Business Plan Template Pryas Contents 1. Confidentiality Agreement 2. Executive Summary 3. Business Focus 3.1 - Mission Statement 3.

2 - Business Details 3.3 - Professional Support 3.4 - Personal Profiles 3.5 - Operations 3.6 - Operation Cycle 3.7 - Payment 3.8 - Aims & Objectives 4. Market Research 4.1 - Marketing Environment 4.2 - Competitor Profiling 4.3 - SWOT Analysis 5. Marketing Plan 6. Financial Plan 6.1 - Start Up Costs 6.2 - Sales Forecasts 6.3 - Cash-flow Forecasts 6.4 - Other Financials 7. Appendix

1. Confidentiality Agreement Its a good idea here to put some kind of confidentiality agreement between you and anyone that might read the plan. You dont want to leave yourself open to people divulging your great business idea to any old Tom, Dick or Harry.

Theres a good example of an agreement on this A List Apart Article

Executive Summary

2. Executive Summary Prayas is an online micro-credit organization through which lenders can lend to small and marginal entrepreneurs in the rural and semi-urban areas of the so-called Bimaru states of central and northern India. It has a for-profit business model and offers competitive rates of returns to all its lenders. It attempts to occupy a niche in the Indian micro-finance sector through its web-based model. The main objectives of Prayas are: 1. To provide easy credit access to financially excluded small and marginal entrepreneurs in rural and semi-urban areas and thereby empower them and improve their standard of living 2. To act as a bridge between economically secure and insecure sections of society through appropriate use of technology and create a climate where entrepreneurship can flourish in every nook and corner of the country. 3. Provide lenders as well as borrowers with competitive rates of return/interest. 4. To create awareness among aspiring small entrepreneurs in rural/semi-urban areas about successful trade practices and guide them towards success in their respective ventures. 5. To encourage people in rural/semi-urban areas to come out of the vicious circle of poverty by participating in entrepreneurship ventures. 6. To be an effective and responsible partner to all its field co-partners.

Business Focus

3. Business Focus The business focus section details any aspect of how the business will be run, who will help set it up and any aims & objectives you have. 3.1 - Mission Statement Mission The mission of Prayas is to enable the small and marginal entrepreneurs in India to achieve success in their businesses by providing them with funding opportunities from lenders across India. 3.2 - Business Details Need and the concept Prayas is an internet portal through which lenders would be able to fund small ventures in the so called Bimaru states of central and northern India. The details of the micro-entrepreneurs in need of money would be posted on the portal by our Field Partners. The field partners are local intermediary NGOs who would be doing a pre-screening of the entrepreneurs business. They would be doing a viability check, would provide us a credit assessment report, provide social reputation index of the entrepreneur as well. The money would be disbursed to the micro-

entrepreneur through the field partners. The field partner would get a share on the interest earned on the credit in lieu of their services. Our Role Prayas is an intermediary between the lender and the receiver. We bridge the physical gap between the two parties and enable a win-win situation for all involved parties. The microentrepreneur gets the money that the enterprise needs, the lender would get a steady interest rate on the loaned amount, the field partners would get their due and to make this all happen Prayas would get a small share in the profit.

3.4 - Personal Profiles Leadership Team Prayas has an excellent mix of leadership that has diverse experiences in Consulting, IT, Sales, Marketing and Finance. Angshuman Das Co-Founder and Head of Finance, PGDM, IIM Indore Anil Kumar Co-Founder and Head of Strategy and IT, PGDM, IIM Indore Amal Anand Co-Founder and Head of Marketing, PGDM, IIM Indore Amit Ranjan Co-Founder and Head of Operations, PGDM, IIM Indore Alok Diwedi Co-Founder and Head of Business Development, PGDM IIM Indore

Operations

3.5 - Operations Key people: Field partners: Individuals having knowledge of local area. They are proficient in English, Hindi and the local language. They are the face of Prayas in the field and they will help us in identifying the right people. Reviewers: People responsible for reviewing business plan. They should have ability to assess feasibility success of rural business. Individual Lenders: Individuals who wish to lend money for greater cause. Individual borrowers: Entrepreneurs seeking loan to kick off their business plan. MFI( Microfinance Institutions): Already using microcredit to alleviate poverty XYZ Company: Company responsible for bringing above entities to the right platform 1) Partnering with MFIs and Individual lenders. Partnering with MFIs to leverage their expertise in microcredit Connecting individuals and providing them right platform who want to alleviate poverty

