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Global Microfinance Institutions Ratings

January 5th, 2008

There are two recently released reports on the top global microfinance organizations:

Both of these are based on data collected by Microfinance Information eXchange, Inc. (MIX) which is leading market research publisher of microfinance data. Forbes rankings are also accompanied with some additional articles on microfinance.

First and foremost, I want to commend MIX for publishing this superb report. This is an invaluable tool for getting a snapshot of the microfinance industry at the end of 2007.

Here are a few highlights from the more thorough 2007 MIX Global 100 report:

  • Top 100 expanded grew client base an overage of 75% in 2006
  • Top 100 institutions which could accept savings (a minority) on average now have 2 savers for every borrower (yes, the working poor do want to save!)
  • India is leading the client growth with many MFI’s growing by more than 100%. Additionally, India MFIs are leading the way in cost efficiency plus interest rates with low profit margins.

A couple of quick observations on the MFIs/reporting that could be improved/refined:

  • Transparency. Many organizations have a transparency ranking of 100%. Frankly from my personal experience in working with many of these organizations, there is a significant need to improve transparency so the bar must be too low for the “perfection” grade. For instance, quality and independence of board of directors is an important factor.
  • Staff Efficiency. Banco Popular do Brasil claims 7,200 borrowers per staff member — the #1 ranking. The #2 ranking is 1,400 borrowers/staff member. Frankly, I don’t believe anything above 1,000 borrowers/staff member is an accurate report. Either the numbers are just wrong on they are outsourcing some roles which should be reflected in this ratio. Overall, I’d like to see the staff efficiency metric move to something like “margin per staff member” as many of the more innovative MFIs are launching a broader set of financial products/services which can reduce borrower/staff efficiencies, but ultimately create improved staff productivity as increased value for the client.
  • Portfolio at Risk. The top 57 (of 100) portfolio quality MFIs have a portfolio at risk (PAR) of 0% and the average for the top 100 is 0.0% (rounding to only one decimal). While I’m a big fan of portfolio quality, I think that this means the these organizations are not taking much risk and therefore they are not reaching their social impact potential. Somehow I think we want to discourage MFIs from having too low of a PAR (as well as too high of a PAR) to encourage innovation and risk taking.
  • Profitability. This is a good way to expose the MFI who have very high profits (remember from whom they are making them). I would also like to see publishing of average yield on loan portfolio as this would expose the effective interest rate that the MFI is charging borrowers and could again help outsiders’ insight. In general, I’d like to see more transparency on MFI interest rates with accompanying explainers on their cost of capital and operating costs to explain their profitability targets.
  • Savings. I think we’re going to start to see a lot of pressure on central banks to allow more institutions in this sector to have options for collecting and then mobilizing (re-lending) savings for the working poor. This will also have a significant positive impact on the MFI cost of capital and therefore the opportunity to lower borrower interest rates further.

If you have other comments and/or observations, please respond in comments.

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Microfinance 3.0

November 18th, 2007

After spending time in India and the Philippines over the past few months with some of the world’s most innovative and fast-growing microfinance organizations from around the globe, I have a few thoughts on the next phase of microfinance which we are about to see flourishing over the next 3-5 years. I will refer to this as “Microfinance 3.0″.

“Microfinance 1.0″ (M1) is the model used to start most microfinance programs in most countries. M1 is generally started as a non-profit entity which is funded by donors and primarily focuses on developing a successful model for deploying microloans to poor entrepreneurs … which includes having a high repayment rate on loans and starting to move towards getting enough clients (scale) in order to become break-even with lessening reliance on donation capital. Most MFIs (I would guestimate 95%+) never graduate beyond M1 status.

