Submitted by:- Mangala Shetty (12) / Manish Goel (13)

key to ending extreme poverty is to enable the poorest of the poor to ge

on the ladder of development.
adder of development hovers overhead,
the poorest of the poor are stuck beneath it.
lack the minimum amount of capital necessary to get a foothold,
herefore need a boost up to the first rung. "
ey D. Sachs
Microfinance? ? ?
“banking for the poor,” proven to empower very
poor people around
the world to
pull themselves out of poverty.

Relying on their traditional skills and entrepreneurial

instincts, very poor
people, mostly women, use small loans (usually less than
US$200), other financial services, and support from local
organizations called microfinance institutions (MFIs) to
start, establish, sustain, or expand very small,
self-supporting businesses.
 Microfinance: what is it?

What it often is What it really should

be
• Micro-credit • Range of financial
services
• Group lending
• Group and
• Social/charitable individual lending
activity • Profitable activity

4
What do local microfinance institutions (MFIs) do?
 In the presentation we have tried to analyze the
organizational Design of Microfinance Institutions in
India from four different perspectives:-

1. Social, economic and political Scenario,

2. Investor's Perspective,
3. Organizational Structure, and
4. Business process mapping.
More specifically,
how does Organizational Design effect a
ability to achieve success
Microfinance Institution’s
both by financial and social standards.
Number of people, in India, who
are below poverty line About
300 million (30 Cr.)
 • For example, Assam with more than 25 %
Does wastelands has got more than 45 % population
Ec ol og ica l below poverty line.
an d In com e
• Similarly, Rajasthan is characterized by more
Po ver ty than 30 % wastelands and 26 % incidence of
Co-e xi sts? poverty.
Yes…
• On the other hand, there are States like Punjab
with just 4% wastelands and 11% population
70 below poverty line, followed by Andhra Pradesh,
Haryana, Kerala, Gujarat etc.
% Population below Poverty Line

60 Bihar

50 Assam
40
Maharashtra
30
Rajasthan
HP
20
Andhra
10 Pradesh

0
0 10 20 30 40 50 60
% Waste land
Financial Inclusion : The Indian Perspective
Empowerment of
Bank A/Cs - Credit Cards SHGs
Savings

Payments +
Remittances Financial Inclusion Insurance

Lack of Assets
Financial (for Collateral)
Affordable Credit
Advice
 The non-institutional money-lender or ‘ informal’ financial sector
seeks an exploitative economic relationship so that
 Borrower is squeezed for repayment with high interest rates (due to
risk perception)
 If income situation worsens, cash supply is tightened and interest
rates are raised.
 Further loans ensure that borrower can never repay principal
 Borrower then loses collateral, readying him for another loan
 Financial institution do not cater for ‘ consumption’ loans as this is
perceived as non-productive and this market is controlled by
money lenders.
c. Limited staff, non-computerised operations and rural posting is not
welcome due to poor infrastructure like education/housing etc.
d. Staff not oriented to “ marginal “ operations leading to poor
monitoring of small loans
e. Functional style not cost beneficial for generating viable operation.
f. Too much documentation (and hidden cost) and time taken for loan
sanction
g. Lack of viable schemes for implementation unless ‘ directed’ credit
target is imposed.
h. Rent costs and opportunity costs for loans is perceived to be high.
Despite all efforts…large gaps remain

• Against rural population of 741.0 million, 500

million people un-served
• Population per branch: 22,793
• Penetration of savings accounts is below 18%
• As against 104% in urban and semi-urban
areas
• Number of villages per branch: 19
• High dependence on informal sources
– 36% of rural credit from informal sources
– Dependence even higher for lower income
households: 78%

17
Baart kI %ar@kI
maoM saBaI ka
saaqaI…

Partner in India’s growth and

success…
Process identification -- attaining a full understanding of all the
steps of a process.
Information gathering -- identifying objectives, risks, and key
controls in a process.
Interviewing and mapping -- understanding the point of view of
individuals in the process and designing actual maps
Analysis -- utilizing tools and approaches to make the process run
more effectively and efficiently.
1. Process
Identificati
on

