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Major driver for this industry ʹ Passion

Rules:
No client can borrow > 50K
No client can borrow from more than 3MFIs
Rules on poaching staff of other MFIs

Microfinance ʹ used to be micro-credit; w/o collateral; provision of financial services to people and
communities that have been denied access to these services by formal institutions
Financial services ʹ credit; savings;insurance;aspire to roll out investment products(not in place as
yet)
Vijay Mahajan ʹ founder of micro-finance in India; firm called ͞basics͟
RBI definition ʹ Loan < 50K; but in reality, it could be anywhere btw 1-2L
MF - has a social angle
Coop banks/Grameen banks ʹ are expected to provide similar services but differ in effectiveness
First MF came into existence in the form of Accion in 1973 and the first loan was given in the slums
of Brazil
Future goals ʹ stay socially relevant even with triple bottom-line; environment friendly
2009 ʹ WSJ article casting doubts in MF owing to the potential bubble created by MF

The increase in marketcap of MF means there is a serious issue of regular banking services being
inadequate and poverty very much in . so ironically, growth of MF
Repayment rate - >94%
Renewal rates -> 85% (repeat cust)

NABARD made pronouncements in the the annual budget of investing in MF, but they haven͛t in last
4 budgets
SEWA and Mandeshi(spelling) have registered banks with RBI
Few of Indian NGOs have flipped over from their MF status into NBFCs
80% of MFIs portfolio lies with NBFCs
SHPI ʹ self help providing institutions. Linkages with NABARD gives 1500Rs

JLGs ʹ joint liability groups ʹ like Grameen banks

SHG Model:
No leverage of fund deposits done by SHG. So if the group deposits 5K, they get a loan of5K. This is
changing gradually. Technically they should be entitled to 20K based on the 5K cash collateral
Grameen Model:
Collateral free; eg: Equitas in Chennai (fastest growing client base among the MFI). This was possible
owing to opting for bi-weekly meetings instead of weekly meetings
Individual Lending:
More expensive; Latam and Africa; each client is evaluated on willingness and capacity to pay.
Accion͛s model. Process involves : spend time in evaluating the ability to pay back, including
checking the balance books, seeking social references.
Goverment welfare schemes are @ logger heads with the MFs
MF bill regulations in Parliament ʹ pending for last 4 years
MF profit margins are pretty low ʹ 2-1%.
MF lending rate ʹ Max 27%; 12% cost of funds, 2% write-offs/provisioning,8-10% cost of MF
operation expenses. Hence low Profit Margins.
India has not put a cap on interest rates, while other countries have put.

What did MF do right to escape sub-prime ?

Witty ans : They didn͛t get as intelligent/smart as the guys who created the sub-prime
When would MF͛s objective to make profits overshadow the social responsibility?
Few orgs have already done that!! The equity investors want an exit in 3-5 yrs, and hence may not
be in line with a MF͛s expected length for a borrower to really make progress (around 10 years)

Q.)
Collection mechanisms ?
What is the initial size of a MF org ? the money needed to start one? Why cant bigger orgs like
sequoia or citigroup owing to their CSR provide funding for MF or start their own ?
Do you deny credit? Hari
Yes
Do you help groups help setup the business they would like to setup using the MF loans?
NO