“Microfinance 2.0″ (M2) is a new phase for microfinance which is characterized by high-growth of operations combined with professionalization, systemization, access to capital markets and new product development. The credit model proved in M1 is now rolled out at a dramatic new pace … opening new branches, hiring staff, implementing internal controls, etc. which require investments in computer systems, experienced management and access to capital which quickly outstrips the capability of donors. M2 orgs must build substantial business relationships with banks and investors who have the resources to support this new level of growth. This also means more accountability including a strong board of directors and much more detailed financial reporting to all stakeholders. Additionally, development of new and enhancement of existing financial products begins in order to better serve the clients.

“Microfinance 3.0″ (M3) is the next phase that is starting to emerge. In the few mature markets for microfinance like Bangladesh and Bolivia, many of the more mature MFIs have converted in regulated banks which is one of the options available to mature, sizeable MFIs. Generally, though becoming a regulated bank is not a feasible short or medium-term option for most late stage M2 MFIs. Instead, I am seeing “mature” M2 MFIs starting to pursue the following strategies:

  • Supply Aggregation. Selling the aggregated supply of their borrowers in order to increase the income of their borrowers. As one senior exec at a large MFI in India told me … the #1 business we are financing for our borrowers is milk-producing cows and buffaloes — we can organize the selling of their milk for a better price than they can receive today. Another MFI is providing the raw materials to their borrowers for making incense sticks which they agree to purchase back at a higher price than they could get themselves. The MFI then sells the incense sticks to retail and wholesale purchases cutting out many middlemen who historically took most of the profit/margin.
  • Demand Aggregation. Aggregating the buying power of clients/members in order to lower prices paid for goods by clients/members. This is similar to the Costco member model in the USA where members get access to products at a lower price due to their collective buying power. A MFI senior exec told me that they are seeing many opportunities to provide both products and services to their clients which save their clients money (e.g. on food staples) and give them new benefits (e.g. health insurance) at affordable prices and with improved quality over their current choices (or for the first time.)
  • Business-in-a-box. Anyone who has visited microfinance borrowers is struck by how hard they work to run their businesses to further their livelihoods. The fact though is that many of these people are not very entrepreneurial … that is, they are running businesses which have an upper limit to the profit potential. There are now a large number of true entrepreneurs developing very interesting self-employment (or a few employees) businesses which are like microfranchises. That is, where the business model, inventory supply, branding, portable kiosk, etc. is provided and with a little training an individual can without extraordinary entrepreneurial skills run an even more profitable mini-business.
  • Savings programs. Despite the central bank limitations of providing savings to the poor, many MFIs are actively investigating new ways to provide safe and helpful savings programs. One of the huge benefits of enabling savings is that a MFI can lower its cost of capital which they can then pass along in lower interest rates to borrowers. [I realize that savings are a much larger topic which I will expand in a future post!]

Is every market ready for M3? No. Many markets/countries are almost exclusively in the M1 stage and will be for some time. I am providing this proposed M1/M2/M3 framework to explain the evolution of financial services to the poor as it matures in specific markets over time. I am excited to see that the poor are increasingly being viewed as “investable” … a good and reasonable investment. While this has the risk of potential for exploitation (like with payday lending in the USA), I think that there are many more upsides overall which benefit the world’s poorest.

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Posted in Microfinance, Microfranchise

Ebay enables investing in microfinance

November 18th, 2007

Ebay recently opened a new web site called MicroPlace which enables individuals to make loans to the world’s working very poor. This enables what I refer to as Socially Responsible Investing version 2 … choosing to make a positive social impact with your investing.

Here’s generally how it works:

  • You can preview the investment options … currently there are 15 choices of microfinance institutions (MFIs) across 11 countries. The term of the loans ranges from 2-4 years and the interest rate paid ranges from 1.5-3% per annum.
  • To make an investment, you create an online account…email address, password and then [unfortunately] a lot of personal information which they are required to capture as a securities broker.
  • You can then invest a minimum of $100. This means that almost anyone can invest which is great! You fund your investment through Paypal (another Ebay company) or directly with a checking account transfer.
  • Once you’ve made your investment, you can track it on their web site.

