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HSBC Brings a Business Model of Banking to the Doorsteps of the Poor

Tiny loans can make a huge difference, especially when coupled with financial literacy and capacity building. With a global commitment to sustainable business through financial inclusion, HSBC part- ners with microfinance institutions and other orga- nizations to empower micro-entrepreneurs among India’s rural poor, who in turn are changing lives, families, and entire communities. The authors pro- vide an overview of HSBC Group’s sustainability strategy, a brief history of microfinance in India, and HSBC in India’s role in serving the microfi- nance industry. They also discuss the bank’s multi- stakeholder initiatives for capacity building, which include two schools where rural women learn essen- tial business and technical skills and financial liter- acy, and an environmental and social village-based initiative for water conservation and livelihood creation. © 2009 Wiley Periodicals, Inc.

PRAMOD MARAR, BALAJI S. IYER, AND UNMESH BRAHME

by purchasing two more grinders, and eventually renting a shop for the business.

Today, Indirani’s flour business generates around Rs. 300–400 ($7–9) a day After paying the monthly rent for the shop and electricity bills, she earns a net income of Rs. 5,000–6,000 ($109–131) per month. Thanks to microfinance and her hard work, Indirani is now a successful entrepreneur managing her own business and supporting her family.

The plight of women in poor communities in India is well documented. The pressure for survival against the backdrop of poor or no education, failing health, low agricultural/labor productivity, and degrada- tion of the environment affects women and chil- dren the most. Whether because of tradition, their economic environment, or other factors, millions of women in India today are still unable to break out of the vicious cycle of gender bias, deprivation, and victimization imposed on them.

HSBC in India and the intermediary microfinance institutions (MFIs) that it funds to extend credit and other financial services to women like Indirani are part of the growing microfinance industry in India and elsewhere. The microfinance segment seeks fi- nancial inclusion for the world’s poor through sus- tainable means as a way to empower millions to lift themselves out of poverty. Microfinance coupled with financial literacy is a proven approach to inter- vene in the lives of poor women, their families, and their communities to ensure they have the oppor- tunities to invest in their businesses, increase their income, build assets, and create economic security.

Indirani, a 53-year-old wife and mother of four liv- ing in Chennai, India, is one of microfinance’s suc- cess stories. She and her husband, Chandrabose, used to earn a paltry income of about Rs. 1,500 (U.S. $33) per month as laborers. Moreover, as Chandra- bose began to age, he was unable to find regular work. A local institution, which grants small loans at prevailing interest rates using funds it borrows from The Hongkong and Shanghai Banking Corporation Limited (HSBC in India), lent Indirani Rs. 5,000 ($109), which she used to purchase a wet grinder to mill grains and rice into flour for customers. With her husband’s assistance, her new business was soon bringing in Rs. 50–100 ($1–2) a day. As more locals became regular customers, Indirani took a second loan of Rs. 10,000 ($218) to expand her business

a second loan of Rs. 10,000 ($218) to expand her business c 2009 The Hongkong and

c 2009 The Hongkong and Shanghai Banking Corporation Limited, reprinted by its permission. Published online in Wiley InterScience (www.interscience.wiley.com) Global Business and Organizational Excellence DOI: 10.1002/joe.20247 January/February 2009

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A Commitment to Corporate Sustainability HSBC in India’s growing involvement in mi- crofinance and related activities is part of the London-based HSBC Group’s global commitment to inclusive growth. As the world’s largest bank- ing and financial services organization, with assets of $2.547 trillion and an international network of about 9,500 offices in 85 countries and territories around the globe, HSBC provides a comprehen- sive range of financial services to personal, com- mercial, corporate, institutional, investment, and private banking clients. HSBC’s overall strategic direction reflects its position as “the world’s lo- cal bank,” combining the largest global emerging- markets banking business and a uniquely cosmopoli- tan customer base with an extensive international network and substantial financial strength. Our strategy is aligned with key trends that are shap- ing the global economy—namely, that over the long term, emerging markets are growing faster than de- veloped economies, world trade is expanding at a greater rate than GDP, and life expectancy is in- creasing virtually everywhere.

In addition, climate change is having an impact on economic development, particularly in developing countries, and HSBC faces the challenges of a shift toward a low-carbon economy. In response to these trends, we are reshaping our business by investing primarily in the faster-growing emerging markets— including India—and in developed markets by focusing on businesses that have international connectivity.

