARD defined microfinance as "the provision of thrift, saving, credit, and financial services and products of very small amount to the poor in rural, semi-urban, and urban areas for enabling them to raise their income levels and improve their standard of living".

In numerous studies done across the world, it is generally believed that various microfinance initiatives have been able to make a difference in the target population's lives. However, increasingly, doubts have been raised over the financial sustainability of microfinance institutions. MFIs need to be economically viable and sustainable in the long run but economic implications of long term sustainability are not being considered.

At least in India, there does not seem to be any working model of analyzing the financial performance and thereby sustainability of microfinance institutions. This problem is compounded by the absence of a dedicated legislation on working and management of microfinance institutions. The lack of a regulatory mechanism for financial disclosures by microfinance institutions also abets the problem.

The present study is an attempt to analyze the financial performance of various microfinance institutions operating in India. Since currently the level of financial disclosure made by these firms is not guided by any dedicated legislation and therefore is mostly voluntary, the study seeks to study the difference in financial performance between institutions practicing differing levels of disclosure policy.