I have written previously about Kiva, another way to provide loans to microentrepreneurs. I thought it would be helpful to compare and contrast these two services.

Here’s a summary comparison … Kiva let’s you loan directly to a specific borrower which is much more personalized. The downside of Kiva is that you are receiving no interest on your loan. On the risk (of getting your loan repaid) side, with Kiva you need to manage your own risk by splitting up your loans across multiple borrowers whereas you’re investing in a fund with Microplace so your risk is already diversified across a group of borrowers (although typically with one MFI). Generally, Kiva loans are shorter duration. Currently Kiva provides many more countries and MFI partner options … although because of its popularity there are often on a few borrower loans listed at any given time.

More resources

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Posted in Microfinance, Social Impact Investing

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The Poor Always Pay Back book review

November 17th, 2007

The Poor Always Pay Back: The Grameen II Story

by Asif Dowla and Dipal Barua

If anyone is interested in seeing inside one of the world’s most innovative microfinance organizations, this is a fantastic documentary of the huge transformation that Grameen Bank (founded by Muhammad Yunus) … 2006 Nobel Peace Prize winners … went through over the last few years to deliver “version 2″ of the Grameen approach to microfinance.

This book is written by practitioners for practitioners. So, there are lots of details, examples, explanations and market research data presented … including some which is not all that positive (e.g. that borrowers don’t uniformly increase sending their daughters to school). This book is a must read if you’re in the microfinance field and want to see how the next generation of microfinance is being rolled out.

The book starts off with a detailed review of the first generation of the Grameen methodology now called “Grameen I” or Grameen Classic. It explains the issues/challenges faced with the Grameen Bank using this model and how many of the learnings from their approach naturally drove them to adapt for an improved model. Then it describes the new Grameen II model in detail including the open-access savings, flexible loan products, a range of deposit products, self-reliance at the branch level, no need to access donor funds, their ability to keep interest rates very low, insurance products, pension products, education loans, elimination of group loan guarantees and more.

There is also a very good chapter on how Grameen Bank is intentionally starting to serve the poorest of the poor who are generally not serviced by microfinance because they are often surviving through begging. Grameen’s beggar’s program is built into the core of staff incentives to ensure that no one is being left out of access to financial services.

My only critique of the book is that it is a bit dry. You need to approach this more as a textbook and research document. I’m glad that the authors and others involved took the time to write this up to give us an indepth look at the Grameen story!

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Posted in Microfinance, Poverty Reading List

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Zero defaults not good for innovation

November 5th, 2007

One of the key metrics tracked closely by microfinance institutions (MFIs) is the percent of the loan portfolio at risk (PAR) after 30 days. That is, what % of the loans outstanding are in arrears more than 30 days. This is viewed as an important indicator of the “health” of a loan portfolio and the health of the MFI.

In some countries, there is a perception/expectation that 30-day PAR (PAR30) should be almost zero. For instance, in India, most the high-growth organizations have PAR30 of less than 2% and some have very close to zero. This is achieved through a number of methodology implementations including manageable loan sizes/payments, group guarantee/social capital, frequent repayments, etc. In other countries (e.g. many countries in Latin America), the typical PAR30 is in the 5-10% range. There are no absolute right or wrong levels (although getting above 10% can have some potentially very negative tipping point issues), just different models in different locales.

At the recent Unitus Leadership Summit, there was an interesting discussion amongst some of the world’s fastest-growing and innovative MFIs around what the target rate for PAR30 should be. On one hand, low PAR indicates that your system is working well and you don’t have to have your in-good-standing clients paying more to subsidize your delinquent borrows. On the other hand, it is very difficult to innovate in without experimenting … and experimentation often leads to, at least, some short-term decrease in PAR as you’re ironing out the process.