HSBC is determined to be one of the world’s leading companies in addressing the challenges of embed- ding sustainability into its business.

We believe companies that manage their business in a sustainable way are better placed to compete in the global economy. HSBC is determined to be one of the world’s leading companies in addressing the challenges of embedding sustainability into its

business. We believe that doing so will strengthen the HSBC brand, helping to deliver long-term value to our stakeholders.

Our sustainability strategy recognizes that the group’s continued financial success depends on our ability to manage and address nonfinancial consider- ations in our business. This requires an understand- ing that these nonfinancial issues do not exist in isolation from our core functions and operations but are integral to the way we do business. We use the term corporate sustainability rather than corporate responsibility, as it describes more suc- cinctly the management of our direct environmental footprint, sustainability risk and business opportu- nities, and our community investment activities.

As a major employer, lender, and investor, we can make an important contribution to sustainability, providing financial solutions to environmental and social challenges while building a healthy business

for the benefit of all of our stakeholders. Financial inclusion through microfinance and other activities

is one part of our sustainability strategy.

An Introduction to Microfinance Microfinance serves as an umbrella term for the provision of financial access through focused fi- nancial intermediaries—microfinance institutions, or MFIs—to those parts of the population that are not being served by mainstream financial ser- vices providers. Few fields in development or com- merce other than microfinance emphasize a twin bottom line, effectively combining economic and so- cial performance. Presently the most widely preva- lent service of microfinance in India is microcredit. Typically, these are small loans to the unserved or underserved, either for consumption or for income- generating activities.

Reducing Poverty in Sustainable Ways

Although the amounts involved may be small, the

services that microfinance offers have proven to be

a powerful instrument for reducing poverty.

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Household Income. Financial services can improve poor people’s lives by providing much-needed fi- nance for business activities, which can increase their household incomes. By offering a variety of finan- cial products such as savings, insurance, loans, and remittances, microfinance empowers poor people to diversify their income sources, meet basic needs, and cope with shocks to their income.

Building Assets. As a result of increased income and the ability to save and obtain credit through micro- finance services, poor people can gain the means to acquire land, construct or improve their home, pur- chase animals and consumer durables, and create or expand their businesses.

As a result of increased income and the ability to save and obtain credit through microfinance ser- vices, poor people can gain the means to acquire land, construct or improve their home, purchase an- imals and consumer durables, and create or expand their businesses.

Reducing Vulnerability. Access to financial services has allowed poor households to make the transi- tion from the daily struggle for survival to a finan- cially secure future. Poor households are now able to send more children to school for longer periods and to make greater investments in their children’s education. Increased earnings and access to micro- insurance have also led to better living conditions, which translates into a lower incidence of illness. This has also enabled clients to seek out and pay for health care services when needed.

Empowering Women. Most microfinance programs target poor women, for whom money management, greater control over resources, and access to knowl- edge leads to more choices and a voice in family and community matters. Economic empowerment is ac- companied by growth in self-esteem, self-confidence,

and new opportunities. Women involved in microfi- nance also own assets, including land and housing, and play a stronger role in decision making. Em- powerment has also translated into declining levels of violence against women.

Measuring the Benefits

The Consultative Group to Assist the Poor (CGAP) cites the following empirical evidence of the positive impact on participants in microfinance programs, including improved well-being at both the individual and household levels as compared with those who did not have access to such financial services: 1

Bangladesh Rural Advancement Committee (BRAC) clients increased household expenditures by 28 percent and assets by 112 percent. After more than eight years of borrowing, 57.5 percent of Grameen Bank borrower households in Bangladesh were “no longer poor” as com- pared to 18 percent of nonborrower households. In Lombok, Indonesia, the average income of Bank Rakyat Indonesia (BRI) borrowers in- creased by 112 percent, and 90 percent of house- holds graduated out of poverty. In Vietnam, Save the Children clients reduced food deficits from three months to one month. At Kafo Jiginew in Mali, clients who had been with the program for as little as one year were significantly less likely to have experienced a pe- riod of acute food insecurity—and those that had had experienced a shorter period.

