Transformation
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  • 1. Transformation of microFinance in India: Experiences, Options and Future
    • M S Sriram and Rajesh Upadhyayula
    • Indian Institute of Management Ahmedabad
  • 2. microFinance Defined
    • microFinance means many things - But the contours may be:
    • Piloted by the alternate sector
    • Focussed on the poor
    • Having roots in development
  • 3. The Setting
  • 4. What triggers transformation?
    • Size
    • Diversity of services
    • Financial sustainability
    • Focus
    • Taxation
  • 5. What are the International Experiences in Transformation?
    • Bolivia and Africa: Transformation of NGOs
      • To Banks
      • To FFPs
    • Indonesia: Transformation of mainstream
      • To microFinance methods
    • Bangladesh: Transformation of a project
      • Grameen Bank
      • Other NGOs transforming to Banks
  • 6. Challenges in the Indian context
    • Size
      • Growth in geographic area
      • Growth in portfolio/client size
    • Diversity of Services
      • MFOs wanting to offer Savings
      • MFOs wanting to offer Risk Products
  • 7. Challenges in the Indian context
    • Financial Sustainability
      • Internal growth
      • Access to funds
    • Focus
      • Other Developmental activities V/s mF
      • Degree of specialisation needed for mF
  • 8. Challenges in the Indian context
    • Tax Status
      • For-profit mF activity V/s not-for-profit NGO activities
      • Tax status of donor money
  • 9. Options for Transformation (Spin off)
    • Company (NBFC)
      • Poverty School
        • Share - Transformation with growth
        • CFTS - Start up as NBFC
        • ASA - Through MBTs (proposed)
      • Sustainability School
        • BASIX - Complex structuring (holding company, borrowings and equity from developmental and commercial sources)
  • 10. Options for Transformation (Spin off)
    • Examining NBFCs
      • + Access to financial markets
      • + Access to bank finance
      • + Can Operate across the country
      • Limited options for offering savings
      • Re-capitalisation for growth may be tough
      • Steep entry norms (Rs.20 million initial)
      • Not easy to get registrations
  • 11. Options for Transformation (Spin off)
    • Examining Co-operatives
      • MACS, Urban Co-operative Banks
      • +Small and dispersed institutions, that could organically grow and federate
      • +Involves the community in decision making as it is member-user-governed
      • +Easy entry norms
      • +Best route for SHGs to formalise
      • +Can offer many services including savings
  • 12. Options for Transformation (Spin off)
    • Examining Co-operatives
      • Geographic limitations
      • Does not have a good image, attracting outside capital will be a problem
      • Recent scams in urban co-operative sector might lead to tightening of regulation
  • 13. Options for Transformation (Spin off)
    • Needs to earn enough profits to show that it is operationally self-sufficient
    • It could also be financially self-sufficient, but no pressure to plow back profits or hit the capital market
    • The concerns would be to keep costs under control and revenues on target to demonstrate
  • 14. Options for Transformation (Spin off)
    • Set up a Local Area Bank
      • + Flexibility to offer diverse products
      • + Cost of funds likely to be lower, so the impact on the poor with be better
      • Steep initial capital (Rs. 50 million)
      • Difficulty in getting licence
      • Limitation in geographic growth (3 contiguous districts)
  • 15. Implications for regulation
    • Allow MFOs to grow organically
      • Allow for expansion in area in case of co-operatives and LABs, subject to minimum performance
    • Allow for NGOs to invest in for-profit MFOs such as NBFCs and LABS
    • No change in entry norms - ensure only serious players come to the field
  • 16.  
  • 17.