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IIM-LKo Microfinance Presentation by Samridhi

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IIM-LKo Microfinance Presentation by Samridhi IIM-LKo Microfinance Presentation by Samridhi Presentation Transcript

  •  
  • Flow
    • Indian Credit Scenario
    • Microfinance – what and why?
    • Indian Microfinance So far
    • Current Wave
    • Future
    • Conclusion
  • Target group Destitute 10 million households Urban (26%) Rural (74%) Upper Poor 70 million households ($1-$2/day PPP) Very Poor 80 million households (up to $1/day PPP) Medium farmers to small entrepreneurs who have some consistent source of enterprise income or work. Landless daily laborers with no assets to small farmers and micro-entrepreneurs who have some income generating assets (livestock, land, sewing machine). Families with no daily source of income Employed poor such as housemaids and industrial laborers to small entrepreneurs who have some consistent source of enterprise income or work. Daily laborers with no assets to micro-entrepreneurs who have some income generating assets (e.g., vegetable cart, cycle rickshaw). All are characterized by not having a consistent income source. Families with no daily source of income Indian Credit Market from Poor’s Point of View
  • Microfinance – Why Banks Don’t Lend to the Poor No Collateral High risks A large number of very small loans to rural locations High transaction costs due to… due to…
    • Loans sharks exploit the poor’s lack of access to credit charging up to 3600% ROI
    • Total Unbanked Population Approx. 800 Mn.
  • Microfinance – what?
    • Provision of credit, savings and insurance services for poor and near poor population
    • Prevalent Models
    • - Retail Microfinance Pioneered by Latin American MFIs
    • - Group Based Microfinance Pioneered by Grameen Bank
    • - SHG Bank Linkage promoted by NABARD
  • Service Framework: The Missing Pieces Integrated Microfinance Financial and Non-financial services Minimalist Microfinance Missing Piece – Credit Financial Intermediation Working Capital Asset Purchase Social Intermediation Financial Literacy Leadership Co-operation Business Development Marketing Production Training Competitor Analysis Preparatory BDS Setting of Business Activity Capacity Building Support
  • AS A RESULT, THERE IS A HUGE UNMET DEMAND
    • Assumptions
    • Existing market: Rs. 20,000 crores
      • Basis: NABARD; EDA Rural Report, “Maturing of Indian Microfinance”
    • Poor households: 150 million
      • Basis: World Bank poverty statistics, India
    • Avg. credit demand / HH: Rs. 40,000
      • Basis: EDA Rural Systems
    • Adjustment for service difficulties: 20%
      • Basis: adjustment made to reflect inaccessible poor in rural areas (~7%) and half of underserved urban poor (0.5 x 26% = 13%)
    • Rs. 340,000 crores covered in part by moneylenders and informal sources, but largely untapped
    Projected micro-credit demand, crores Current micro-credit by MFIs Total micro-credit demand, India Rs. 480,000 Rs. 20,000
  • … .BUT MFIs ARE NOT ABLE TO SCALE TO LARGE NUMBERS
  • What Has Been Ailing Indian Microfinance
    • Uneven Geographical Spread – Heavily South Focus
    • Personality Driven – Fiefdoms
    • Acceptance of Inefficiencies
    • Low focus on Systems Development
    • Lack of quality Human Resources
    • Too many legal forms – Hard to regulate
  • Current Wave: Evolution
    • Profit is not a bad word afterall…. Leading to NBFCs being preferred legal form
    • Private Equity – it is not always good benefitting few but hurting many
    • Regulation leading to innovations
    • Professionals Entering the field
  • Current Wave : Is it all good?
    • Single Focus on Profit – It could be next .com burst
    • Over crowding geographical areas
    • Poaching of Human Resources and Clients – leading to bad blood
    • Overburdening the clients – leading to push them down the poverty rather then lifting them – one more subprime crisis in the making
  • Future: Segmentation and Value Addition Could be the Name of the Game
    • Increased Regulation: Leading to phasing out of not suitable forms – mergers and acquisitions
    • Commoditized Microfinance – One size fits all – low margin high volume business model
    • Niche Microfinance – Scope of value addition – High Margin Low Volume Business Model
    • Scope for innovation in credit plus services e.g. Insurance
  • Conclusion
    • Future Looks Promising
    • Microfinance Needs to Adopt the best practices from other Industries
    • Huge Scope for systems development
    • Expectation Management – Need of the hour
  • Thank You Visit us at www.samridhiindia.com