Source:
 2. Information Gathering

0.5 Million clients

Commercial Banks MACS

11 Million Clients

SHGs

3 Million Clients

Apex Funds: MFIs

NABARD, SFMC, et
al.
0.5 Million clients
Cooperative PACS
Banks
For the year
2006
MACS – Mutually Aided Cooperative Societies
SHGs – Self Help Groups
PACS –
SFMC -
 INK BLOT STRATEGY

Decentraliz
e its
operation

Break even point

Peri -urban Rural areas
communities that
surround the city

City centre (administrative and program

Single head quarters
staff)
At the field level each credit officer is
expected to grow his/her own coverage
sub-region containing 10-15 village banks.

This coverage region should be delimited

by a frontier which, from its center, does
not exceed one hour’s travel in any
direction.

Within this coverage area the credit officer

organizes village banks along specific
“routes”—

each route corresponding to a different

day of the week—and schedules village
bank meeting days and times so he/she
can attend several (2-4) meetings each
day on the same route.
For a typical country program to reach its
break-even point requires:-
(1) three years,

(2) a minimum of 7,000 clients, and

(3) about $2 million in funding—where half

is for loan capital and the other half
subsidizes a declining share of its
operating costs over a period of three
years
Financing Microfinance
 Start Up Stage
• Very critical stage
• Identifying and organizing poor
• Learning the techniques
• Raising funds
• Recruiting and training staff
• Avoiding defaults
• Donors are interested but a gestation
period is needed
• Check Legal requirements for savings
organization
• Decreasing donor support.
 Identification of Locations
Based on concentration of people under poverty line we decided to
launch our Microfinance institutions primarily in North-Eastern states.

Phase 1 : - Orissa, Bihar , Jharkhand.

Phase 2 : - Northeaster states like Nagaland, Mizoram, Agartala,

Manipur, Sikkim, Assam and Arunachal Pradesh along with MP and UP.

Phase 3:- Maharashtra, Rajasthan, Karnataka

Phase 4 : - Other states like Punjab, Haryana, Tamil Nadu, Kerala

among others.
The zones are marked according to the
concentration of people under poverty line
2/3 of microfinance available in India is
provided in the southern zone thus north and
North - eastern zone is to be given high
priority .
Zoning
 Scaling Up stage
• Both in narrow and broad terms
• Narrow: scaling up branch operations, branch
viability
• Broad: scaling up on a fast track, branching out
• Funding sources: equity, grants, savings,
wholesale funds, and other sources
 Sustainable Stage
• This is the goal
• Gives financial independence
• Must be able to operate on
sustainable basis
Five stages of development
 To achieve that few things need
to be in place
1. There should be an MIS right in place from the beginning of an
organization.

3. Thick and Thin culture.

5. Each and every process of the company needs to be documented

and there should be a company manual.

7. Hybrid Organizational Structure

 Which are the Hybrid
Organisations?

• The term hybrid refers to a number of

different organizational forms that lie
somewhere between the purely
academic research unit and the fully
profitable commercial firm.
Mechanisms

a) Technology
b) Social Structures
c) Political Processes
d) Institutional Processes
e) Competition
Branch
office
Be a High-performance Entrepreneur…
“High-performance Entrepreneurs create great wealth. Not just
for them selves but for others. Often they use the power of
wealth to build a legacy for society at large…

Entrepreneurship is a creative process and when done

successfully, it can give you the highest sense of accomplishment
possible. That sense of accomplishment is next only to having
and raising your baby…

Yet, it all begins at that special moment when someone gets an

inner call that says, ‘You are designed to create something new.’

So look inside, and look around to read the signs. Who knows,
you may be the next big success!”

Subroto Bagchi
MindTree Consulting
 Bibliography

http://www.wakeupcall.org/administration_in_india/poverty_line.php
http://www.uni-koeln.de
http://news.bbc.co.uk/2/hi/south_asia/4669480.stm
http://www.un.org.in/iawg/icecd/section1.htm
www.swadhaar.org
http://ifmr.ac.in/cmf/?s=regulations