1. Microfinance
Group Alpha

2. Agenda
Introduction-Microfinance
Issues
PESTEL analysis
Financial analysis
Recommendations

3. Introduction – Microfinance
Loans outstanding : Unbanked population:
30 million borrowers
$2.5 billion 450 million
Microfinance Institutions
Co-operative NBFC –
NGO-MFI
MFI’s
Sanghamitra SEWA bank SKS
Bandhan Samiti Spandana

4. Issues facing the industry
Multiple Lending
Improper Usage of Loans Lack of Customer Orientation
Access to Capital Lack of Proper Technology
DEFAULT
Transparency in Pricing Lack of Product Customization
Lack of Corporate Governance Sensitivity to Interest rates
Over Regulation and Under
Regulation

5. PESTEL analysis
Political
Reserve Bank of India Act Economic
Lack of Technology
Banking Regulation Act
SHG model
Profile of Borrowers
Software
Companies Act
Need to support environmentally Social
2004-2005 Krishna District
Plight of Borrowers
sustainable projects
Concentration
Access
Co-operative Societies Act
AP government intervention
Farming of Funding
Sources Techniques
MNREGS
Investment
AP Act Technological
Policy Paralysis
No MIS
Microfinance Bill
RBI Regulations Environmental
Legal

6. Andhra Pradesh crisis
AP ACT 2010
High
Interest High Multiple
Coercion
Rates Suicides Lending
2.5 million houses
– 27 million transactions
Competition? Over Regulation?
Back to
Moneylenders

7. Analysis of costs of MFI’s
Components of APR
5%  Annualized percentage rate is the
6% compounded annual costs of the loans
 The hidden costs which is around 22% should
11% be clearly communicated to the customers
Interest
 The operating expenses reduces as the scale of
Fees
operations increases
Insurance  The interest rate cap of 26% will negatively
Security affect the profits of small and medium sized
78% MFI’s
 MFI’s have higher percentage of overheads
compared to larger firms. These higher costs
eat into the margins of smaller MFI’s
Comparison of costs
120% SKS vs Janalakshmi Provision and
write-offs
100%
22% 7% Depreciation
80% and ammort
15% 33%
60% Operating and
30% other
40% 35%
expenses
20% Personnel
32% expenses
21%
0%
SKS Janalakshmi

8. Increase in scale of
operations reduces the
39%
operating costs
Comparison of costs
37%
35%
33% Scale Client Outreach
31%
Tier I >250,000
29%
27% Tier II 50,000-250,000
25%
23% Tier III <50,000
21%
19%
17%
15%
Tier I Tier II Tier III
Interest Fees Insurance Security
24%
21%  Tier 2 MFI’s have higher costs
18%
15%
because of their investments in
OER expansion
12%
OER(P)
9%
OER(A)
6%  APR reduces as the institution
3%
achieves scale
0%
Tier I Tier II Tier III

9. Differentiating Factors
Issuing Loans and
Repayments
For Profit
Joint Liability Group
Product Offerings

10. Recommendations/Findings
Fair Trade MFI
Technology

11. Technology adoption: M-
Banking
Identify core customer value proposition
Costs: $7 million
Customer reach: 120,000
Develop a strong technological framework
Develop and manage an agent network
Partner with one or more MNO’s

12. SWOT ANALYSIS
(For Profit MFIs with more
than 2,50,000 client
Strengths
outreach)
Weakness
• Lesser operating Cost • Lack of ability to track credit
• Ability to provide financial history
services to the poor • Lack of proper corporate
governance
• Lack of technology and
corporate governance
Opportunities Threats
• Huge untapped market in • Excessive regulation by the
India RBI
• Extensive Product Portfolio • Political interferences
• Collaboration with NGOs

13. TOWS MATRIX
STRENGTH WEAKNESS
OFFER DIVERSIFIED PRODUCT USE TECHNOLOGY TO
OPPORTUNITY
PORTFOLIO ALONG WITH BROADEN THE CLIENT BASE
MICROCREDIT WHICH AND CUT DOWN THE COSTS
DISTRIBUTES THE COSTS
ACROSS DIFFERENT
PRODUCTS
Self regulatory body like MFIN Good corporate governance
can support MFIs in case of principles will give little room for
THREATS
issues like over regulation political interference

16. Economic Issues