Some of the innovations under development are:

  • moving from weekly to bi-weekly repayments … this is an oft-requested feature by clients as it would reduce the amount of time spent on transactions
  • individual loans instead of group loans … essentially not using a group incentive model
  • loans to men … most MFIs only loan to women
  • different repayment installment models … e.g. rather than typical equal amount of principle and interest on each repayment, offer some balloon repayment options
  • agriculture-related loans … most MFIs currently don’t provide this type of loans due to the high risk of crop failures and the seasonality factors
  • higher loan size … ramping up size of loan more quickly based on individual needs and capacities … most MFIs have fairly similar loan size increases purely based on how long you have been a borrower in good standing
  • early repayment options … requested by some borrowers who want to pay off early to lower interest payments and, in some cases, accelerate to next larger loan size
  • new financial products such as insurance

I think that we should encourage MFIs to be more innovative in developing and experimenting with new financial services for the working poor even if this results in some marginally higher default rates in the short-run as ultimately the innovations will provide more value/benefit to the clients.

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Posted in Innovation, Microfinance, Opinion

Increasing Microfinance Productivity

October 31st, 2007
Photo by me of rural microfinance center meeting near Bangalore, India in September 2007. The gentleman in the middle is the loan officer from Grameen Koota MFI. The woman to his right is the elected center leader for this group of 30 women. The others were part of our Unitus Partner Expedition trip which my wife & I hosted … enabling westerners to get a hands-on experience of microfinance.

Last week, I was in the Philippines for the Unitus Leadership Summit, an annual gathering of some of the globe’s top social entrepreneurs running many of the most innovative and fastest-growing microfinance institutions in some of the poorest areas of the world. It was a privilege to listen in on sessions where they shared what was working, what wasn’t, their challenges and their aspirations. While some of them are considered competitors, they shared very openly about the experiments they were doing in areas such as mobile banking, product development, increasing operational efficiency, raising capital, high-capacity staff recruiting and training and more.

One of the most fascinating topics was their focus on innovating to increase the productivity of their largest group of staff, loan officers. Loan officers are the front-line staff who directly provide financial services (including microcredit) to their bottom of the pyramid customers and make up 70%+ of their staff count. If they can increase loan officer productivity, their whole cost structure goes down and ultimately they can pass the savings on to the customer in the form of lower interest rates. So, this is a very important metric!

Many MFI’s are happy if a single loan officer can serve 300 clients at a time. [Remember the loan officer goes to the client and often they meet once per week with every client, so the number of touchpoints and travel time is significant.] The conversation started off with how they were not satisfied that 750 (!) clients per loan officer was the maximum productivity. Many of them are now reaching this level of productivity. They get to the 750 number as center groups of 50, 3 center meetings per day and 5 days per week. Of course, there’s the recruitment of new members, new member training, follow-up on members, data entry, various paperwork, etc. which also needs to be done.

So, we had a brainstorming session on ways to further increase productivity without overloading a loan officer. Here are some of the ideas that came up:

  • Reduce the maximum radius to client location to 10km (usually now further)
  • Collections every 2 weeks (half the # of trips/meetings)
  • Deploy handheld/wireless devices to loan officers to reduce paperwork and cash-handling time and cost of float (and reduce group meeting time)
  • Create pre-printed stickers to put in client passbooks (rather than having to handwrite each entry in each passbook…loan officer has to do this as most women are illiterate)

But then the discussion went in a different direction … rather than focusing on the # of clients per loan officer as the productivity metric, why not focus on margin generated per loan officer? This has a number of implications and issues including:

  • This would encourage innovation around offering additional products to clients so that meeting times have a lower relative transaction cost. e.g. if you also provided insurance products or health products in the same client meeting, there is a much smaller incremental cost as the meeting is already scheduled.
  • Would loan officers be able to handle a broader range of products well?
  • Would this type of focus increase or decrease client retention long-term?
  • Will loan officers then seek to focus on less poor clients who have capacity for say larger loans with more margin?

So, there wasn’t any silver bullet and with every attempt to innovate there is going to need to be experimentation and refinement. But, I really liked the continuous improvement attitude that they demonstrated and the willingness to challenge the current status quo thinking.

