Risk Management Practices of Select Microfinance Institutions in Telangana State, India

Abstract: The micro finance sector in India today is on a path of steady growth and is undergoing substantial change building on regulatory support and the common shared industry infrastructure. In the year 2014/2015 NBFC-MFIs had a branch network of 9894 branchs, and employee base of 75, 085 provided credit to over 2.85 crore clients with loan outstanding of Rs. 37,988 crores and Par 30 under 1 % ( Microscape, FY 2014-15) The main challenge of microfinance is to create social benefits and promote low income households by providing financial services without any suitable guarantees. It is in this context that the issue of risk management in microfinance institutions becomes increasingly relevant. This study used a descriptive research design with the main objective to study the risk management practices of microfinance institutions(MFIs) in India, especially of those that are headquartered in Telangana state. This study investigates the relationship between risk management practices and risk variables. Further an effort is made to associate number of years of operation of the MFIs and active borrowers and Gross loan portfolio. Six MFIs headquartered in Telangana state were used as a sample. Cronbach’s alpha was calculated to establish reliability of the scale, Pearsons correlation, Regression analysis and Chi square measure was used to test the hypothesis. It is observed that there is a positive relationship between risk management practices and risk variables and further it is concluded that there is no association between the number of years in operation and active borrowers and gross loan portfolio of the microfinance institution.