Market Research India - Guide to Microfinance in India 2009

Guide to Microfinance ‐
Guide to Microfinance India
July 2009

Executive Summary

 Microfinance in India operates through two channels
– Microfinance institutions (MFIs)
Market – NABARD’s SHGs bank linkage programme (SBLP) ‐ a partnership model between SHGs, banks and NGOs
 Women account for 80% of the credit clientele
Women account for 80% of the credit clientele
 Microfinance is predominant among the southern states, especially Andhra Pradesh
 The introduction of the Micro Financial Sector Development and Regulation Bill, 2007
– Major Aspects: Definition of microfinance organizations, conditions for mobilization of savings and creation of
Government
Government a regulatory body
a regulatory body
Initiative – Limitations: Regulatory body, differential regulation, dual regulation, preferential regulation and lax prudential
norms
– Recommendation: Encompassing a wide spectrum of institutions and modifying rules for depository MFIs

 Low penetration level providing high growth opportunity
 Large scale PE/VC activity
Trends &
Characteristics  High interest rate and issue with repayments
 Lack of interest from formal financial institutions
 Opportunity in the urban sector

 The major microfinance institutions in India are
– SKS Microfinance Pvt. Ltd.
Major Players
– Spandana Sphoorty Financial Limited
Spandana Sphoorty Financial Limited
– SHARE Microfin Ltd.

GUIDE TO MICROFINANCE – INDIA.PPT 2

•Introduction
•Types of Financial Institutions
•Market Overview
•Government Initiatives
•Trends and Characteristics
•Major Players
•Key Developments
•Appendix


Microfinance has emerged as an important delivery mechanism
to reach out to the low income group of the society
Definition Services Provided
•Microfinance is defined as the provision of
thrift (savings), credit and other financial Savings Insurance
Loans
services and products of very small amounts
to the poor for enabling them to raise their
income levels and improve living Remittance
Pensions
•World Bank estimates that there are over
7,000 microfinance institutions worldwide Risk
Financial Mitigation
Counseling Products
Major Milestones in India
NABARD
Establishment of
Major commercial established as an
SIDBI Foundation
banks nationalized apex agency for
for Micro‐credit
1975 rural finance 1992 2007

1969 1982 2000
Regional Rural NABARD launches Proposed bill on
Banks established SHG bank linkage microfinance
in 1975 program regulation


Reforms in the financial sector have directly impacted the growth of
microfinance in India

Shift in activities in the rural financial sector
The Past Change in Operations The Present

Lack of operational Flexibility & freedom
freedom of operation with
reduction of
government
government
Issue ownership

Controlled by Deregulation of
Government and Central
Government and Central interest rates
i t t t
Bank
Banking Sector
Reforms in 1991‐92
Led to… International best
p
practices in
prudential norms
• Micro‐regulations on
credit flow
• Concern was outreach
rather than viability
y Entry of new private
• Large scale rural sector banks
b k
financial sector losses


•Introduction
•Market Overview
•Major Players
•Key Developments
•Appendix


Types of Microfinance Institutions (1/4)

• Comprises of Apex Development Financial Institutions, Commercial
Banks, Regional Rural Banks, and Cooperative Banks providing
Formal / Banks
micro finance services in addition to their general banking activities
‐ referred to as micro finance service providers
Types of
T f
financial
institutions
• Informal institutions that undertake micro finance services as their
Informal /
main activity are generally referred to as micro Finance Institutions
Non‐Banks
(mFIs)

Intermediary
Intermediary Microfinance
Microfinance Micro
Micro‐
Investor Pool of Funds
Bank Institution entrepreneur

Non‐profit Mutual Benefit For Profit

• Public Trusts
• Self Help Groups and Federation • Non Banking Financial
• Societies
•CCo‐operative Societies
i S i i Corporation
C i
• Section 25 companies



• Public trusts are established in accordance with the respective State regulations
• Private trusts are established under the Indian Trusts Act 1882
Trusts • Exempted from tax if registered under 12A of the Income Tax Act
• Institution must be registered under the Foreign Contribution Regulation Act 1976 (FCRA)
Institution must be registered under the Foreign Contribution Regulation Act, 1976 (FCRA)
to accept foreign grants

• Registered under Societies Registration Act, 1860 or under the respective State acts
• It refers to a group of 7 individuals who form an association for any literary, scientific or
charitable purpose
• These associations cannot accept public deposits
Societies • Exempted from tax if registered under 12A of the Income Tax Act
• In order to accept foreign grants the institution needs to be registered under FCRA
• It is not in a position to raise large funds as banks are unable to determine ownership