HSBC’s Involvement in Microfinance With significant operations in the emerging markets and expertise in transactional solutions, and sup- ported by our office network, services, processes, capital, and customer relationships, we are well placed to serve the microfinance sector. Our ap- proach to this sector is based on commercial viability with high social benefit, with the aim to create self- sustaining, stable financial services to help people out of poverty. We integrate microfinance activities

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with our local business capabilities rather than as a separate business line. Our strategy is to concentrate on our strengths and to work with others rather than try to build expertise quickly in the short to medium term. Following pilot projects in 2005, HSBC has engaged more closely with microfinance enablers and MFIs on the ground to understand the principal issues facing the sector, and the findings have informed and shaped our priorities.

Our strategy is to concentrate on our strengths and to work with others rather than try to build expertise quickly in the short to medium term.

HSBC is currently working with MFIs in Argentina, India, Mexico, the Philippines, Sri Lanka, and Turkey through our operations in those countries. To provide a closer view of our involvement in the microfinance sector at a country level, the rest of this article will focus on HSBC in India, which, in addition to other initiatives that promote financial inclusion for the poor, offers customized loan prod- ucts to microfinance institutions across the country to help them provide microcredit to the underserved segments of India’s population.

HSBC in India and Microfinance The Hongkong and Shanghai Banking Corporation Limited is one of India’s leading financial services groups, with more than 3.4 million customers and 34,000 employees in our banking, investment bank- ing, and capital markets; asset management; insur- ance broking; software development; and global re- sourcing operations. The bank is at the forefront in arranging foreign investments into the country and deals for Indian companies investing overseas, and it is custodian of more than 40 percent of the foreign institutional investments (FIIs) in India, with total assets under management in India that exceed $5 billion. 2

Although HSBC in India has 47 branches and 178 ATMs in 26 cities, it lacks a branch network and accessibility in rural areas, where the majority of India’s empoverished population lives. The rural poor need a diverse range of financial services, in- cluding credit and safe and flexible savings services, to run their businesses, build assets, stabilize con- sumption, and shield themselves against poverty. However, access to quality financial services in rural India is still heavily inadequate. Eighty-one percent of villages in India do not have banks within a dis- tance of 2 km (1.2 miles); 41 percent of the popu- lation does not have a bank account; and available credit in rural areas meets just 10 percent of the actual need.

Microfinance established a foothold in India during the 1990s, but this decade has seen rapid growth, with a distinct shift away from a “welfare” model toward a “business model” for delivering these ser- vices. (For a discussion of the evolution of micro- finance in India, see the sidebar “Microfinance in India: The Journey.”)

HSBC in India started its microfinance activities as a pilot and primarily as an experiment to understand the microfinance space in 2005, and it has come

a long way in expanding its microfinance services

during the last year. Since it is quite expensive for HSBC in India to provide services directly to the rural poor, it lends funds to microfinance interme- diaries, the MFIs that further on-lend the funds to the ultimate clients. (For a discussion of the types of organizations engaged in microfinance activities, see the sidebar, “Microfinance in India: The Players.”)

HSBC in India established a team for microfinance under its Commercial Banking division in December 2007 and plans to eventually create regional-level teams to facilitate initiatives in their respective parts of the country. HSBC in India has put in place

a clear strategy for FY 2008–2010 for conducting

microfinance business in line with the overall HSBC Group Strategy. The key objective of the strategy is

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to develop a host of services around a lending port- folio with MFIs that can facilitate capacity building, improve operational efficiency, and bring the best practices of a transactional banking business to the microfinance domain. The approach is to leverage HSBC in India’s footprint, products, and services, generating financial and nonfinancial returns.

The key objective of the strategy is to develop a host of services around a lending portfolio with MFIs that can facilitate capacity building, improve oper- ational efficiency, and bring the best practices of a transactional banking business to the microfinance domain.

The Clients of MFIs Microfinance clients are a diverse group of people and require diverse products. A typical microfinance client is a person with little or no access to formal financial services. Clients are often described accord- ing to their poverty level—vulnerable nonpoor, up- per poor, poor, and very poor. These clients operate small businesses, work on small farms, or work for themselves or others in a variety of businesses. Some of these microfinance clients are truly entrepreneurs who enjoy creating and running their own busi- nesses. Others become entrepreneurs by necessity when there are few jobs available in the formal sector.

