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Consulting In Banking Domain

Microfinance

Presented By:
Piyush Goel
10FN076
Raghvendra Vaidya 10IT023
Srikanth Konduri
10FN109
Nikhil Gupta
10FN121

Indicators & reasons of poor consumer


confidence in MFI sector
Indicators: (After October 2010)
Recall of refinancing loans from banks to MFIs (YES bank initially planned

to withdrew loans amounting to USD 22 million in Jan11)


Drop in the share price of a major MFI player SKS microfinance (from
Rs.1282 on 08Sep2010 to Rs. 315 on 22Sep2011)
Suicides by MFI borrowers in Andhra Pradesh
A sharp dip in FINEX the M-CRIL
India financial performance index
(from 244 in 2009-10 to -466 in 2010-11)

Reasons:
Coercive tactics to recover the loans
Effective interest rate much higher than the quoted interest rate

Steps to improve consumer


confidence
Objective: Reposition the MFI to build a positive

image in the mind of customer


Mission1: To increase customer base & longevity
Educate the SHGs & other influential groups about the

increased transparency, convenience to be adopted in


loan disbursal, recovery
Hold community meetings, road-shows to spread
awareness about government rural skill development
& employment initiatives
Associate with the CSR programs of corporate bodies
to engage villagers

Steps to improve consumer


confidence continued
Mission2: To reduce the default probability
If the loan is for personal consumption (ex: marriage,
education), ensure that the customer is not over
indebted compared to repayment capability
If the loan is for business/self employment, track the
progress of that venture regularly and if possible
provide constructive suggestions for its growth
For instance lets assume that a loan is given to
purchase cattle. It will greatly help the borrower if
information like the proper diet, vaccination and also
the sources of better earning (like connecting them to
some milk processing units) is suggested.

Existing situation

Image
Source:
Intellecap

Shows that new players will have to be more stringent in

controlling their operating costs whereas the bigger ones


naturally have a lower operating cost (22%)
5

Leveraging the situation


Trident

Microfin can closely monitor the following


parameters:
Size of the loan should be as customized as possible, so that a

customer can avail near exact loan amount


Tenure can also be made flexible as per the customer
requirement, within the norms to match the revenue recognition
timing of different customers
Above two factors will further prevent a customer from opting to
multiple lending for re-financing other EMIs or loans, thus
controlling indebtedness
Flexibility can also be increased by reducing dependency on the
commercial lending from domestic banks, instead can go for
more NCDs
Increase product portfolio by disbursing gold loans & loans to
medium, small enterprises, remit funds, insurance services
6

Risk Management to achieve


competitive advantage
Tailor made risk management plans and commitment to

diligently monitor & implement them


Incorporating

Investment portfolio, transaction, interest rate,


reputation risks into the risk management system along with credit
& liquidity risks will proactively equip the MFI to confront the
anticipated changes in business environment

Image
Source: GTZ
2000

Recommended Strategy
Simulate the business environment & eco system around an MFI for monitoring

controllable risks or mitigating them otherwise


Perform scenario analysis to project the impact of various events, changes in

policies, and tactics of MFIs


It is different from a conventional questionnaire based survey as it involves

analysing the transactional data like loan application, payment pattern, and product
selection based on demographics
Captures those customer insights which a normal paper based survey cannot do

due to the selection bias of respondents


Potential Benefits:

Consumer behaviour can be captured and utilized to make the product & service offerings more
customer centric

Better evaluation of performance against internally set benchmarks as well as that of competitors
in terms of outreach, intended benefits to customers

Recommended strategy
continued
Potential Benefits:
Consumer behaviour can be captured and utilized to
make the product & service offerings more customer
centric
Better evaluation of performance against internally
set benchmarks as well as that of competitors in
terms of outreach, intended benefits to customers
Feasibility of above solution:
MFIs can use their network of investor groups &
donor agencies to obtain both financial support as
well as technical know-how for implementation
8

Pro-actively Complying RBI


Strategy for Funding: Crowd sourcing Model

(for

reducing lending rate)


Involves tapping the investments from a social platform,

wherein the money is supplied after identifying & validating


the cumulative demand of an MFI
Rang De, Milap & DhanaX are the prominent crowd sourcing
platforms in India based on corporate grants, donations &
social investors
It is still in nascent stage, forms only a fractional portion of
Rs. 20,000 crore micro lending

10

Pro-actively Complying RBI


continued
Strategy for Expansion:
Acquire medium to small size MFIs that have good rating in

AP, for inorganic growth, preferably those MFIs which have


similar funding structure.
Diversify product portfolio by introducing lending for
mobiles, purchase credit for kirana stores & gold backed
loans, micro-insurance for cattle, handloom equipment etc.

Strategy for relationship management:


MFI can be used as a platform by health practitioners, policy

researchers to share knowledge and take rural healthcare


initiatives
Conduct financial literacy and other educational programs
during community meetings

Our Value Proposition


Management Consulting for expanding MFIs

reach through new markets, new products


Operational Risk Management to reduce the
risk of credit default and interest rate shocks
Formulation of Analytics metrics to customize
standard products & services according to
Credit Score/requirement of customer
Continuous exploration of cheap yet reliable
funding sources for reducing dependency on
Banks

Thank You