• RBI has exempted NBFCs licensed under section 25 of the Indian Companies Act from
registration, maintenance of liquid assets and transfer of profit to reserve funds only if
 Provide micro financing activities
Provide micro financing activities
Section 25  Do not mobilize public deposits
Companies • These institutions are prohibited to pay dividends
• Equity mobilization is difficult due to the restrictions posed on the payment of dividends
• Registration under FCRA allows them to mobilize foreign grants
Registration under FCRA allows them to mobilize foreign grants
• Exempted from tax if registered under 12A of the Income Tax Act



• It is an unregistered entity comprising of 10‐20 individuals with autonomous rules and
regulations, office bearers and books of accounts
• SHG’s provide credit to their members by using the savings of their members as well as
SHGs and funds acquired from banks and microfinance institutions
funds acquired from banks and microfinance institutions
Federations
• A network of SHG’s forms a Federation which are generally registered as Societies or Co‐
operative Societies

• Members comprise of individuals, other co‐operatives and government
• Various modalities of registration
 Co‐operative Societies Act, 1912, or
 State Co‐operative Societies acts, or
 State Mutually Aided Co‐operative Societies Act, or
 Multi‐state Co‐operative Societies Act, 1995
Co‐operative • Regulated by the registrar of co‐operative societies
Societies • Legal framework allows them to access equity and deposits from their members which is
used to disperse loans
used to disperse loans
• Mobilization of equity is restricted as co‐operative societies can raise equity only from
their members
• Banks are largely unwilling to provide funding due to the non‐equity based ownership
structure



• Companies registered under Indian Companies Act 1956 can operate as an NBFC by
applying to the RBI
• Required to have net owned funds of INR 20 mn
• Ownership is defined and are thus in a position to raise equity
• Mobilization of public deposits is possible but is extremely difficult due to the strict
guidelines of the RBI
• Banks offer lending services to NBFCs which have substantial capital and are performing
NBFCs • It is a profit making organization and are taxed
• FDI through automatic route is allowed
 FDI up to 51% ‐ USD 0.5 mn to be brought upfront
 FDI between 51% and 75% ‐ USD 5mn to be brought upfront
 FDI between 75% and 100% ‐ USD 50mn out of which 7.5 million to be brought up‐front
• All non‐deposit taking NBFCs having asset size of INR 1 bn or more as per last audited
balance sheet are considered as systemically important NBFCs
b l h t id d t i ll i t t NBFC
 Non‐deposit taking and systemically important NBFCs will be subject to capital adequacy
regulations, single/group exposure norms and disclosure pertaining to derivative transactions


•Introduction
•Market Overview
•Major Players
•Key Developments
•Appendix


In India, microfinance sector operates via two routes ‐
Microfinance Institutions and Self Help Groups
Overview Credit Distribution (07‐08)
Microfinance in India
Large MFIs
20%
Medium and
NABARD’s SBLP ‐ a 5% Small MFIs
Microfinance partnership model
institutions (MFIs)
institutions (MFIs) between SHGs, banks
between SHGs banks
and NGOs 75%
SBLP

• Demand for micro‐credit is pegged at USD 30 bn but
the supply stands at less than USD 2.2 bn
the supply stands at less than USD 2.2 bn
Client Outreach
• Outstanding micro‐credit portfolio amounted to ~INR mn +23%
220 bn in 2007‐08 59.21
60
• Microfinance is predominant among the Southern 48.06 SHGs
States, especially Andhra Pradesh 40 MFIs
45.20
• 75% of the consumers are from the rural sector 38.02
 Women account for 80% of the credit clientele 20
10.04 14.01
• Highest growth observed in the loan segment 0
ranging from INR 5,000 – INR 10,000 2006‐07 2007‐08
* SBLP: SHGs bank linkage program
* SBLP SHG b k li k
NOTE: Assessment of the share of the total market for micro‐credit loans is difficult as no law or regulation requires organizations which provide micro‐credit to formally
register as microfinance institutions


MFIs have been focusing on the rural sector and it operates via
substantial funding from financial institutions Microfinance

MFI SBLP

Overview Clientele (Mar ‘06 – Mar ’08)
• Microfinance Institutions primarily refers to
Urban
organizations created to provide credit and other
financial services to low income clients
fi i l i l i li 25%

• MFI loan outstanding: 59.54 bn (Mar 2008)
• Average loan outstanding, MFI client INR 4,220
(2008)
75%
•LLoan portfolios grew by 70% from Mar ‘06 to Mar ‘08
f li b 70% f M ‘06 M ‘08
Rural
• Client outreach grew by 40% in 2007‐08

Major Issues Sources of Funding
• Financial Viability: Small scale MFIs face financial Paid in Equity Grants
problems as high borrowing costs coupled with high Other Liabilities
operating expenses ranging between 4 to 19% 6%
7% 3%
p y p
impedes its ability to offer competitive rates Client Savings
g
8%
• High capital requirements: Few MFIs can raise INR 20
mn capital required to become NBFCs
75%
Institutional Debt