In India, as in Bangladesh and other Asian countries, women make up a majority, and sometimes all, of an MFI’s clientele. Ninety percent of those who bor- row from the MFIs that HSBC in India finances are women between 18 and 60 years of age. They would typically be involved in small businesses, including grocery, tailoring, embroidery, tea/food stall, trad- ing, and in dairy and poultry farming activities. The loans are generally used for income-generation ac-

tivities, although there are no restrictions on the end use—the loans can be used for consumption as well as income generation.

How MFIs Work with Their Clients The operating methodology that forms the crux of an MFI’s service delivery typically involves the steps described below for setting up new branches and making loans. 3

Village Selection

A branch manager conducts a survey and selects cer- tain villages with high potential for promoting local client “groups.” Although loans are made to indi- viduals, a client group is the focal unit in an MFI’s service delivery model. Peer pressure and collective accountability are strong factors in ensuring a high rate of loan payback. The branch manager then con- ducts a series of meetings in each village to lay the groundwork for moving ahead.

Group Formation and Training

The branch’s loan officer steps in to help form one or more groups. Each MFI has its own norm for the size of a group, with five members being the norm for a number of MFIs, and each group usually selects a leader. The loan officer trains the group members and leaders on the processes and modus operandi of the MFI, and the responsibilities of the group and its members. The training ends with a Group Recognition Test (GRT), in which the loan officer and/or a supervisor visits the residences of the members to test them on the MFI principles taught during training.

Appraisal, Documentation, and Disbursement

After successful completion of the GRT, the loan officer brings the prepared loan documents to the group’s next meeting for members to sign. At the following meeting, loans are disbursed. Some MFIs will disburse the loan amounts to all the borrowers

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Microfinance in India: The Journey

The microfinance industry as it exists in India today is about a decade old, though one can trace its roots to the mid-1970s, when some prominent Indian nongovernmental organizations (NGOs) such as Myrada and Pradan started using the Self-Help Group (SHG) model, a platform for social mobilization in which finance is one of the various services provided to the grassroots community. In this community-driven and -managed microfinance model, the NGO plays the role of a facilitator, providing capacity-building services to the self-help groups and establishing relationships with banks. This approach was widely replicated across other developmental NGOs working in India.

Earlier models of lending to the poor were characterized by state-sponsored programs, such as the Integrated Rural Development Programme (IRDP), which were in line with the “directed credit” agenda of the welfare state. The emphasis was on keeping the cost of credit to the poor artificially low through interest-rate ceilings, but it resulted in low levels of institutional lending to this segment. However, the early 1990s saw a definite shift as new players emerged, microfinance institutions and NGOs, whose approach has been characterized by an emphasis on access to credit rather than the cost of credit, as was the case earlier.

During the late 1990s, the Grameen model, promoted by Nobel Prize winner Muhammad Yunus of Grameen Bank, and the ASA model, promoted by the Association for Social Advancement, both from Bangladesh, found rapid acceptance among the newer breed of microfinance institutions in India. Known as on-lending models, they have the capability for rapid scaling in terms of client outreach, and they are less dependent on grants and donor funds by enabling the microfinance institution itself to borrow lending capital from larger credit institutions and then pass the actual service charge on to its individual borrowers while retaining a margin for its own growth. These models have proven to be robust revenue models and, as such, have spurred the emergence of for-profit institutions (nonbanking financial companies) in the Indian microfinance sector and a slow but distinct trend away from nonprofit, grant-supported organizations.

In recognition of the importance of providing the poor and near poor with access to needed capital, the Reserve Bank of India (RBI) removed most interest-rate ceilings on microfinance in February 2000. The RBI issued guidelines that deregulated interest rates on loans to microcredit organizations and by microcredit organizations to self-help groups and their member borrowers, which, in combination with the emergence of credible intermediaries such as NGOs and MFIs, made commercial models in microfinance possible.

The SHG model, in the form of the SHG-Bank Linkage Programme (SBLP) initiated in the early 1990s by the National Bank for Agriculture and Rural Development (NABARD), and the rapidly growing MFI on-lending model both dominate the microfinance industry in India today. Exhibit 1 compares recent microcredit activity under both models. As of March 31, 2008, the outstanding microcredit portfolio of the India microfinance industry was about Rs. 220 billion ($4.8 billion), three-quarters of it with the SHG-Bank Linkage Programme (SBLP) and one-quarter with MFIs. Together, both delivery models have reached about 50 million households. For 2006–2007, the SBLP increased its number of borrowers by slightly more than 30 percent, extending credit to an additional 9.6 million individuals, more than 90 percent of them women, and about half of them poor. During the same period, the number of MFI microcredit customers grew even more rapidly, by about 40 percent, as MFIs added an estimated 3 million new borrowers.

