Indian Microfinance: what holds back the “Game Changers”?
VOLUME 1, ISSUE 1II 2 MARCH , 2009
Samridhi ties up with IDBI Fortis for its
Samridhi has entered into an agreement with IDBI For-
tis Life Insurance Co Ltd. Amongst the fastest growing
private life insurance companies, IDBI Fortis, will pro-
vide affordable life insurance coverage to Samridhi‟s
entire clientele. The product is titled „Microsurance‟.
Samridhi Financial Services (SFS) will be amongst the
first few to benefit from the new product. The rates
being charged are amongst the most competitive in the
industry and a win- win deal for all the stakeholders
Samridhi selected for RBS Foundation/
MicroSave Technical Assistance Programme
Samridhi has been selected as one of the partner in the RBS Foun-
dation/MicroSave Technical Assistance Programme based on the
Rapid Institutional Assessment (RIA) conducted by the MicroSave in
January. This is going to be an intensive partnership for one year
starting from April and a 'slowed down' partnership for next six
To start with an exposure visit has been planned in March to see a
reputed mid sized MFI. The idea of the exposure is to see how
commercial microfinance operations are run professionally and in
the process take back any learning gleaned through the exposure.
For the month of April, the event is Mini AMI. Mini-Applied Microfi-
nance Institute is specially tailored for the smaller MFIs and will
have components on Process Mapping, HR, Finance and Accounts.
Indian Microfinance: what holds back the
Till the start of the 18th century, India con- between. Proof of that is so little number of
stituted over 35% of the world trade. To- patents issued to Indian compared to tiny
day with over 400 million people coming countries like Taiwan and Japan. We are yet
under the BPL, India alone constitutes over to come out that phase as have not thought it
35% of the world‟s poverty. Thanks to our worth while to change ur education system
colonial past which rendered the otherwise and bring back the glorious past. The so
working classes useless and in most of the called temples of Modern India, (IIT‟s and the
cases wage labourers. IIMs) are some of the efforts in the right di-
The objective of the entire British education rection but it‟s too little too late. The entire
system propagated by Macaulay was to pro- system needs to be restructured to bring the
duce clerks for British Administration which innovative minds at work.
they successfully achieved. Scientific tem- Putting aside the entire blame on theory, any
perament which was Indian psyche‟s main- classical economist would tell that rational
stay was pushed back. The new system dis-
human being or entity performs according to
couraged the very notion of thinking which
the incentive system. So we need to go into
quot;Perfection is achieved, resulted in no major scientific breakthrough
the rationale behind low level of innovations.
from India during that period. There have
not when there is nothing
been aberrations but those had been far and
left to add, but when
there is nothing left to replicating the model.
remove.quot; – Antoine de Though there have been inno-
Grameen Bank Model –
Though the SHG Model of vations on the delivery side
JLG based lending
Microfinance was started in like working only with women
It comes as no surprise
India, the various constraints and working strictly with the
that India chose the sec-
involved with it have limited groups but very few innova-
ond model because it
its growth or replication in tions on the products and cus-
suited the cultural envi-
other parts of world. This left tomer service.
ronment and sensibilities.
the case open for Indian En-
But what comes as a sur- So let‟s see what are the costs
trepreneurs to replicating
prise that it took almost involved in innovating?
others models of microfi-
14 years before any Indian
nance which had two preva-
entrepreneur thought of
lent models in world
replicating the model.
Latin American Model – entrepreneur thought of
branch based banking/
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VOLUME 1, ISSUE 1II PAGE 3
So as is clear at any given quite clearly from this discussion is ket from copying the innovation. So as
point of time there is decision are as following to say there is no such entry barrier
to be made that what are Cost of innovations will be quite for other smaller players.
costs involved vis-a-vis what high for the organizations which As is clear from the graph that it makes
are the rewards that can be are bigger and it keeps increasing most sense to the organizations to in-
achieved through the innova- with the size of the organisation. volve in innovations when they are in
tion. Being large does not give enough midsize category (5,000 – 50,000 Clients)
This can be understood with flexibility for such large organisa-
the help of the graph which tions to make swift movements.
draws a relationship between This leaves the net expected re-
the lifecycle of the organiza- ward net off from the cost lower
tion and costs involved in in- comparing with smaller players.
novations. Also there is nothing which stops
Few points which emerge the other smaller players in mar-
Intuitively it is clear that if where technical service
some organisation is start- providers and PE funds can
ing then it makes no sense
collaborate to give a long
in innovating as there is no
rope to players who are competition in the market. As any economist would
scale and fruits will be visi-
innovative when it comes to
tell that it does not make sense to innovate in a
ble only once the organisa-
providing maximum value to
tion reaches number of cli- seller‟s market as with economies of scale the organi-
ents where it is profitable the customers. sation can enjoy periods of abnormal profits. This es-
to implement the change.