MFIs provide funding to various clients across the country with
southern states accounting for maximum share Microfinance

MFI SBLP

Distribution of Loans and Clientele Segmentation of MFI Portfolio (Clients)
•Southern states account for the maximum North East
share of the clients as well as the loans West 4% 21%
disbursed 9%

•Microfinance institutions lend to ‐
 SHG ‐ Single loan to the SHG as a whole, which
decides how it should be allocated
 Grameen/Joint Liabilities Group ‐ Loan recorded
66%
in the names of Individual borrowers
South
Distribution of Operating Model Segmentation of MFI Portfolio (Loans)
North East
Individual Lending
West
7% 15%
4% 6%

65% SHG
Grameen/ 28%
JLG

75%
South


Self Help Groups have seen major growth over the last decade
with the South contributing the largest fraction Microfinance

MFI SBLP

Overview Cumulative No. of SHGs
• Began in the early 80’s as NGO’s
‘000
• 3.48 mn SHG’s are linked with bank credit (as of Mar 2,924
,
3,000
3 000
2008) +49% 2,238
• SHG loans outstanding: 123.66 bn (Mar 07) 2,000 1,628
• Savings mobilized by 4.2 mn SHGs account for INR 35 1,079
bn 1,000 717
461
263
• Short term lending with the interest charged ranging
0
from 2‐3% per month
2000‐01 01‐02 02‐03 03‐04 04‐05 05‐06 06‐07
• Supply figures pertaining to SHG‐Bank linkage
programme is ~ INR 123660 mn (Mar 2007) SHG Regional distribution
•V i
Various Types of Groups
T fG
 Savings and Credit Groups Northern North East
East
 Social Forestry Groups
Central 7% 3%
18%
 Water Users' Groups 11%
 Watershed Development Groups
Watershed Development Groups
 Farmers' Interest Groups Western 9%
 Other
• Annual growth rate of out reach is 18% (06‐07‐ 07‐
08) 52%
Southern


Loans provided by banks to SHGs has seen tremendous growth
with the highest contribution from commercial banks Microfinance

MFI SBLP

SHG’s Linkage with Banks Bank Loans
• Began in 1989 with NABARD overseeing operations INR bn
• Average loan outstanding, SHG member INR 3,250 (’08) 200 180
• Linkages act as a a supplementary channel for providing 150 +89%
financial services from formal financial institutions 113
100
• Once the SHG becomes functional, banks assess them 68
for credit worthiness after 6 months; well functioning 50 39
10 20
SHGs are sanctioned up to four times their savings
SHG i d f i h i i 4
0
• Top five States in SHG linkage ‐Maharashtra, 2000‐01 01‐02 02‐03 03‐04 04‐05 05‐06 06‐07
Orissa, Tamil Nadu, West Bengal, Andhra Pradesh
Issues at the Ground Level Agencies financing the groups (07‐08)
• Strong opposition from money lenders and the
socially dominant classes in of the rural population Co‐operative banks
• Resistance from men against women forming such RRBs 25%
groups 33%
• Lack of basic infrastructure for e.g. a meeting area
• Large scale reliance on government programmes,
subsidies and grants from NGO’ or development
agencies 42%
Commercial Banks


Three bank linkage models are prevalent in India which allow
SHGs to fund their operations MFI
Microfinance

SBLP

Model 1 Each partner institutions functions independently. Banks
lend, NGOs organize poor into SHGs and SHGs manage
Bank NGO small group finance in their own interest
The whole system is localized
SHGs and local NGO learn to deal with banks and vice versa
SHGs and local NGO learn to deal with banks and vice versa

 Majority of field level bankers do not view it as a banking
mandate
SHG
 In many places, it is still difficult to open a savings account
 Absence of NGOs in many parts of India

Reduces transaction and risk cost of the bank as they lend
Model 2 Bank large sum to an NGO, which guarantees repayment
Easier for the poor to deal with an institution which they
know and trust.
NGO Easy to be adopted by stakeholders.