As banks and other MFIs gain market share, there is widespread evidence that the stronger competition has led NGOs, public agencies, and other members of the informal sector of the microfinance industry to significantly improve the terms of credit they offer to their borrowers.

Indian microfinance continues to grow rapidly toward its main objective of financial inclusion, extending outreach to a growing share of poor households and to the approximately 80 percent of the population yet to be reached directly by mainstream banks.

in the group simultaneously, while others will stag- ger disbursements among borrowers over a period of a couple of weeks.

Depending on the area and the MFI, in the first year of a group’s existence, individual members may secure income-generating loans of Rs. 2,000–12,000

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Microfinance in India: The Players

A number of formal financial institutions provide microfinance services in addition to their general banking activities, including apex development financial institutions, commercial banks, regional rural banks, and cooperative banks. MFIs, however, are separately regulated according to their status as either for profit, not for profit, or a mutual benefit society (see Exhibit 2), and all are prohibited from taking savings deposits unless expressly licensed by the regulator.

MFIs are mainly found in the private sector. However, in India, the emergence of the NGO sector and its endeavors to provide microcredit and support to microentrepreneurs has attracted financial support from the public sector—institutions, agencies, ministries, and government departments of the central and state governments that wish to help NGOs extend credit and other welfare services to the rural and urban poor, particularly women. a

a The most prominent of these public-sector partners are Rashtriya Mahila Kosh (National Women’s Fund), the Small Industries Development Bank of India, the Housing and Urban Development Corporation, the Housing Development Finance Corporation, the National Housing Bank, and the Ministries of Agriculture and Human Resources Development (the Rural Development Department and the Department of Women and Child Development, respectively).

Exhibit 1. Distribution of Microfinance Activity Among the Primary Providers in India

 
 

Percent of the Outstanding Microcredit Portfolio as of March 31, 2008

Number of Borrowers

2006–2007

All Years

SHG-Bank Linkage Programme

75%

9.6 million

41 million

MFIs

Large Medium and small

20%

3 million

10.5 million

5%

Exhibit 2. Types and Numbers of Microfinance Institutions in India

 

Category

Types of MFIs

Legal Status

Estimated Numbers a

Not-for-Profit MFIs

NGO MFIs

Societies Registration Act, 1860 or similar Provincial Acts; Indian Trust Act, 1882 Section 25 of the Companies Act, 1956 Mutually Aided Cooperative Societies Act enacted by State Government

400–500

Nonprofit companies

20–50

Mutual Benefit MFIs Mutually Aided Cooperative Societies (MACS) and similar institutions

200–250

For-Profit MFIs

Non-Banking Financial

Indian Companies Act, 1956; Reserve Bank of India Act, 1934 Total

20–25 b

Companies (NBFCs)

 

650–825 c

a The estimated number includes only those MFIs that are actually undertaking lending activity. b Sources: National Bank for Agriculture and Rural Development, 2007, at http://www.nabard.org; and Reserve Bank of India, Report on Trend and Progre ss of Banking in India, June 2006, which is modified based on current trends. c Modified based on analysis of current trends.

($44–262). Loan eligibility increases by an addi- tional Rs. 2,000–6,000 ($44–131) in each subse- quent lending cycle, provided neither the member nor the group has defaulted on any loan. Borrowers repay the principal at a 12.5–15 percent flat interest rate in equal weekly installments over a period that

usually ranges from 50 to 55 weeks, depending on the MFI.

Monitoring and Collection

The group has weekly meetings in which an MFI field worker collects members’ loan payments and

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hears members’ reports of how they are using the money and to what effect. Peer pressure is the ba- sic principle behind group-level monitoring. In case of any repayment problem or misutilization of any member’s loan, the other members of the group take responsibility for repayment. The loan officer visits the group to make one or more loan utiliza- tion checks during the loan cycle and continues to provide group training to ensure that the borrow- ers fully understand the processes and report any aberration to the MFI’s branch office or head of- fice. These checks and balances coupled with the certainty of a continuous credit line from the MFI ensure that the members’ loans are repaid on time.