Using field partners who have fair idea of local area to channelize microcredit to right person Field partners will play major role for getting loans to potential entrepreneur Field partners will upload stories of loan seeking people on companys website Sorties will include their business plan, loan request, any past experience etc Field partners will have to review business plan within 15 days after submission Plan should be uploaded on the website within 30 days after submission Filed partners can suggest change in their business plan.

2) Uploading business plans

3) Reviewing the venture and business plans Volunteer editors will review business plan and sent information to lenders regarding the same Lenders will browse loan requests and select which one they want to fund They can fund as little as Rs.500 and as much as entire amount of loan In case of any concerns, lenders can directly contact to field partners Company will aggregates funds and provides them to field partners

4) Replenishing the loan amount and Uploading successful stories Field partners channelize the loan amount to the borrower Field partners will upload successful stories on the companys website

5) Repaying the loans Field Partners collects repayments from entrepreneurs as well as any interest due Interest rates are set by the Company, and that interest is used to cover the operating cost of the company Interests will be used to cover currency losses If borrower is able to repay his loan amount in stipulated time then he will be able to get second loan of double amount Once the payment is received from field partners, company uses funds to credit their lenders Lenders can re-lend their fund to another entrepreneur or withdraw their funds as per their wish.

6) Repayments to Lenders

Operation Requirements: Complete information of the borrower and their business plan should be provided. Regular updates and journal entries of borrowers business

Legally accept debt from foreign lender Field partners will have to serve at least50 people annually

3.8 - Aims & Objectives Short Term Anything you want to achieve within the coming weeks and months (e.g. from now until 3 months). Medium Term Anything you want to achieve within the first year of operation. An example could be to target a certain turnover. Long Term We saw these as where we would like to see the company in 1-2 years.

4. Market Research 4.1- Market Environment

Microfinance The term microfinance refers to small-scale financial services, both credit and savings -- that are extended to the poor in rural, semi-urban, and urban areas, who traditionally lack access to banking and related services. The poor depend on microfinance to undertake economic activity, increase savings, mitigate themselves from income shocks and support self-empowerment. The microfinance movement has been an outgrowth of the cooperative banking movement started in the 19th century in Germany. Initially limited to microcredit, today the microfinance label captures all kinds of financial services that are being extended to the poor, notably, credit, saving deposits, insurance and remittances. The organizations that provide microfinance services are called Microfinance Institutions (MFI). The World Bank estimates at there are now over 7000 microfinance institutions, serving some 16 million poor people in developing countries. The total cash turnover of MFIs world-wide is estimated at US$2.5 billion and the potential for new growth is outstanding1.The success of the Microfinance movement is highlighted by a Nobel Prize to Muhammad Yunus and his bank, the Grameen bank, perhaps the most replicated model. Microfinance in India Microfinance has made tremendous strides in India over the years and it has become a household name in view of the multi-pronged benefits reaped/ receivable from microfinance services by the poor in our
1