 NGOs are not equipped to work as financial intermediaries
 Calls for substantial investment in capacity building of NGO
SHG  Wide scale adoption not possible

Model 3 Possible solution where NGOs are not present
Bank SHG
 Wide scale application may not be feasible because of other
priorities of bankers


•Introduction
•Market Overview
•Major Players
•Key Developments
•Appendix


Introduction of the bill is expected to create a definite regulatory
framework for microfinance institutions
Micro Financial Sector Development and Regulation Bill, 2007

Regulating and supervising cooperative societies and non‐profit institutions (including
Purpose societies and trusts) that are providing microfinance
societies and trusts) that are providing microfinance

• Microfinance: Includes loans, savings, insurance and pension services. Loans cannot
exceed more than INR 50,000 (INR 150,000 for housing purposes)
Definitions
• MFO: Any organisation that provides micro‐finance services including societies, trusts and
cooperative societies
• Definition of Microfinance Organizations: NBFCs and Section 25 companies, which
account for ~80% of microfinance loans outstanding are excluded from its scope
• Mobilization of Savings: States that MFOs are authorized to collect deposits from their
Mobilization of Savings: States that MFOs are authorized to collect deposits from their
members
 Certain conditions must be satisfied
– Have a minimum capital base of INR. 0.5mn
– Be in operation for a minimum of 3 years
Major Aspects – Receive approval from the Microfinance Development Council (MDC), an entity promoted by NABARD
Receive approval from the Microfinance Development Council (MDC) an entity promoted by NABARD
• New Regulator: NABARD to be the regulatory body for both depository and non‐
depository micro MFOs . Its role entails
 Facilitating the development of credit rating norms and performance benchmarks
 Specifying the accounting form and the auditing standards
 Promoting financial literacy of MFO clients and sector‐related research
 Disseminating information relating to best practices


The bill has been seen to have many limitations in its scope and
reach
• Mandatory registration and periodic report submission by all MFOs seeking to accept
deposits
Other Aspects • MFOs will also be subject to inspection by the regulator in case of any malpractices
• Pl
Plans on a corpus fund, “Micro Finance Development and Equity Fund”, for the
f d “Mi Fi D l d E i F d” f h
development of the sector
• MFOs that accepts deposits to create a reserve fund by transferring a minimum of 15% of
its net profit/year

• NABARD as Regulator: NABARD being a service provider and regulatory body will lead to
conflict of interests
• NABARD is responsible for the administration of the Microfinance Development and Equity Fund
NABARD is responsible for the administration of the Microfinance Development and Equity Fund,
a fund created to provide equity capital, debt funds, or grants to MFOs
Limitations of • NABARD also lacks expertise to regulate and develop MFIs in the urban sector as its role has been
the bill confined to rural areas and to agriculture
• Differential Regulation:
 Lack of rationale behind classification
– NBFCs have been excluded from the bill as they are already regulated by the RBI while cooperatives, which
are also currently regulated, have been included
 Introduction of dual regulation of deposits received which is currently regulated solely by the RBI


•Introduction
•Market Overview
•Major Players
•Key Developments
•Appendix


Trends and Characteristics

Low penetration level provides tremendous growth opportunities

Large scale PE/VC activity

Trends and
Characteristics
` High interest rate and issue with repayments

Lack of interest from formal financial institutions

Opportunity in the urban sector


Strong opportunities for investments with large untapped
portfolio of products in demand
Low penetration level provides tremendous growth opportunities
• Strong potential demand for microfinance services exists
 65% of the Indian population are without a bank account
 27% or 300 mn people in India live below poverty line (earn less than USD 1 per day)
 87% of the poorest households do not have access to easy credit
 Approximately, 56 % of the poor still borrow from informal sources
 70 % of the rural poor do not have a deposit account
• New micro‐finance services have not been tapped which provides strong potential for players
New micro‐finance services have not been tapped which provides strong potential for players

Service No. of MFI Providing % of Clients Accessing (‘08)
Education loan 1 3%
Emergency loan 1 <0.1 %
Life/medical other insurance 7 <20%
Non‐financial services 5 6‐30%


Microfinance emerging as next asset class for PE funds

Large scale PE/VC activity
• Private equity and venture capital have made investments worth USD 230 mn during Jan 2007‐Mar 2009
• Investors have been diversifying their portfolio as the urban and manufacturing related sectors are witnessing a slump

Year Microfinance Company PE Investor Stake (%) Deal Size (USD mn)
2009 Bhartiya Samruddhi Finance Ltd Lok Capital, Aavishkar, SIDBI n.a. 10
2008 Madura Micro Finance Limited Unitus Equity n.a. 5
2008 MAS Financial Services Ltd. ICICI Venture n.a. 10
Sandstone Capital, SVB India Capital and
2008 SKS Mirofinance n.a. 75
Kismet Capital
Silicon Valley Bank, Columbia Pacific, Sequoia
y , , q
2008 SKS Mirofinance
SKS Mi fi n.a. 37
Capital, Vinod Khosla, Odyssey captial
2008 Ujjivan Financial Services Unitus Equity Fund n.a. 19.6
20 07 SKS Mirofinance Sequoia and Unitus n.a. 11.5
2007 Share Microfin
Share Microfin Legatum Capital
Legatum Capital 51 25
2007 Spandana JM Financial Fund n.a. 10
2007 Share Microfin Aavishkaar Goodwell 4 2
2007 SKS Mirofinance Sequoia, Silicon Valley Bank and Vinod Khosla, n.a. 37