How HSBC in India Works With MFIs Success in reaching the poor with microfinance is determined by the mission of an MFI and its abil- ity to translate that mission into effective products and services. Given the renewed focus on social per- formance in designing and delivering microfinance services, the expectation is that MFIs will serve their clients with increasingly appropriate and var- ied products and services.

Given the renewed focus on social performance in designing and delivering microfinance services, the expectation is that MFIs will serve their clients with increasingly appropriate and varied products and services.

All MFIs financed by HSBC in India are assessed by the bank’s microfinance (MF) team on principles of governance and operations as well as financial pa- rameters. The MF team not only meets the MFI’s management officials and other relevant personnel but also visits its field operations and branch offi- cials to evaluate their operating methodology, in- cluding group formation techniques, delivery mech- anism, number of clients handled per field staff, and

the like. The team also meets with borrowers to un- derstand their requirements.

As a financial intermediary, an MFI’s ability to man- age a high-quality loan portfolio that HSBC in India will fund is an understandably important concern. Asset quality categorized by delinquency buckets is thus part of the criteria for qualifying an MFI. For instance, one of the most common measures of as- set quality is portfolio at risk (PAR), defined as the principal balance of all loans in arrear as a percent- age of the overall portfolio. In India, PAR is usually measured for loans more than 60 days overdue, with an industry norm of 10 percent.

Furthermore, the MF team remains in touch with HSBC Group microfinance enablers, lending insti- tutions, private equity players, industry influencers, and thought leaders to keep its members updated on market dynamics and trends.

As of July 2008, HSBC in India has partnered with some of the best-managed MFIs in India. Collec- tively, our MFI partners serve more than 110,000 borrowers in 11 states, thus indirectly touching the lives of half a million people. One thing we have learned from our exposure to these MFIs is that Tier 2 MFIs—midsized and next-generation MFIs— require much more support, both in terms of debt and capital, than large MFIs do. This year we are working on a special lending program for this group to support them at an early stage, with the goal of fa- cilitating their growth and thereby enabling them to reach out to even more people who are marginalized and underbanked.

Capacity Building for Rural Women Despite the surge in microfinance growth in In- dia in recent years, its rural poor are still under- served and far from “financially included,” with the most poverty-stricken communities outside the am- bit of today’s microfinance charge. HSBC’s vision is to enable the most disenfranchised rural poor

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women to rise up the learning curve from “consump- tion borrowers” to “micro-entrepreneurs.” There is also an imminent need to bolster microlending with capacity-building activities and investment, with a view toward making the utilization of borrowed money more efficient and sustainable in order to create visible, high-impact livelihood strategies for these women.

Toward this end, HSBC in India has engaged in sev- eral partnerships with other organizations to pro- vide financial education and build the capacities of poor youth and women so that they can become sus- tained and successful entrepreneurs and participate in the formal economy. These HSBC partnerships operate in 18 districts in the two large Indian states of Maharashtra and Gujarat, and cover more than 10,000 rural poor women.

HSBC in India has engaged in several partnerships with other organizations to provide financial edu- cation and build the capacities of poor youth and women so that they can become sustained and suc- cessful entrepreneurs and participate in the formal economy.

HSBC Manndeshi Business School for Rural Women

HSBC Manndeshi Business School for Rural Women, in the Satara district of the western Indian state of Maharashtra, is a unique multistakeholder collaboration among communities, the local bank, the local NGO, and a mainstream corporate bank, HSBC in India. Its mission is to equip young girls who have dropped out of school and women with no or limited formal education with the training and knowledge to run their own businesses.

The school’s extensive curriculum, which is based on a needs assessment of the local economy and the market potential therein, focuses on finan- cial literacy, marketing, technical skills, negotia- tion skills, and confidence-building measures. It of-

fers skill-building courses in screen printing; how to make floral bouquets, cotton bags, blankets, leather bags, and blouses; basic sewing and dress making; household equipment repair; photo lami- nation; fast-food preparation; basic computer skills; the English language; and career guidance. The busi- ness school creates an inclusive platform through its locally and culturally sensitive policies: no restric- tions on age, affordable courses, timelines adapted to women’s needs, confidence-building incorporated into all courses, practical knowledge, low start-up costs for new businesses, and support for product marketing and sales.

