Micro-finance In India, Opportunity and Challenges
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Transcript of Micro-finance In India, Opportunity and Challenges
BOP Sector In India • Around 80% of India’s
Population subsists on
less than 2$ a day
• 3/5th of the labourforce employed inagriculture, producing
less than 1/5th of thecountry’s GDP
• Around 21.9% of thepopulation lies belowthe poverty line
• Only 51% of thepopulation has bankaccounts
What is MFI
• Microfinance is the provision of a broad range of financialservices like deposits, loans, payment services, moneytransfers and insurance to low income households and theirmicroenterprises
Microfinance in India • The existing banking policies, were
not suited to meet the requirements of poor.
• In 1980, MF was introduced in banking sector.
• MF plays a significant role in poverty alleviation & development.
• Out of 29 million SMEs, only 1 mn are financed by banks. Remaining 27 mnhave no registration certificate. It is a sector with huge unfulfilled demand.
• BANDHAN name and design
Bandhan
• Bandhan FinancialServices Pvt. Ltd. is amicrofinance institutionin India which offersmicro enterprise, microSME, and micro healthloans
• Provides loans for women and families
• It has presence in 22 states with 50% of its branches in West Bengal
• Bandhan has provided loans to 6.3 million people
A Few Facts About Bandhan
Limitations for Type I & Type II Engagement• 1st type of engagement
• It does not increase their income, which is a required for poverty alleviation
• If a company tries to expand beyond a village or a small cluster of villages, marginal costs rise rapidly and efficiency drops.
• 2nd type of engagement
• Bop constituents are tied to the particular organizations ecosystem and thus became dependent on organization
Justification of Engagement
Bandhan is a type 3 engagement because it satisfies all thecriteria of such an engagement as has been tabulated below.
Novelty
• Client-friendly repayment policies
• Ethics : Descent client protection system and grievance redressal system. Close relationship with borrowers.
• Choices
• No dependency on other facilitators
• No need of multi-channels to distribute the funds
• Direct interaction
• Only women borrowers
Profit/Loss of Bandhan
• In 2013-14, Bandhan has registered 37% annual growth in gross loan portfolio at ₹6,200 crore, ~1/5th of India's MFI sector.
• 2013-14, Bandhan's net profit stood at ₹250 crore
• Average loan balance per borrower, 2013: 188.0$
• Assets: ~ $1.1 billion
-500,000,000
500,000,000
1,000,000,000
1,500,000,000
2,000,000,000
2,500,000,000
3,000,000,000
2002 2004 2006 2008 2010 2012 2014
Year
Net Income after Taxes and before Donations
Profit/Loss of Bandhan
10,000,000,000
20,000,000,000
30,000,000,000
40,000,000,000
50,000,000,000
60,000,000,000
70,000,000,000
80,000,000,000
2002 2004 2006 2008 2010 2012 2014Year
Assets
Viability • Great market potential
Areas of opportunities :
• Reaching the unbanked areas
• Targeting poor and segments below them
• Outreach & gross loan graphical data
Viability
• Bringing technology to every door
Bandhan’s model of combiningtechnology with human interventioncan prevent illiteracy and poorinfrastructure in interior areas frombecoming stumbling block in the wayof its microfinance institution
• Bandhan has started the usage ofSMS for informing the ruralpopulation
Viability
• Riding high on micro-finance revival
• Confident Indian market(demonstrated by the fourfoldincrease in our volume ofinvestments in India sincethen – from $30 mn to $120mn)
• India is the most importantmicrofinance market forinvestors in Asia-Pacific region
• Political stability due to astrong single-party govt.
Economic Impacts• High annual household
income (13.81% per loan cycle)
• Creation of livelihood assets
• Demand Creation
• Increase in total savings
8.25
91.75
% Assets
Conumer Durables Non farm bussiness assets
Social and Societal Impacts
• Impacts on family andsocial dynamics
• Change in pattern ofdecision making ofwomen with respect tofinancial resources
• Change in expenditureon child education
• Change in pattern offood consumption
Social and Societal ImpactsPrograms run by Bandhan
• Targeting the hardcore Program
• Bandhan Education Program (BHP)
• Bandhan Health Program(BHP)
• Bandhan Unemployment Program(BUP)
Initial & Current Challenges• Lack of Awareness
• High Interest Rates
• Rural vs Urban Poors
• Lack of Collateral for Micro Loans
• Finding Talent to work with them
• Transition from NBFC to Banking
• Other Problems:• Saving vs Microfinance dilemma• Moneylenders posed a lot problems initially while
raising the funds• Secondary moneylenders as an option for villagers
Solutions• Lack of awareness
• Field level staff who explain the programmes to thetarget people
• Involving and training local people will also made animpactful bond and reliability factor among villagers
• High Interest Rates• Bargain with the financial institutions and banks for
cheaper funds.• Now it can channelize funds of depositors to its
clients
• Finding Talent to work with them• Mix of old employees coupled with local fresh
recruits to facilitate a culture transfer.• Allowances for employees working far from their
home
• Utilization of Microloans by borrowers
• Over Indebtedness
• Adaptation in tough banking competition
• Client Retention and Growth
• Flexible Repayment Options
• Scale of Operations
• Maintain Statutory liquidity ratio (SLR) and cash reserve ratio (CRR)
• Marketing/ Market Place for Borrowers’ Products
Future Challenges
• Utilization of Microloans
• The MFIs need to bring awareness about the risks ofinappropriate utilization
• Employ direct benefit transfer system properly.
• Adaptation and upgradation
• Technology introduction and upgradation on acontinuous basis
• Already collaborated with Fidelity National InformationServices to foster its technological infrastructure needs
• Mobilise low-cost deposits, both savings accounts andcurrent accounts, which will enable it to lower the interestrate on its loans
Suggestions & Road Ahead
• Scale of Operations• The increase in the size and scale of operations will help
in sustaining the risk and reduce the operational costsper borrower
• Penetrate and increase distribution channels• Diversify the lending from small and unsecured amounts
to large amounts against collateral to protect theinterest of depositors
• Initial Public Offerings
• Tread very carefully. Take lesson from experiences ofothers. Moral Dilemma.
Suggestions & Road Ahead
Comparison with Arohan& Village Microfinance
• Board
• Loan policies
• Interest rates
• Financial sustainability
Borrowers in 2012-2013
Bandhan Arohan Village
20
21
22
23
24
25
26
27
Inte
rest
Rat
e (%
)
Loan Interest Rate
Bandhan Arohan Village
Loans Issued in 2012-2013
Bandhan Arohan Village