Year: 2016 | Month: March | Volume 61 | Issue 1
Rating Micro Finance institutions operating in India: an application of fuzzy analytical hierarchical process (FAHP)
DOI:10.5958/0976-4666.2016.00015.2
Abstract:
The theory of microcredit is not new a concept, but its applicability in the field of poverty alleviation was made publicly acceptable by the renowned professor Mohammed Yunus whose noble effort has given micro credit its due recognition. The noble prize to Professor Yunus along with the UN recognition of the year 2005 as the year of micro credit bears testimony of the fact that micro credit has taken the centre stage. The evolution of microcredit to microfinance was due to the need of the market. The quantum of money following into the sector and the significant business opportunity has motivated many business models to step in into the sector. The advent of Micro Finance Institutions (MFI) in this regard under various legal entities as Non Banking Finance Corporation (NBFC), Societies, Trust, Cooperatives, and Section 25 companies ushered in a new era into the microfinance sector. Investors as well as the common people are provided with choices. All MFI claims to be the best. The availability of more choices makes the process of selection even complicated. Thus it becomes very arduous task to select from the array of choices. Decision making process thus becomes a complicated phenomenon. The people are uncertain about their choices. Many factors are involved in choosing a MFI thus selection of best MFI falls into the category of Multi-criteria Analysis (MA) problem. It is difficult to map human perception to particular number or a ratio due to vagueness in the decision making process. To solve such problems, the Analytical Hierarchical Process (AHP) was developed. Moreover, if an individual is supposed to take any decision, he specifies his preferences using linguistic variables instead of assigning any crisp score to the preference. These linguistic terms are nothing but imprecise and dubious values. To deal with such fuzziness, several researchers extended AHP by incorporating fuzzy characteristics into it and developed a new process known as Fuzzy Analytical Hierarchical Process (FAHP). FAHP thus helps the decision makers to deal with imprecision and subjective-ness in pair-wise comparison process. The reason to include fuzzy is to reflect the pessimistic, more likely and optimistic decision making environment. This paper has been developed based upon the views of various experts in the field of banking and microfinance along with real time data gathered from MIX Market. The various criteria for selection process are based on the criteria as used in SIDBI’s SMERA rating methodology. Then the generation of criteria weight using Fuzzy Analytical Hierarchical Process (FAHP) is done. Finally the alternative MFIs are prioritized taking all the criteria into account.
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