http://www.gdrc.org/icm/data/d-snapshot.html

country. It began in the 1980s with the formation of pockets of informal Self Help Groups (SHG) engaging in micro activities financed by Microfinance. But Indias first Microfinance Institution Shri Mahila SEWA Sahkari Bank was set up as an urban co-operative bank, by the Self Employed Womens Association (SEWA) soon after the group (founder Ms. Ela Bhatt) was formed in 1974. MFIs are the main players in the microfinance space in India; their primary product is microcredit. Other players that extend microfinance services, in addition to their core businesses include banks and insurance companies, agricultural and dairy co-operatives, corporate organisations such as fertiliser companies and handloom houses, and the postal network. Additionally, there are specialised lenders, called apex MFIs that provide both loans and capacity building support to MFIs. In terms of lending model, MFIs may be classified as lenders to groups or as lenders to individuals. In India, MFIs usually adopt the group-based lending models, which are of two types the self-help group (SHG) model and the joint-liability group (JLG)/solidarity group model. Under the SHG model, an MFI lends to a group of 10 to 20 women. Under the SHG-bank linkage model, an NGO promotes a group and gets banks to extend loans to the group. Under the JLG model, loans are extended to, and recovered from, each member of the group (unlike under the SHG model, where the loan is extended to the group as a whole). Most MFIs following the JLG model adopt the weekly and fortnightly repayment structure; those under the SHG model have a monthly repayment structure. MFIs following the JLG model charge flat interest rates of 12 to 18 million per cent on their loans, while MFIs following the SHG model charge 18 to 24 per cent interest per annum based on the reducing balance method. In addition to interest rates, some MFIs also charge a processing fee comprising a certain proportion of the loan amount sanctioned, at the time of disbursement. With respect to legal structure, MFIs may be classified as follows: Not-for-profit MFIs o o o Societies (such as Bandhan, Rashtriya Seva Samithi, and Gram Utthan) Public trusts (such as Shri Kshetra Dharmasthala Rural Development Project, and Community Development Centre) Non-profit companies (such as Indian Association for Savings and Credit, and Cashpor Micro Credit) Co-operatives registered under State or National Acts (such as Pustikar Laghu Vyaparik Pratisthan Bachat and Sakh Sahkari Samiti Limited) Mutually-aided co-operative societies (MACS; such as Sewa Mutually Aided Cooperative Thrift Societies Federation Ltd) Non-banking financial companies (NBFCs; such as Bhartiya Samruddhi Finance Ltd, SKS Microfinance Ltd and Spandana Sphoorthy Financials Ltd) Producer companies (such as Sri Vijaya Visakha Milk Producers Co Ltd) Local area banks (the only such MFI is Krishna Bhima Samruddhi Local Area Bank)

Mutual benefit MFIs o o

For-profit MFIs o o o

As of March 31, 2009, Indian microfinance has recorded 30% growth compared to the previous year and the overall coverage of the sector is estimated to have reached 76.6 million. The total outstanding

microfinance loans is at Rs 359.39 billion and MFIs so far has reached 234 of the 331 poorest districts identified by the government.2 Person-to-person lending and microfinance Person-to-person lending (also known as peer-to-peer lending and social lending) is the name given to a certain breed of financial transaction which occurs directly between individuals ("peers") without the intermediation/participation of a traditional financial institution. An enabling technology for person-toperson lending has been the Internet. Peer-to-peer platforms have also developed in the microfinance sector. Some of these platforms enable microfinance institutions to access capital; they might have not got otherwise through conventional sources of credit such as local banks. Peer-topeer platforms allow the general public to participate in alleviating poverty by lending, guaranteeing or contributing to microentrepreneurs Kiva Model Kiva Microfunds (http://www.kiva.org/) is an organization that allows people to lend money via the Internet to microfinance institutions in developing countries around the world and in the United States, which in turn lend the money to small businesses. The basic model of the Kiva intermediary model, illustrated in Figure 1, is that small lenders lend to Kiva. Kiva lends to MFIs. These MFIs then lend to poor people. Thus the MFIs are using Kiva as a financing agency. Kiva is actually providing a service to small lenders who want to participate directly in the microfinance movement. In the Kiva model, there is no interest given by Kiva to the lender and no interest charged by Kiva to the MFI. However, the MFI charges normal interest rates to the poor borrower. Kiva is a not-for-profit.