Progressively high interest rates and delayed repayments
limiting the growth
High interest rate and issues with repayments
• Lending to small borrowers follows an indirect route. Banks lend to MFOs who then lend to various SHGs and JLGs.
Individual borrowers get funds through SHGs and JLGs
• It has been speculated that MFOs do not incur lower transaction costs but transfer the cost to donors through
It has been speculated that MFOs do not incur lower transaction costs but transfer the cost to donors through
subsidized borrowings or to borrowers through higher interest rates

Progress in interest rates from lender to borrower

7.5% p.a. 10‐15% p.a. 12‐24% p.a. 24‐36% p.a.
Commercial Individual
NABARD MFOs SHGs
Banks Member
• Debtors have been failing to repay the loans, this trend has been growing with the rise in size of the loan and the
frequency of borrowing

Growth in default rate in Grameen bank

Second‐ Fourth‐
Borrowers First‐time
time
Third‐time
time

Default Rate 0.4% 1.2% 6.6% 9.5%


High risk in providing loans to small consumers has prevented
formal financial institutions from participating actively
Lack of interest from formal financial institutions
• Commercial banks, cooperative banks and regional rural banks prefer to abstain from lending to the poor
 These loans will be high risk loans
 Delinquency and default rates are high among the poor
 Interest rate regulations by RBI
– Commercial bank being advised by the RBI to link their interest rates with their prime lending rate (PLR) for their loan amounts
less than INR 200,000
 Lack of collateral security among borrowers
y g
 Safety issues
• Borrowers themselves find it problematic dealing with banks
 Credit from the bank is not easily available
 Transaction cost of borrowing from the bank is very high
– This includes out of pocket expenses that are incurred in paying travel cost, middleman, and price difference in assets and the
opportunity cost of their time
 Transaction cost of availing saving facilities are also high
– Primary factors are distance and small savings


Limited outreach in urban sector provides opportunity for
microfinance institutions
Opportunity in the urban sector
• Microfinance outreach in India is limited to rural areas
• Merely 0.02% of the urban poor have banking relationships
• In urban areas, lack of access to trading space for vendors and livelihood training is further pushing the poor
below the poverty line
• Initiatives taken by the MFIs in urban sector will help them in ‐
 Quicker scale up
 Quicker breakeven
 Higher loan sizes / enterprise loans
• Products must be customized to suit needs of the urban poor
• Services offered should be accessible and far‐reaching allowing for large consumer base
Microfinance products for Urban Sector

Paid Employed Self Employed

Salaried Daily wage earners

•Example : Vegetable vendors
Micro savings to address the •Example : Municipal Workers Daily and weekly loans to purchase
issue of low income
f Health loans, health insurance
, vegetables from wholesale mandis and
g f
daily savings facilities


•Introduction
•Market Overview
•Major Players
•Key Developments
•Appendix


Players (1/8)

Company Snapshot: Bandhan Financial Services Pvt. Ltd.
Corporate Information Financial Performance and Outreach
Gross Loan Portfolio
Established 2002
Number of Active Borrowers
Headquarters Kolkata USD mn ‘000
• Micro loans 100 1,500
82
Services Offered • Micro Enterprise Program 80
• Health Loan 1,000
1 000
60
40 29 500
20 8
1
0 0
Mar ’05
M ’05 Mar ’06
M ’06 Mar ’07
M ’07 Mar ’08
M ’08

Business Highlights Business Outlook
• It is a non‐profit entity • It is planning to raise INR 6 bn in FY ’09‐’10by selling
•OOperates in 11 States through 765 branches
t i 11 St t th h 765 b h agricultural loans to banks
agricultural loans to banks
• Primarily focusing on 3 programs • Plans on expanding operations to Delhi and Mumbai
 Chartering into Unventured Frontiers Targeting the Hard Core because of large scale rural urban migration
Poor • Expected to encompass Uttar Pradesh, Rajasthan and
 Bandhan Health Gujarat
 Bandhan Education • Plans on opening 200 new branches


Players (2/8)

Company Snapshot: Bhartiya Samruddhi Finance Limited
Established 1996
Headquarters Hyderabad USD mn ‘000
60 56 400
• Loans
• Insurance 300
40
• Money Transfers 31
22 200
Services Offered • Agriculture/Business
20 13
Development Services 100
• Institutional Development 0 0
Services Mar ’05
M ’05 Mar ’06
M ’06 Mar ’07
M ’07 Mar ’08
M ’08