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Posted in Innovation, Microfinance, Opinion

Bandhan helping the poor move ahead

October 31st, 2007

I had the opportunity to visit microfinance superstar Bandhan in Kolkata (formerly Calcutta), India last month and then had the opportunity to catch up with C.S. Ghosh, Bandhan’s CEO last week in the Philippines. Mr. Ghosh handed me a pamphlet highlighting some of their latest progress.

Bandhan one of the world’s largest AND fastest growing microfinance institutions. This is usually an oxymoron as most the larger microfinance organizations are growing very slowly. Here are a few of their stats: over 750,000 clients, over 400 branches, over $120M disbursed, over 2000 staff. And they are growing at something like 30,000+ clients per month!! Five years ago they didn’t even exist and now they’re serving 750K families or about 3,750,000 people!

But, what I found the most interesting was a study of the impact of microfinance services on their clients by Mr. Ranesh Buswas and Mr. Soumik Ghanta of the Indian Institute of Forest Management, Bhopal, India, April-June 2007.

Here is a chart of the impact on their clients through 3 loan cycles (each 1 year)


Here are a few of my observations:

  • By the third loan almost all of the women (90%) have access to a savings facility (critical to help with unforeseen or special expenses)
  • 100% have reduced their dependency on moneylenders by the 3rd loan (moneylenders charge at minimum 100% and often 300-500% interest with daily repayment required)
  • 90% have increased their income by the 3rd loan (meaning that they’ve pretty much all figured out how to run a business which provides enough income for them to repay their loan plus interest and have surplus)
  • Many (60%) of them have started to grow their liquid assets by the 3rd loan (owning productive animals are one of the key methods for doing this)
  • Some (30%) are starting to be able to acquire (or buyback) more land by the 3rd loan, but it will take longer for the majority.

What do you observe? [post a comment]

Oh, and a bonus… a short video I made while visiting a group of Bandhan borrowers in September. Look at their beautiful saris!

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Grameen update

October 18th, 2007

On Tuesday, I participated in a dinner event sponsored by the Seattle International Foundation featuring Nobel Laureate Muhammad Yunus, founder of Grameen Bank and author of Banker to the Poor.

Professor Yunus shared a number of updates and answered questions. Here are some of my notes…

On Grameen Bank in Bangladesh:

  • Now serving 7.5 million clients (avg. family size of 5 => 35M+ people)
  • 27,000 staff
  • Now 80% of poor in Bangladesh are offered microfinance (all MFIs) and targeting 100% coverage by 2012
    • Most poor countries have 5-10% with the best being 15% coverage of microfinance for poor, so lots of work still to do
  • Bank is owned by borrowers
  • All capital loaned out comes from savings of the poor (and bank staff)
  • Each branch must drive their own savings for capital to loan out … require that each branch become profitable and capital self-sustaining within 1 year
  • Microfinance is very empowering for women … often first time in their lives that they have anything of their own. Borrowers (women only) decide who will inherit their savings if they die. Interestingly, most women choose their youngest daughter as she has the least opportunity.

On other Grameen-spawned businesses:

  • Grameen Phone is largest mobile operator in Bangladesh with 16M subscribers
  • Grameen Energy is focused on bringing solar energy solutions to the poor … reached 100,000 households so far and now aiming for 1M. Cost of solar panels continues to slow down growth of this business. There is great hope that some technology breakthroughs will substantially lower the cost and enable them to accelerate deployment.

On social businesses:

  • Yunus continues to be a strong proponent for social businesses … that is, businesses which exist as commercial entities AND have a mission to have a strong positive social impact
  • I think he is right and this is a great new opportunity for entrepreneurs

On microfinance in China:

  • China has very little supply for microfinance and, next to India, has the largest unmet demand for microfinance
  • Yunus recently met with senior people in China’s central bank on their request to hear about his ideas on microfinance
  • Central bankers were initially quite defensive … holding up their cooperative model as being quite effective in channeling financial services to the poor
  • Yunus said that that was quite interesting and that China must be doing something quite differently as in Bangladesh there was also a long-term cooperative system which was widely promoted by the government, but is completely ineffective due to corruption, bureaucracy and lack of relevance.
  • This caught the central banker leader off guard and she surprisingly agreed with his assessment and said that they would no longer rely on cooperative model as the cornerstone of China’s financial services provision for the poor.