4.2- Competitor Profiling The various organizations engaged in P2P lending in India are:
2

Rang De (http://www.rangde.org/index.htm) o Runs on basic Kiva Lending model

www.microfinanceindia.org/download_reports/N_Srinivasan.ppt

o o o

Is a not-for-profit trust Employs NGO s as field partners Borrowers pay 8.5% flat p.a. (16% APR). The breakup of the 8.5% flat p.a. interest is as follows3: 5% is for the field partner 2%(3.5% APY) is the financial return for the social investor 1% is for Rang De to cover its operational costs 0.5% goes to a contingency fund that is maintained by Rang De to repay social investors in case a borrower dies or defaults on a loan

Pays back the investor from the contingency in case of a default

DhanaX (http://www.dhanax.com/) o o o o o o Runs on basic Kiva Lending model Is a for profit organization. Employs NGOs as partners. Borrowers form SHGs Borrower Interest is 24% - 25% per annum. The lender earns back his money with an interest rate of 14%. Remaining form the service fee4. DhanaX stands as a third party guarantor of the loan. So it guarantees principal amount back

4.3 - SWOT Analysis (Industry)

Strengths

Maturity of the sector: The microfinance sector has passed its evolutionary phase, when such as the profit-oriented working model of MFIs was perceived by the market as exceptionable; acceptance for the same has increased. Also, investors now have a wider choice of MFIs with scalable processes. Low Rate of Interest: The only credit alternatives for hundreds of millions of people are local pawnbrokers or moneylenders, who usually charge exorbitant 50% - 120% interest rates per annum. This makes for a strong case to generate affordable, easily available loans for needy borrowers. Especially when one doesn't have to look far to source them.

3 4

http://www.rangde.org/faq.htm http://www.dhanax.com/FAQs/about

High Rate of Returns: MFIs provide better returns than provided by bank deposits (about 8% interest).

Weaknesses Steady Access to Capital: In order to maintain high growth rates, MFIs would need a steady access to capital. Small scale MFIs have traditionally depended a lot on donations and funding from CSRs for their operations. Heavy dependence on banks and financial institutions: MFIs are dependent on borrowings from banks and FIs, and do not raise debt from the capital market. So they have to face higher rate of interest. For many MFIs, funding sources are restricted to private banks and apex MFIs; the public sector banks have not been aggressive lenders to MFIs. Weak governance architecture: The legal structure and the attendant regulatory requirements of an MFI have a strong bearing on governance practices because they influence management practices and levels of transparency. MFIs that are either unable (for lack of adequate sponsor funding) or unwilling to convert to a corporate structure tend to remain 'closed' to transparency and improved governance standards, and therefore, continue to be unable to attract capital. High percent of financial exclusion: In India, around 120 million households are facing financial exclusion: this translates into a credit demand of around Rs.1.2 trillion 5. MFIs are uniquely positioned to facilitate financial inclusion and tap this huge market by providing financial services to a clientele poorer and more vulnerable than the traditional bank clientele. Government Policies: Government of India's has initiated many steps to achieve greater financial inclusion. Growing Economy: India is today a rapidly growing economic power with more and more Indians enjoying prosperity and higher investable income. Growing Retail Market: The growing retail market in India also provides opportunities for MFIs to act as intermediaries in the retail supply chain. Expanding Internet Usage: Growing internet users in India (currently pegged at 81 million users6) increases the number of potential investors for P2P lending.

Opportunities

Threats

Absence of regulatory control: Microfinance activities are undertaken by organisations that are registered under several legal forms. However, currently, only NBFCs are under the regulatory and supervisory purview -the NBFCs are regulated by RBI. The absence of prudential norms and accounting guidelines for non-NBFC MFIs leads to lack of

5 6

http://www.crisil.com/credit-ratings-risk-assessment/CRISIL-ratings_india-top-50-mfis.pdf http://www.internetworldstats.com/stats3.htm#asia

uniformity in accounting practices and highly-leveraged balance sheets among MFIs. Savings is an important component of microfinance. Currently, however, savings and deposit services can be offered only by banks and co-operatives.

Political sensitivity of interest rates: Given MFIs' operating and cost structures, most MFIs need to charge high interest rates to recover costs and remain in business. But, interest rates charged to the poor constitute a politically-sensitive issue, and therefore, a challenging proposition for MFIs. Pressure on processes and controls due to aggressive growth plans: MFIs' risk management practices have weakened over the past couple of years, on account of shift in focus towards business growth and network expansion. Some credit sanction and monitoring practices have been diluted. These include lending to clients with multiple loans from different MFIs, reduction in the average waiting period for loans, and doing away with staggered disbursements to JLGs and loan utilisation checks post disbursement. Aversion to Social Lending: The concept of social lending has not yet caught on in India, where people have always been hankering for more, owing to a legacy of poverty. Therefore, it will take some time for the common man to start giving, since he himself has not got enough. Preference to Personal Relationships: The family and friends come first, another cultural legacy of social inter-dependence in poor countries. These relationships do not need a website. Saving for the future: There is a strong need to leave something for the future generations of offspring and their descendants. The culture of not spoiling the children by giving too much, has not yet come in. Therefore, the social lending is limited to the very upper middle classes or lower rich classes: usually highly educated individuals.