• Clientele, 90% from rural poor households and about • Plans on diversifying its product portfolio to include
10% are urban slum dwellers
10% are urban slum dwellers pensions and systematic investment plans of mutual
pensions and systematic investment plans of mutual
• Operates in 15 States funds
• In 2007‐08, Non‐farm loans accounted for 47% of the • Large scale disbursement of education loans based
total while Agri‐allied accounted for 36% on the courses being undertaken
g g gy p
• Banking on large scale technology adoption towards
achieving high operational efficiency


Players (3/8)

Company Snapshot: Equitas Micro Finance India
Established 2007
Headquarters Chennai USD mn ‘000
• Micro Finance Loan 60 56 400
• AMC Loan 300
Services Offered
Services Offered 40
• Education Loan
200
• Gold Loan
20
100
4
0 0
Mar ’08
M ’08 Mar ’09
M ’09

• It lends to women borrowers organized into joint liability • Plan on opening 5 more branches by 2009
groups • It i t
It is targeting 1,80,000 members in Tamil Nadu
ti 1 80 000 b i T il N d
• 90 branches with focus falling on Tail Nadu • Plans on working on an OMR‐based solution for their
• Entered into a partnership with Newgen Software in risk management team
order to change process flows via data management so • Under “Equitas Gyan Kendra”, they plan on imparting
as to increase scalability and improve productivity
as to increase scalability and improve productivity training in spoken English, electrical work, plumbing
training in spoken English electrical work plumbing
• Loans disbursed in May ’09: INR 387.4 mn and painting to SHGs


Players (4/8)

Company Snapshot: SHARE Microfin Ltd.
Established 1999
• Loans 200 2,000
 General 151
150 ,
1,500
 Special
l
 Housing 100 82 91 1,000
Services Offered  Micro enterprise
50 40 500
 Personal
• Insurance 0 0
• Fund Transfer Services Mar ’05
M ’05 Mar ’06
M ’06 Mar ’07
M ’07 Mar ’08
M ’08

• Providing financial and support services mainly to • By 2012‐13
women below the poverty line
women below the poverty line  Expected to grow its client base to 15 mn members
Expected to grow its client base to 15 mn members
• Carries out operations across 16 States covering 17,654  Outstanding portfolio to ~ INR 163.82 bn
villages • Plans on achieving deeper vertical penetration in its
• As of May ’09; total branches: 771; cumulative current area of operation and large geographic
disbursement INR 56,895 mn
disbursement INR 56,895 mn outreach


Players (5/8)

Company Snapshot: Shri Kshetra Dharmasthala Rural Development Project
Established 1982
Headquarters Belthangady Taluk, Karnataka USD mn
‘000
• Loans 100
85 800
• Insurance 80
• Training and Consulting 52 600
60
Services Offered 400
• Business Development Services 40 24
• Health 20 11 200
• Education 0 0
Mar ’05
M ’05 Mar ’06
M ’06 Mar ’07
M ’07 Mar ’08
M ’08

• In 1996, initiated a microfinance programme • Plans on expanding their insurance service which was
“Pragatinidhi” for the overall development of small and
Pragatinidhi for the overall development of small and launched in collaboration with ICICI Lombard to 1.3
launched in collaboration with ICICI Lombard to 1 3
marginal farmers mn customers by 2009 from 960,000 in ’07‐’08
• Under “Pragatinidhi” loans are disbursed for agriculture, • By 2011, they plan on forming 60,000 groups under
infrastructure development, non‐farm sector the SHG model
development activities and group enterprise.
• Microfinance comprises of 40‐50% of their operations


Players (6/8)

Company Snapshot: SKS Microfinance Pvt. Ltd.
Established 1998
• Income generating loans 300 262 2,500
• Mid Term Loans 250 2,000
• Individual Loans 200
1,500
150
Services Offered • Emergency Loans 1,000
100 63
• Loan Cover Insurance 50 21 500
8
• Health Insurance 0 0
• Retail Insurance
Retail Insurance Mar ’05
M ’05 Mar ’06
M ’06 Mar ’07
M ’07 Mar ’08
M ’08

• South is the largest contributor, with Andhra Pradesh • Plans on doubling its total loan disbursals in 09‐10 to
and Karnataka accounting for 30 % and 17%disbursals
and Karnataka accounting for 30 % and 17%disbursals INR 87.7 bn
INR 87 7 bn
respectively • Plans to introduce 400 new branches in 09‐10
• Approached the RBI to launch mobile banking services • Plans on launching an IPO towards raising capital
 Formed an association with Nokia and Airtel towards providing
• Strong IT initiatives towards enhancing efficiency
cheap handsets to customers
 Creating a data warehouse where information will be
Creating a data warehouse where information will be
 Project is expected to begin in Andhra Pradesh
captured and consolidated


Players (7/8)