Additionally, Grameen America was formally announced. See my earlier posting.

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Posted in Microfinance, Social Business

Empowering Women Through Microfinance

October 13th, 2007

In my recent trip to visit microfinance programs in India, I had the opportunity to meet with a number of microcredit borrower groups in both urban and rural environments.

One of the most interesting experiences I had was observing the personal confidence and empowerment of women who were engaged in ongoing microfinance borrowing. I met with a number of borrowers who had been borrowers for 3, 4 or more years. This means that most of them were on their 3rd, 4th or later loan cycle (as loan cycles are typically 1 year). These women were demonstratably excited to have us “foreigners” sitting down with them at one of their weekly center meetings. After they finished their formal/normal business or interacting with the microfinance loan officer, we had the opportunity to ask them questions through a translator. They were very eager to respond to our questions … telling us [proudly] about their businesses, their challenges, what they were able to do with their profits, their new business ideas, what they would do with larger loans, etc. We were talking very much like peers–business person-to-business person–which I really enjoyed.

I contrast this with another group of borrowers I met with who were about 6 weeks into their first loan cycle. This group was very shy and would not offer us much in response to our questions — even just simple ones about their needs, their families, etc. Now part of this is probably attributable to how early they were in being able to leverage their loans and drive results. I wondered if some of this was cultural … were we meeting with women who were poorer, of a different religion or other cultural differences which would account for this difference in response? The loan officers assured us that this group was almost identical in their background to the other groups with the exception that they were newer to microfinance.

I had heard about how microfinance empowers women. Now I have seen it. The loan officers we met with say that they see this again and again as women grow in their confidence and self-worth as they continue to run their businesses, pay back loans and earn additional profits which they then get to invest in their families and to further expand their business efforts. But there’s nothing better than experiencing this firsthand!

Have others out there found similar or different experiences?

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Posted in Microfinance

Microfinance center groups

October 3rd, 2007

In my recent trip to India (see other recent posts), we had the opportunity to visit a number of microcredit borrower group meetings. At Grameen Koota, a rural MFI partner of Unitus based in the outskirts of Bangalore, they meet weekly with the borrowers in what they call a “center meeting.” Each center meeting consists of women borrowers from the same area (usually one village) who know each other and consists of 4-8 sub-groups of 5 women (so total of 20-40 women in a center.) There is one women elected the leader of each 5-person group and then one women is elected as the center leader by the entire group.

At each center meeting, the agenda is as follows and generally takes from 30-60 minutes:

  • Speak pledges
  • Take attendance (if more than 10% of center members are not present, then no loans can be disbursed that week)
  • Borrowers make loan payments (principle and interest) which is recorded in their passbook. If anyone cannot make the meeting, they send along their payment with some who is attending. If someone cannot make their payment, the group must cover.
  • New approved loans are disbursed.
  • Loan officer requests any need for emergency loans and then disburses if approved by the group.
  • New loan applications are collected for later review.
  • General discussion on any issues/questions.
  • Speak pledges again

I took some videos of our group of Americans visiting two center meetings. We had the opportunity to ask the women any questions we wanted through a translator and they were eager and excited to respond. We asked questions about their businesses, how they were using the profits, about their challenges and what other services they would be interested in.

