Microfinance for the Bottom of the Pyramid

MICROFINANCE
F O R T H E B O T T O M O F T H E P Y R A M I D
Sameer Mathur, PhD (http://smathur.com)

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Disclaimer: These teaching materials have been compiled from multiple, non-creditedsources for non-profit, academic use. Copyright is retained by the original content creators.
SameerMathur, Ph.D.
Assistant Professor (Marketing)
Web: www.smathur.com
Email:sameer.mathur@mcgill.ca
Twitter: @ProfessorMathur
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What is microfinance?
A means of extending credit, usually in the form of small loans with no collateral, to non traditional borrowers such as the poor in rural or undeveloped areas. (Dictionary.com)
Started by Muhammad Yunus in 1976, founder of Grameen Bank
Business loans are as small as 100$ to 200$

What is microfinance?
Considered a major solution to poverty
Eg: SKS Microfinance in India, started by VikramAkula
Microfinance customers usually live on < 2$ per day
Agricultural laborers, mom and pop entrepreneurs, street vendors, home-based artisans, small-scale producers and other BOP consumers

Microfinance Impact
Need to scale to large numbers for the model to be extremely successful
80% of microfinance institutions worldwide serve less than 10,000 customers
Industry: 140 million people have been reached, but roughly 3 billion still earn less than $2 a day

Reasons for lack of customers
The institutions have a lack of access to commercial funds
There is a high cost of handling millions of micro transactions
Inability to create scalable operating systems

Example: SKS Microfinance India
Thin margins and costly processes lead to high returns simply due to the payoff of high volumes
SKS :
Provided $725 million in unsecured microloans and insurance products to over 2 million people
Growing at 200% annually, adding 50 branches and 160,000 new customers per month
Also, focusing on expanding broad distribution network through deals with Bajaj Allianz, Nokia and ICICI Lombard

BOP Tips
Guiding principles for MNCs or NGOs that want to sell profitably to BOP consumers

Profit-oriented approach
In order to obtain large, commercial capital a profit oriented approach has to be taken so that investors could expect significant returns
Eg: SKSs’ for profit-status allowed it to get numerous investors as well as attract multimillion-dollar lines of credit from Citibank and ABN Amro

Standardization
Capacity is boosted and efficiency is increased through standardization
Similar to principles followed by companies like Starbucks and McDonalds
Eg: SKS loan officers collect repayments in round numbers of 25 or 30 Rs

Use of technology
Technology can be used to decrease costs and errors as well as speed up several processes
Eg: SKS has built its own software and digitized the process of recording all transactions made by customers

Summary
A means of extending credit, usually in the form of small loans with no collateral, to nontraditional borrowers such as the poor in rural or undeveloped areas. (Dictionary.com)
Started by Muhammad Yunus in 1976, founder of Grameen Bank
Business loans are as small as 100$ to 200$

Summary
Guiding principles for MNCs or NGOs that want to sell profitably to BOP consumers

Background Reading
Business Basics at the Base of the Pyramid
VikramAkula, HBR June 2008
http://hbr.org/2008/06/business-basics-at-the-base-of-the-pyramid/ar/1

These slides were featured on SlideShare.netin August 2011

FREE TEACHING
RESOURCES
ON MARKETING
MANAGEMENTATWWW.SMATHUR.COM
OVER 130,000 VIEWS
FROM 96DIFFERENT COUNTRIES
These presentations are part of Sameer Mathur's teaching portfolio.
They are free to view or download for non-profit, academic use.
Disclaimer: These teaching materials have been compiled from multiple, non-creditedsources for non-profit, academic use. Copyright is retained by the original content creators.
SameerMathur, Ph.D.
Assistant Professor (Marketing)
Web: www.smathur.com
Email:sameer.mathur@mcgill.ca
Twitter: @ProfessorMathur
Facebook:Click Here

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Microfinance for the Bottom of the Pyramid

by Sameer Mathur on Aug 27, 2011

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Microfinance for the Bottom of the Pyramid — Presentation Transcript