Company Snapshot: Spandana Sphoorty Financial Limited
Established 1998
• General Loans 200 182 2,500
• Small Business Loan 150 2,000
• Micro Enterprise Loan 89 1,500
Services Offered 100
• Agri Family Loan 54 63 1,000
• Dairy Loan 50 500
• Farm Equipment Loan 0 0
Mar ’05
M ’05 Mar ’06
M ’06 Mar ’07
M ’07 Mar ’08
M ’08

• Operates in 9 States across the country with 999 • Plans to expand its reach to 16 States by end 2009
branches including Uttar Pradesh, Bihar, Gujarat, Uttarakhand,
including Uttar Pradesh Bihar Gujarat Uttarakhand
• Andhra Pradesh accounts for 57% of its loan portfolio New Delhi, Kerala and Goa
while Karnataka accounts for 13% • By 2011, the company plans on catering to 6 mn
• Other than financial intermediation, they have also been borrowers with cumulative disbursements of INR 200
focusing on sub sector intervention such as diary
focusing on sub sector intervention such as diary bn
development


Players (8/8)

Company Snapshot: Ujjivan Financial Services Pvt. Ltd.
Established 2004
Headquarters Bangalore USD ‘000
9,110
• Family Needs Loan 10,000 60,000
• Business Loan 8,000
40,000
40 000
• Combo Loan (combination of 6,000
Services Offered family needs and business) 4,000 1,933
20,000
• Housing Loan 2,000
• Festival Loan 46
0 0
• Emergency Loan
Emergency Loan Mar ’06
M ’06 Mar ’07
M ’07 Mar ’08
M ’08

• Provide financial services to poor working women in • Plans on an IPO by 2011, after profitable operations
urban and semi‐urban areas
urban and semi‐urban areas • Pl
Plans on encompassing 1 mn customers by 2009 with
i 1 t b 2009 ith
• Only MFI in India to start operations without any grants its presence across India with regional offices in
or donation Bangalore, Kolkata, Delhi and Pune
• 62% of customers are from the South while North and • Plans on building a strong capital base by 2011
East account for 6% and 30% respectively
East account for 6% and 30% respectively  Looking for alternative sources of capital namely portfolio
Looking for alternative sources of capital namely portfolio
sale, securitization, subordinated debt , non convertible
debentures


•Introduction
•Market Overview
•Major Players
•Key Developments
•Appendix


Key Developments

Date Development
22‐Jun‐09 Share Microfin plans to raise INR 21.5 bn in 2009‐10 to fund its expansion. Of this, INR 19 bn would be
debt and the remaining equity. They have entered into an agreement with the Small Industries
Development Bank of India and Matrix Financial Consultants for mobilizing INR 10 bn and INR 5 bn
Development Bank of India and Matrix Financial Consultants for mobilizing INR 10 bn and INR 5 bn
respectively
18‐Jun‐08 SKS Microfinance, the largest microfinance player in the country in terms of assets, is looking beyond
pure bank funding for their business. It is planning to raise INR 5 bn through a variety of rated debt
products to fund loan demands of its customers
18‐Jun‐08 Micro‐finance institutions and customer service centre network are emerging to be the largest channel
for the distribution of Max New York Life’s (MNYL) small‐kitty insurance policy.
13‐Jun‐08 ICICI Bank is targeting the farm sector, micro finance institutions and companies in the agriculture space
and have set aside INR 250 bn. The bank plans on issuing farmers cards who will be given loans through
SHG’s under MFIs
SHG’ d MFI
10‐Jun‐08 Spandana Sphoorty Financial raised INR 800 mn by issuing one year non‐convertible debentures (NCDs)
redeemable at a premium of 10%. They previously planned on raising INR 3 bn by diluting a part of their
stake to investors.
30‐Apr‐09
30 Apr 09 UTI Asset Management and Invest India Micro Pension Services (IIMPS) tied up with BASIX for a micro
UTI Asset Management and Invest India Micro Pension Services (IIMPS) tied up with BASIX for a micro
pension scheme
28‐Feb‐09 ICICI Lombard General Insurance Company, began offering innovative products like weather and cattle
insurance in rural areas.
21‐Feb‐09
21 Feb 09 By 2014, MFIs are expected to extend credit worth INR 380 bn to 37 mn beneficiaries.
By 2014 MFIs are expected to extend credit worth INR 380 bn to 37 mn beneficiaries