5. Marketing Plan Services Offered: We provide platform wherein we facilitate loans to people from rural areas who are interested in doing some kind of business of their own. These loans come from the individuals who are interested in spending money on the venture of our rural entrepreneur. We host the profiles of these rural entrepreneurs on our website and our field partners disburse these loans to the entrepreneurs. Lenders on the other hand choose from different profiles and lend the money accordingly. Follow On Services: Apart from these services we are also planning to impart some basic knowledge on entrepreneurship to these new and probably first time entrepreneurs, which will help them to better utilize their capital and run their enterprise efficiently and successfully. Market Research: In India significant number of rural population is interested in doing their own business but due to monitory constraints their businesses do not take off. Poor people are very motivated and have a lot of potential. We can tap this potential for the overall good of the society by creating new jobs, alleviating poverty and creating a sense of self-esteem in this section of society.

Marketing Plan:

Determining the Market size

Analyzing the growth prospects

Selecting the Target Market

Promotion Strategies

Market Size The total size of the market is very huge if we consider the number of entrepreneurs in whole Indian Rural region Growth Prospects There is a lot of scope of development in this market as a large number of people want loans for their businesses and Banks are unable to provide loans to such a large number of applicants. Moreover,the hectic paper work and collateral being major reasons why people don't want loans from the banks. Target Market We will target the Rural Entrpreneurs of North and Central India, which will include Uttar Pradesh, Bihar. Promotion In order to promote our platform among the people we will use different advertising medium. Promotion strategy for entrepreneurs: 1. Promotion through local or regional radio channels 2. Promotion through local news papers.

3. Awareness camps conducted by our field partners Promotion strategy for Lenders: In order to engage Lenders, which are mostly from urban regions,we need more specific and focused promotion strategy. 1. Creating awareness through social networking sites like Facebook, Orkut, MySpace etc. 2. Promotion through blogs. 3. Advertisement in leading newspapers. 4. Some target professionals will be sent mails containing information about our organization.

6. Financial Plan Number of households facing financial exclusion in India is 120 mn( as per CRISIL microfinance report -2009). As per World Bank statistics on India, there are 150 mn households with an

average credit demand of R 20,000 per household. The credit demand is adjusted with a 20% upside for urban poor households.

Even if we take 120 mn households with a requirement of Rs 20,000/ household, the total requirement for microcredit in India is R2400 bn which is the figure that has also been estimated by World Bank.

Now in 2008-09, the amount estimated to be disbursed by micro finance institutions (MFIs) stands at around 287 bn with an outstanding of 114 bn. So, the scope of financial coverage by lending is still huge (around 2113 bn).

If we look into the costs involved in such operations, they can be broadly divided into 3 types: a) The cost of funds for on-lending b) The cost of risk (loan loss) c) Administrative costs (identifying and screening clients, processing loan applications, disbursing payments, collecting repayments, and following up on non-repayment)

No of active internet users in India is 52 million as of Sept 2009(IAMAI report, 08-09)

6.1 - Start Up Costs These include: 1. Equipment 2. Software 3. Stationary 4. Marketing and liasioning costs. START-UP COSTS: Laptops Stationary Brochures Newspaper ads Average cost(R) 35000 35 18000 No of units 3 1000 10 Total cost(R) 105000 1500 35000 180000

Conveyance and dearness allowances Promotional pamphlets Miscellaneous expenses TOTAL