Since its opening in December 2006, the HSBC Man- ndeshi Business School for Rural Women has deliv- ered 17 different courses and trained 5,987 rural poor women, with more than 60 percent of them starting their own businesses. The emphasis on liveli- hood and self-confidence has also had other direct social benefits for the women, including an increase in daily average income, improved daily meal con- stitution with more nutrition, and enhanced status and respect within the family and community.

To further the cause of institutional inclusion, HSBC has also established a correspondent banking rela- tionship with the Manndeshi Bank, thus bringing the rural bank into the mainstream-banking fold.

The combination of microfinancing and capacity building through this multistakeholder partnership has enabled many women in the community, such as Aruna Gaikwad, to become independent en- trepreneurs. Aruna began to invest in her business as a vegetable vendor, starting with a small loan of Rs. 5,000 ($109) in 2004. With continued in- vestment, including a loan of Rs. 100,000 ($2,200) in 2006, she expanded her business to fruits and bought a mobile phone, which made it easier to contact and develop customers in nearby towns and villages. She was soon supplying fruits and vegeta- bles to other market merchants, which increased her total weekly sales to 6,000 pieces.

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The mother of three and just 30 years old, Aruna is also now a collection agent for Manndeshi Bank, and she upgrades her business skills by attend- ing financial literacy classes at HSBC Manndeshi Business School for Rural Women. Aruna says that the marketing module has greatly helped her to pro- mote her business because it taught her about cus- tomer relations and how to sell and negotiate. Her weekly income has increased from an average of Rs. 200 ($4.37) in 2004 to Rs. 1,200 ($26). As fur- ther demonstration of a strong instinct for business, Aruna used her loans to also buy a piece of land, which she later sold for a large profit. For the fu- ture, she plans to build a house and invest in her children’s education.

HSBC RUDI Manager’s School

Our work with the HSBC RUDI Manager’s School is helping create a new economic paradigm of linking poor rural producers with local markets, thus en- suring local economic growth and helping catalyze people’s purchasing power and a better quality of life. The promotion of buying/selling of local goods in local markets to be consumed by local citizens reduces migration of rural people to cities. With ac- cess to sustainable livelihood and hope of enhanced social and economical conditions, families can stay together.

Our work with the HSBC RUDI Manager’s School is helping create a new economic paradigm of linking poor rural producers with local markets, thus en- suring local economic growth and helping catalyze people’s purchasing power and a better quality of life.

HSBC in India partnered with SEWA (Self- Employed Women’s Association), 4 to establish the HSBC RUDI Manager’s School, which is operated by SEWA Gram Mahila Haat in nine districts in Gujarat. The school’s objective is to help SEWA

members improve the marketability of their prod- ucts by teaching them managerial and leadership skills and advanced production techniques, and by disseminating information on projected supply and demand.

The school has created many women entrepreneurs, who in turn have benefited their local communi- ties in numerous ways. Among them is Manjulaben Babulal Shah, who lives in Degam village of Patadi block of Surendranagar district. Manjulaben’s hus- band did some stitching and casual labor as the only earning member in the family until he suddenly col- lapsed due to a heart attack, leaving Manjulaben with five children to look after, the youngest just six months old. Manjulaben had never worked out- side of the home, and now the entire responsibility for supporting the family fell to her. She started do- ing household work in other people’s homes, which earned her only Rs. 100 ($2) each month, not nearly enough to feed her children, who would go days without a square meal. Things had become very dif- ficult for her.

Once Manjulaben connected with SEWA, she be- gan to sell to other villagers the products made by women attending the HSBC RUDI Manager’s School. After using her house as a base of oper- ations for a year, her monthly sales now average Rs. 30,000–40,000 ($656–875), which earns her a monthly income of Rs. 2,000–2,500 ($22–55). Manjulaben is able to deposit Rs. 20 ($0.44) a month in an account as a member of the SEWA savings group; has purchased insurance, a sign of her growing financial knowledge; and is now able to send one of her sons to study at a nearby school.

With growing confidence in her business acumen, Manjulaben recently took out a microloan from the district association to purchase and resell cattle feed to other members of her village—feed that helps to improve the quality and the quantity of milk the cattle produce.