•Introduction
•Market Overview
•Major Players
•Key Developments
•Appendix


Appendix ‐ 1:
Overall Progress Under Microfinance
Particulars Units 2006‐07 2007‐08 % Growth
No of SHGs 4160584 5009794 20.4
Savings accounts for SHG banks as of 31 March
Amount 35127.1 27853.9 7.8
No of SHGs 1105749 1227770 11
Bank loans disbursed to SHG during the year
Amount 65703.9 88492.6 34.7
Bank loans outstanding with SHG as on 21 No of SHGs 2894505 3625941 25.3
March Amount 123664.9 169999.1 37.5
No of SHGs 334 518 55.1
Bank loans disbursed to MFI during the year
Amount 11515.6 19701.5 71.1
Bank loans outstanding with MFI as on 31 No of SHGs 550 1109 101.6
March Amount 15844.8 27488.4 73.5
NOTE: Amount in INR mn


Appendix – 2:
Savings of SHGs with Banks
Total SHGs savings with the banks as on 31 March 2008
Agency Year Amount Per SHG
No. of SHGs % Share % Share
(INR mn) Saving (INRs)
2006‐07
2006 07 2293771 55.2
55 2 18924.2
18924 2 53.8
53 8 8250
Commercial Banks (Private and Public) 2007‐08 2810750 56.1 20777.3 54.9 7392
% growth 22.5 9.8 ‐10.4
2006‐07 1183065 28.4 11582.9 33 9791
Regional Rural Banks (RRBs) 2007‐08 1386838 27.7 11664.9 30.8 8411
% growth 17.2 0.7 ‐14.1
2006‐07 683748 16.4 4620 13.2 6914
Co operative Banks
Co‐operative Banks 2007 08
2007‐08 812206 16.2
16 2 5411.7
5411 7 14.3
14 3 6663
% growth 18.8 17.1 ‐1.4
2006‐07 4160584 100 35127.1 100 8469
Total 2007‐08 5009794 100 37853.9 100 7556
% growth 20.4 7.8 ‐10.5


Appendix ‐ 3:
Bank Loans Disbursed to SHGs
Total loans disbursed by banks to SHGs
Agency Year Amount % Per SHG bank loan
No. of SHGs % Share
(INR mn) Share disbursed (INRs)
2006‐07
2006 07 571636 51.7
51 7 39189.4
39189 4 59.7
59 7 68557
Commercial Banks (Private and Public) 2007‐08 735119 59.9 54039 61 73511
% growth 28.6 37.9 7.2
2006‐07 381199 34.5 20527.3 31.2 53849
Regional Rural Banks (RRBs) 2007‐08 327650 26.7 26518.4 30 80935
% growth ‐14.0 29.2 50.3
2006‐07 152914 13.8 5987.2 9.1 39153
Co operative Banks
2007‐08 165001 13.4
13 4 7935.2
7935 2 9 48092
% growth 7.9 32.5 22.8
2006‐07 1105749 100 65703.9 100 59420
Total 2007‐08 1227770 100 88492.6 100 72076
% growth 11.0 34.7 21.3


Appendix – 4:
Bank Loan Outstanding Against SHGs
Total loans outstanding by banks to SHGs
Agency Year Amount Per SHG bank loan
No. of SHGs % Share % Share
(INR mn) outstanding (INRs)
2006‐07
2006 07 1893016 65.4
65 4 87603.8
87603 8 70.8
70 8 46277
Commercial Banks (Private and Public) 2007‐08 2378847 65.6 114754.7 67.5 48240
% growth 25.7 31 4.2
2006‐07 729255 25.2 28017.6 22.7 38419
Regional Rural Banks (RRBs) 2007‐08 875716 24.2 44210.4 26 50485
% growth 20.1 57.8 31.4
2006‐07 272234 9.4 8043.5 6.5 29546
Co operative Banks
2007‐08 371378 10.2
10 2 11033.9
11033 9 6.5
65 29711
% growth 36.4 37.2 6.6
2006‐07 2894505 100 123664.9 100 42724
Total 2007‐08 3625941 100 169999 100 46884
% growth 25.3 37.5 9.7


Appendix – 5:
Bank Loans Provided to MFIs
Amount of Loan Loan Outstanding against as
Disbursed on 31 Mar
% Recovery of
Agency Year Amount
Amount Loans
No. of MFIs (INR No. of MFIs
(INR mn)
(INR mn)
mn)
2006‐07 327 11513.4 541 15842.7 92‐100
Commercial Banks (Private and Public) 2007‐08 497 19686 1072 27452.4 82‐100
% growth 52 71 98.2 73.3
2006‐07 7 2.2 8 2 90
Regional Rural Banks (RRBs) 2007‐08 8 15.1 24 35.8 95.5‐100
% growth 14.3 586.4 200 1690
2006‐07
2006 07 0 0 1 0.1
01 100
Co‐operative Banks 2007‐08 13 0.4 13 0.2 n.a.
% growth 1200 100
2006‐07 334 11515.6 550 15844.8
Total 2007‐08 518 19701.5 1109 27488.4
% growth 55.1 71.1 101.6 73.5


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