300000 1 10000 10000 200000 831500

The total start-up cost of the enterprise is expected to be around R 831500. This capital will be raised from: 1. Own cash of start-up entrepreneurs 2. Loan from govt./bank 3. Philanthropic organizations. Business model of loan disbursement: Prayas will be providing return rates to its lenders based on the credit assessment of the borrowers, varying from 8.5% to 15%. The average ROI for its lenders is expected to be 12%. The higher the credit risks of the borrower, higher the ROI. However, the number of bad debts for the first 3 years is not expected to be more than 10% for any years total loan disbursements. Loans disbursed to a particular borrower have to be repaid within 3 years. The borrower will repay the loan amount in three equal installments annually with the interest due for the borrowed amount for the year. For eg, if a person takes a loan of 30000 at a rate of 10%, then he is expected to pay 10000 plus 3000 interest charges at the end of year 1. Now for year 2, the amount on which interest will be charged is 20000. So at the end of year 2, he is expected to pay 10000 plus interest of 2000. Similarly in the 3rd year, he will pay 10000 plus interest charges of 1000 6.3 - Cash-flow Forecasts In the 1st year, we have targeted 5000 borrowers; in the 2nd and 3rd years, the number of borrowers targeted are 7500 and 12000. The cash flows in the first 3 years are given in the table below: Year No. of borrowers 5000 7500 12000 Average size of loan(R) 30000 30000 30000 Total amount disbursed(R ) 150,000,000 225,000,000 360,000,000 Average ROI 22 22 22 % bad debts 10 10 10 Total interest(R ) 31350000 69586000 117045500 Total repayment(R ) 42500000 116300000 217025000 Total bad debts(R) 7500000 8700000 27975000

1 2 3

The cash flow has been generated taking the business model discussed earlier. So the total loan amount of 150,000,000 is repaid over a period of 3 years along with 22% interest. The total interest in the above table includes interest repayments for loans disbursed in that year as well as earlier years. Total amount disbursed is the amount disbursed in loans that year only. Similarly, total repayments and bad debts

include total repayments and bad debts for that year as well as earlier years. The cycle of any loan is 3 years.

6.4 - Other Financials Operating expenses: Operating expenses for the first 2 years are shown below: YEAR 1: Total(R) Expense head 2000 p.m(12 Website expenses months) 24000 Wages 15000 p.m(10 per) 1800000 C.A and D.A 400000 Educational material and teaching aid 500000 Office rent 25000 p.m 300000 Electricity 3000 p.m 36000 Maintenance and miscellaneous 200000 Operating expenses 3260000 Revenue 31350000 Interest payments 11406000 Field partner payments 4987500 Operating expenses 3260000 11696500 Bad debts 7,500,000 Profit before tax 4,196,500 YEAR 2: Total(R) Expense head 2200 p.m(12 Website expenses months) 24000

Wages C.A and D.A Educational material and teaching aid Office rent Electricity Marketing expenses Maintenance and miscellaneous Operating expenses Revenue Interest payments Field partner payments Operating expenses Bad debts Profit before tax

17000 p.m(15 per)

3060000 700000 1000000 336000 42000 500000 300000 5962000 69586000 37956000 11070500 5962000 14597500 8,700,000 5,897,500

28000 p.m 3500 p.m

Operating expenses for year 1 and year 2 are R32, 60,000 and R59, 62,000 respectively. Here we have also made provisions for bad debts. Operating expenses include cost of website hosting, wages for in-house administrative staff, office rent, electricity charges for office, and conveyance and dearness allowances for staff while traveling and marketing expenses (only year 2). For year 1, we have not taken any marketing expenses as the same amount has been allocated under start-up costs (newspaper ads, pamphlets, brochures). Inflation is assumed to be 10% y-o-y and all costs have been adjusted accordingly. Profits before tax are R41, 96,500 and R58, 97,500 for year 1 and 2 respectively. It is assumed that the amounts for all loan amounts for a single year are disbursed at a single point of time; however, realistically there will be overlaps of the disbursed amounts in both financial years. Moreover, the expected cash flows are on the basis of achievement of targeted sales and bad debts provisioning. 7. Appendix The appendix is where you put additional information that is referenced in the business plan. This could be things such as: Financial charts / graphics CVs / Resumes References Images of work Partnership Agreements