For large organisations sentially discourages the organisations from engaging
But there is need to pro- in innovation.
though the unit
vide support to the organi-
cost can be very
sations in this stage to pro-
low but overall
mote them to innovate. The
cost is huge.
task is cut-out for different
Lack of innova-
stakeholders to provide
tions can also be
support in this stage. This is
There can be four different stages in
the competitive scenarios.
In state of monopoly/ other players to take their
oligopoly which is compara- share in this pie leading to on product development.
ble to no competition/low mid level competition.
The most conducive environment for innovation is
level of competition there Prevalent strategy in this
when there is fierce competition in the market which
are abnormal profits to be stage is to improve upon
is otherwise known as perfect competition. That is
booked which does not lead customer service.
when there are no abnormal profits to be made and
to innovations and the When the competition in- the margin is very little. At this time the larger players
strategy of the organisationstensifies further then the will try to find their own segments and they would de-
is to enter new areas and organisations try becoming fend their territories fiercely. This time is most apt for
create monopoly for what- more accommodative of the “Game Changers” as most of the bigger players would
ever period of time. client requirements hence be too busy in defending their turfs.
This state would continue leading to greater emphasis
for some time till there are
If any player wants to enter There are still large
such markets then the best territories in India
way to enter the market is which incentives the
with the existing products large organisations to
and after reaching a sizeable enter places where
size, the organisation should they don‟t have to
start innovating to create a innovate.
niche for itself.
As has been explained in the graph that over a pe-
riod of time when the market matures, it gives impe-
tus to companies which can be classified as “Game
Changers” to target segments which have very spe-
cific requirements. At the same time it gives oppor-
tunities for the new entrants to enter the market
and provide „good enough” solutions to the clients
who are not looking for such high-end services. It‟s
still a few years away in India, before we start seeing
companies involved in such kind of innovations.
Are there some lessons to induce innovations – case of Apple:
As a company “Apple” is known to be very innovative. We can draw a few lessons
from their strategies:
1. Never be afraid of cannibalization: this is major fear which keeps the compa-
nies in check from innovating as they start fearing cannibalisation of their ex-
isting product line. Be the first to cannibalize your own product line rather
than waiting for some other firm to do so.
2. Delegate the innovation to smaller team: it is very difficult to achieve some-
thing innovative in larger teams. Delegate the task of innovations to small
3. Keep communication lines open: new idea can come from anywhere, so don‟t
be close to new ideas coming from below the ranks.
What does the future behold?
Here are some of the factors that might affect the sector’s innovating capability:
The opening up of the banking sector and the entry of new investors, an increase in the flow of funds should
help the sector in a positive way.
Having NABARD as a regulator will keep a focus on reducing the cost of funds to the poor, which in turn will
lead the companies to innovations in the delivery models side.
The usage of mobile phones as a remittance tool will also add a new dimension to the growth in the sector.
The entry of P2P model in Microfinance is already fast catching up.
With growing competition Indian microfinance field is expected to see more and more of innovations in the com-
ing years. It will make the survival for the new entrants next to impossible if they don’t innovate. The time is ripe
for the “Game Changers”.
Dreams surely are difficult, confusing, and not everything in them is brought to pass for mankind. For fleeting dreams have two
gates: one is fashioned of horn and one of ivory. Those which pass through the one of sawn ivory are deceptive, bringing tidings
which come to nought, but those which issue from the one of polished horn bring true results when a mortal sees them.
Homer (800 BC - 700 BC), The Odyssey
VOLUME 1, ISSUE 1II 2 MARCH, 2009 @SAMRIDHIINDIA.COM