Video: A center meeting in a rural, very poor village near Bangalore

Video: A center meeting in a small rural town near Bangalore

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Posted in Microfinance

Microfinance pledge

October 3rd, 2007

As I noted in previous post, I just returned from 2 1/2 weeks visiting high-growth microfinance institutions (MFIs) based in India. I visited many group meetings where staff of a MFI would meet with clients to transact business … generally, receiving loan payments, group savings, etc. and distributing new loans, withdrawals, etc. At the beginning and end of each meeting, there were pledges said by the MFI staff and the borrowers to state their commitments and values. I couldn’t understand what they were saying as they were usually speaking in the local language, so we asked for a transcription of the pledge from one MFI, Ujjivan, an urban microfinance startup based in Bangalore.

Here are the pledges:

Customer Pledge
We will use the benefits of our loans to eliminate poverty.
We will repay our loans promptly.
We will save regularly for our family.
We will educate our children.
We will stand by our group in good times and bad.
We will work to build a long and mutually beneficial relationship with Ujjivan.
God is a witness to all our acts and deeds.

Staff Pledge
We will work with poor women towards eliminating poverty.
We will work without discriminating caste, creed or religion.
We will be truthful in all our activities.
God is a witness to all our acts and deeds.

I thought these were very powerful pledges! Wouldn’t be great in other companies/organizations had pledges which they recited in front of their customers! I know this sounds so “out there”, but it would surely help keep their values front and center.

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Posted in Microfinance

India microfinance

October 3rd, 2007

I just returned to Seattle from 2 1/2 weeks in India focused on microfinance. I was traveling on behalf of Unitus as a board member and chair of portfolio committee to visit a number of Unitus’s microfinance partners based in India. I visited a total of 8 MFIs (Unitus now has 12 MFI partners in India) based all over India. It was quite a whirlwind trip (7 cities/areas) and thoroughly interesting to see so many talented entrepreneurial teams building social enterprises to provide extremely poor working women/mothers with useful financial services.

Here are a couple of things I observed:

  • Continued focus on women clients. The women are better at repaying loans and have demonstrated again and again that they invest the profits in their family’s best interest.
  • Two distinct models emerging. 4 of the MFIs I met with have found great success in taking a very grassroots approach to hiring inexperienced first level field staff (generally, loan officers) and then promoting (to branch manager, area manager, district manager, etc.) exclusively from within as the field organization grows. The other 4 MFIs are taking much more of a traditional startup business approach hiring strong professionals to lead areas of the operation. Both of these models are working to drive extremely high growth and sustainability.
  • New product development. There is a lot of effort being put into developing new and better financial services products beyond the basic productive loan offering. Examples include health insurance, a variety of specific purpose business and consumption loans, remittances, individual loans (no group involved) and savings-like products (note: traditional savings products are prohibited by India’s central bank outside of chartered banks).
  • Products to drive more profit margin or “livelihood”. There are some great ideas for providing a “business-in-a-box” type product with built-in franchise-type branding/product and/or access to distribution channels. One example is that rural women are provided raw materials for creating incense sticks or clothing and there is a buyback of finished products to a large retail channel eliminating the middleman and therefore increasing the women’s profits substantially. Another example is the creation of an optimized “dairy unit” consisting of 7 cows/buffaloes which is financed and operated by a group of borrowers which both doubles the yield of milk produced per day per animal and has built in profits through buyback with a dairy cooperative.
  • Variety of entrepreneurial talent. I visited and interviewed many women clients across various rural, peri-urban and urban sites in India. Some of them had a lot of entrepreneurial and others had very little. Often the lower expectations were based on lack of transportation options/infrastructure limiting their markets to their local village. Most clients said that there lives were improving with access to financial services, but some were definitely improving faster than others.
  • Urban starting to take-off. There is almost no urban microfinance in India. Unitus has partnered with three entrepreneurial MFIs who are pioneering the work to serve the urban slum dwellers. This is still early, but there are some positive indicators that this segment is primed to grow rapidly.

I am excited about what I saw and experienced. India still has some 100M extremely poor households without microfinance and another 100M of low income households with no access to financial services. So, there’s still a lot of opportunity and work to do!

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Posted in Microfinance