8. Finance for every stage of Life SHG and JLG and more More Personalised- Individual Lending Housing Loans Saving & Insurance Products Wealth Management
13. How the costs and benefits to customers have been matched Multiple Products + Technology = Efficiency Customisation Extensive Profiling A totally different growth strategy
16. NABARD & the SHG-Bank Linkage Programme Launched in 1991-92, the SBLP benefitted 4.1 crore households in gaining access to banking
17. Priority Sector Lending Requirement RBI guidelines require banks in India to lend 40% of the NBC to priority sector- which includes lending to sectors like agriculture, micro and small enterprises, advances to weaker sections
19. More than just Loans to Originate The Partnership Model- ICICI Bank Portfolio Buyouts Rated Microcredit Securitisation- IFMR Capital with Equitas, Chennai
21. Self-examination: Studying the impact of Microfinance MIT Researchers in collaboration with IFMR CMF presented a study on ‘ The Miracle of Microfinance?’
Microfinance institutions like SEWA bank have been in India since 1970s but the business of microfinance gained validation and greater visibility only after the launching of the SHG- Bank Linkage programme started in 1992 under the aegis of National Bank for Agriculture & Rural Development.
Currently there are more than 1400 (as per a study conducted by Sa-adhan in 2007) Microfinance Institutions offering SHG loans, JLG loans or both. The fundamental proposition follows the Grameen Bank style group liability based lending as the prototype model. Apart form microcreditors, there are industry institutions like M-CRIL Sa-adhan, Access, AKMI and M2i Consulting which complete the sector. Some of these like M-CRIL have become international microfinance sector players.
This includes Self Help Group and Joint liability Group clients, according to a report by N Srinivasan available at the UN solution exchange website. When these numbers are taken as households reached , the magnitude of the true impact can be felt. One can do this because the client is almost inevitably a woman client who is taking the loan for funding household expenses/income generation activity.
Indian Microfinance has long been identified with existence of SHGs and JLG loan financing MFIs have increased greatly in number. Some MFIs offer both SHG and JLG loans with the difference really being in the name, the size of the group and the repayment frequency.
As a taskforce in 1999 stressed:"(Microfinance is) provision of thrift, credit and other financial services and products of very small amounts to the poor in rural, semi-urban and or urban areas for enabling them to raise their income levels and improve living standards".
It has been realised that there is probably a need to grow beyond the standard SHG/JLG loan offering and provide more to the customer- because otherwise the backbone of microfinance which is personal contact will suffer and with the existence of multiple MFIs in any space the value proposition of any one MFI will reduce and customers will have no incentive to stay loyal to it which can have serious implications in a scenario where there is no credit bureau for microfinance. Group pressure to repay can also mutate into group pressure (example) to default. To avoid this individualised lending, housing loan, saving products have been adopted by some MFIs like Swadhaar, Satin Creditcare, MAS Financials and Shalom. Another new thought in this sector is bringing in the elite concept of wealth management for the rural poor.
This Wealth management approach is exactly what IFMR Trust through its subsidiary IFMR Holdings has propagated. The idea is to apply the best financial principles and solutions, in a most customer-focussed, customer friendly and customised manner to manage the financial needs of the rural customer with the belief that it will transform their lives. Thus, the belief is that appropriately provided finance is the key to a better life.
The idea of providing localised and customised service is followed through the setting up of local financial service providers in Remote rural areas of India, called KshetriyaGrameen Financial Service Companies. Three KGFS companies have already been up and running in Thanjavur District of Tamil Nadu, Ganjam District of Orissa and in Rishikesh, Uttarakhand. While the Thanjavur based Pudhuaaru KGFS company has completed a year, the Ganjam based Dhanei KGFS will complete a year in December 2009. The Uttarakhand based Sahastradhaara KGFS was incorporated on 23 April 2009.
These KGFS companies have been incubated by the IFMR Holdings Company which has used its keen financial expertise and extensive customer profiling to come up with a repertoire of financial products and services. Apart from the JLG loan offering, there is the retailer loan meant for small local retail shops, an enterprise loan for local enterprises and a loan against gold jewellery for immediate cash requirements. There is a remarkable MMMF saving product which allows the customer to save as less as even Re 1 at one time (the lower limit was removed recently) and withdraw it at any time after the investment is registered with interest. There is also a gold accumulation plan which allows the customer to accumulate gold for future purposes, as a secure form of saving. Apart form these are a collection of insurance products which have even been linked with the loan products to make them more secure for both parties. These range from personal accident insurance, livestock insurance, weather insurance and life insurance. There are also longer term investment products.
What is great is that many of these products have already been rolled out at the branches of the KGFS Companies and the remaining are at different stages in the process of rolling out. This useful variety of products has been a strategy to keep costs down by spreading of costs over a range of products and customers and has been made possible by linking the KGFS companies with mainstream financial institutions like HDFC and ICICI Pru . However the products have been modeled in such a manner with the help of technology that the end costs to the customer have remained very low. Costs here meaning transaction costs, and costs like having to wait for money to accumulate to a larger amount for it to be saved by say ,putting into the MMMF.
Along with the varied financial services and products, the other USP is that the services are provided in the most customer friendly manner- their local language is used and the wealth managers who serve them are members of the community itself.
The focus on Microfinance was really brought in only since the launching of the SBLP in 1992.
Since 1992, the Govt could have been blamed for having focused almost exclusively on SHGs but after initially only including financing to SHGs under Priority Sector Lending requirements, the Central Bank now includes microfinance as a whole as falling within the priority sector and thus, induced banks to invest heavily in microfinance providing it the required financial backing to grow further and grow faster.
Apart from Bank financing for microfinance organisations to originate microlending portfolios, many new synergies between the two have been tapped into in India. Among them, has been the Partnership model begun by ICICI Bank in which it was the bank that was really lending to the microfinance organisation’s clients and the organisation itself is like an agent. Banks and Financial institutions have also financed microfinance through buying out the microloans portfolio and also, through arranging and investing in microloan based securities. The first rated securitisation of a microloan portfolio of a Chennai MFI called Equitas was arranged by IFMR Trust and Yes Bank invested in the senior pool of the pass through certificates. What is also notable is that major Indian MFIs have also been attracting commercial equity form across the globe.
Thus, Microfinance in India has progressed enormously and many Indian microfinance organisations are developing a global reputation (SKS, M-CRIL), however, and this has been a problem globally, the results of this movement have not been validated and the impact of microfinance remains largely unknown.
Hence, what is required is introspection and study into the results of the growth. Realising this researchers at MIT in collaboration with the Centre For Microfinance at IFMR, Chennai studied the impact of microfinance through a randomised controlled trial in 104 slums of Hyderabad. This has been a much-needed beginning into understanding the social consequences of the microfinance movement.
The next logical step thus, is to also integrate social performance indices into credit rating of MFOs because the reason for us being here and discussing Microfinance is the belief that it will do something to alleviate and ultimately, remove poverty and bring in better standards of living for the low income groups. A step in this direction has already been taken by M-CRIL which now offers social rating for microfinance organisations so that they can better attract socially responsible investors and really make a difference to the lives of the poor. This kind of a rating requires a different set of skills and expertise in research and analysis, but it will be very important going forward.