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HSBC Water-Based Livelihoods Model

Many development projects tend to separate finan- cial inclusion from environmental sustainability to the detriment of both goals and the long-term wel- fare of the community. HSBC’s work with SHARE India in the state of Maharashtra involves an initia- tive that successfully integrates both goals by em- phasizing water resources conservation and creating livelihoods at the bottom of the economic pyramid. The HSBC Water-Based Livelihoods Model seeks to revive the economic livelihood of villages through rainwater harvesting systems, the formation of self- help groups of women and men, and the creation of entrepreneurship and agricultural livelihood oppor- tunities.

The HSBC Water-Based Livelihoods Model seeks to revive the economic livelihood of villages through rainwater harvesting systems, the formation of self- help groups of women and men, and the cre- ation of entrepreneurship and agricultural livelihood opportunities.

Other Financial Inclusion Initiatives HSBC in India is also exploring partnerships with various government and related agencies to bring about solutions for financial inclusion to the coun- try’s poor and underserved. In addition, it facil- itates forums and platforms to influence decision makers, disseminate sector information, and create a dialogue between policymakers, academia, and industry representatives. This year, HSBC in In- dia has been instrumental in launching two signa- ture forums in financial inclusion, The Economic Times Financial Inclusion Summit and the FICCI 5 Conference on Financial Inclusion for Sustainable Development.

The Future Focus In addition to capacity building, HSBC will be look- ing for opportunities to improve operational effi-

ciency in India’s microfinance industry, which is still in the emerging stage, and bring to it the best prac- tices of a transactional banking business in order to further extend its reach to more households without access to financial services.

Technology will undoubtedly play a huge role in helping microfinance providers reach new customers and deliver their services electronically for improved efficiency, accuracy, and increased transparency. For example, the explosive growth of mobile phones of- fers an opportunity to profitably bank large numbers of the unbanked. According to estimates, more than two billion mobile users live in developing countries, and many of them do not currently have adequate access to financial services. Conducting transactions with a mobile phone can dramatically reduce trans- action costs.

With the objective of greater financial transparency and transaction efficiency through a technology so- lution, HSBC in India launched an E-dairy card earlier in 2008 to enhance banking and pay- ment/collection efficiency for milk producers in rural Haryana (Northern India). HSBC manages the pay- ments between milk producers and the milk federa- tions to whom they sell their products. The digital E-dairy card makes it possible to automate time- consuming manual payments processing, in turn al- lowing milk producers to receive their payments in

a much shorter time. HSBC in India plans to take similar initiatives all across the nation.

Conclusion

For any bank or financial services institution, long- term growth is dependent on the manner in which

it creatively accesses untapped markets. HSBC is no

exception, and its firm belief in inclusion and sus- tainability, translated into direct support of both microfinance and financial literacy, has helped rural women in India and elsewhere acquire credit and equip themselves with the financial skills and en- trepreneurial know-how to build successful business

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platforms that make dignified economic opportuni- ties and self-sufficiency a possibility.

An intervention of this nature at the grassroots level is an innovative mechanism to propel capital assimi- lation, local entrepreneurship, and economic growth for entire communities. Such capacity building and intense personal empowerment, as demonstrated by the case studies of the women in this article, are be- ginning to change sustainable banking at the bottom of the pyramid from dream to reality.

Notes

1. Consultative Group to Assist the Poor, What do we know

about the impact of microfinance? Accessed on Septem-

ber 26, 2008, from http://www.cgap.org/p/site/c/template.rc/

1.26.1306.

2. HSBC in India also has a fully enabled and established

insurance advisory of international standards. It is one of the

leading players in domestic and export factoring, and one of the leading banks for an increasing number of SMEs. More than 5 percent of India’s exports and imports pass through HSBC in India’s banking channels.

3. Shankar, S. (2006). Transaction costs in group micro

credit in India: Case studies of three micro finance institutions. Institute for Financial Management and Research, Centre for

Micro Finance, Working Paper Series.

4. SEWA is India’s largest movement of more than 700,000

self-employed women working in the informal economy in the urban and rural areas of the western India state of Gujarat.

5. Federation of Indian Chambers of Commerce and Indus-

tries, India’s premier industry federation.

Pramod Marar is senior vice president and head of microfi- nance and Balaji S. Iyer is assistant vice president of microfi- nance for The Hongkong and Shanghai Banking Corporation Limited in Mumbai, India, and Unmesh Brahme is senior vice president of corporate sustainability for The Hongkong and Shanghai Banking Corporation Limited in Mumbai, India.

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