2019

SOURCE OF FINANCE
ASSIGNMENT
SMALL BANK FINANCE
ESAF
(Evangelical Social Action Forum)

DHRUV VASHISTH
Submitted to – Dr Puneet Mohan Sharma
2/12/2019
ESAF Small Finance Bank
ESAF Small Finance Bank (formerly known ESAF Microfinance) is an
Indian small finance bank providing banking services and small loans to
the underbanked.
ESAF started its operations as an NGO in 1992 as Evangelical Social Action
Forum. Before becoming a bank, ESAF was a non-banking finance company
and microfinance institution (NBFC-MFI), licensed by the Reserve Bank of
India (RBI) and headquartered in Thrissur city of Kerala.

History and Operations

On 11 March 1992, K. Paul Thomas, along with Mereena Paul and a few friends,
started ESAF in a small house in Mannuthy named "Little".Jacob Samuel, one of
the co-founders, coined the name ESAF, which is an acronym for Evangelical
Social Action Forum. At inception, ESAF had five life members, seven annual
members and eight honorary members. ESAF society was registered under the
Travancore Cochin Literary, Scientific and Charitable Societies Registration Act.
The initial president was Itty Mathew; J. Danabai was the vice president, Thomas
was the secretary, supported by Samuel as joint secretary and Arun Ramakrishnan
as treasurer.
ESAF started lending in 1995 as the first microfinance company in Kerala. It
became ESAF Small Finance Bank after receiving the first banking license
in Kerala since independence.
On 17 March 2017, Pinarayi Vijayan, the Chief Minister of Kerala officially
inaugurated ESAF Small Finance Bank at Thrissur, Kerala. By August 2017, the
bank had 3,750 employees, 284 branches, and a presence in 11 states.
In March 2018, a year after its launch, the bank had expanded to 4,000 employees
and 400 branches, with 2,200 crore (US$338 million) in deposits and ₹4,200 crore
(US$645 million) in loans.
ESAF small finance bank received RBI approval to operate as scheduled bank in
December 2018, making the Thrissur-based ESAF Small Finance Bank, the fifth
scheduled bank from Kerala after Federal Bank, South Indian Bank, Cathelic
Syrian bank, and Dhanlaxmi Bank. This will reduce the bank's cost of funds, while
increasing the bank's ability and obligation to provide services

The journey of ESAF began in a small house named ‘Little’ at Thrissur in 1992.
Contrary to what the name sounds, ESAF Society was launched with a bigger
vision of sustainable holistic transformation of the poor and the marginalized. The
success of Grameen bank in Bangladesh reinforced the vision of K. Paul Thomas
the Founder and Managing Director of ESAF. In 1995, he launched Micro
Enterprises Development (MED) services and it resulted in the formation of ESAF
Microfinance and Investments Pvt. Ltd., in 2008. The increased focus on
microfinance was inevitable as the founder was clear in his understanding of the
importance of financial component in holistic economic development of the poor.
Gradually, ESAF Microfinance earned its place among the top ten Microfinance
institutions in India.

As an MFI, ESAF was unique in manifold ways. Community ownership, higher

proportion of female field staff, integrated approach etc. were some of the features,
which distinguished the organization as a socially focused entity. The business
model of the Organization combined the unique methodology of selecting and
servicing customers at the front end with technology, processes & disciplines of
modern retail banking at the back end. We have had an excellent growth and
consolidation phase in the past few years. As on 31st March 2016, we have almost
2500 employees and a customer outreach of over 1.2 million.

In 2015, the Reserve Bank of India, the financial regulator in the country has
granted in-principle license to ESAF to launch a Small Finance bank. ESAF Small
Finance Bank was one amongst the ten NBFCs to receive an 'in principle' approval
from the Reserve Bank of India (RBI) to set up a Small Finance Bank in the
private sector. In November 2016, the final license was issued by the RBI. ESAF
Small Finance Bank was incorporated on May 05, 2016, with its registered office
in Thrissur.
VISION AND MISSION

Vision
"To be India’s leading social bank that offers equal opportunities for the whole
society through universal access and financial deepening, thus promoting financial
inclusion, livelihood and economic development as a whole”

Mission
"To provide responsive banking services to the underserved and un-served
households in India facilitated by customer-centric products, high quality service
and innovative technology."

ESAF (Evangelical Social Action Forum) Microfinance, is non-banking Finance

Company and a premier Microfinance Institute of India. ESAF Microfinance was
established on 11th March, 1992 in the city of Thrissur in Kerala and was licensed
by the Reserve Bank of India. ESAF Microfinance is the first bank in Kerala to get
banking license after independence. This is also the first microfinance company in
Kerala and ESAF started its lending activity of micro loans in the year 1995.

ESAF was founded by Mr K Paul Thomas and Ms Mareena Paul with five life
members, seven annual members and eight honorary members. The foundation of
ESAF was laid in order to alleviate poverty and reduce the increased
unemployment in the educated young people. The concept of venturing in the
arena of microfinance was inspired by the Grameen Bank in Bangladesh, an idea
that was conceptualised and implemented by Mohammed Yunus, who was
awarded Nobel Prize for this microfinance venture in his country. With a
successful venture since its inception, ESAF Microfinance, at present has 3750
employees across 10 states in India. ESAF is successfully running its microfinance
business through 160 dedicated branches and has 7 lakh members.
What is Microfinance?

The concept of microfinance that was incepted by Professor Yunus, was to provide
micro loans to the poorer section of the society who otherwise have no access to
standard bank loans, more specifically to the women of that community to help
them to become self-sufficient and financially independent through their
businesses and enterprises. They get small amount of loans, without any collateral
for starting and expanding their small businesses and all these are done within
close supervision of the microfinance companies that are lending. The loan
payment is done on a weekly or monthly basis generally in small instalments and
loans are approved for short or medium terms.

Operational Approach of ESAF Microfinance

ESAF works towards creating opportunities and supporting the poor and
underserved section of the society. Apart from creating opportunities for
livelihood, ESAF also diversified its attention towards the improvement of health
and education. The approach of ESAF towards its initiatives involves choosing
right strategies, providing grants, evaluating the progress, impact and the final
results. Based on the performance, the readjustment is done in the strategy and
approach.

The Fields of Action by ESAF

ESAF Microfinance diversified its span of action in many different areas by

combining entrepreneurial activities with social causes. These are:

(1) Kids for Kids – It is an Integrated Children Development Program directed for
creating a sustainable holistic environment for underprivileged children through
supporting services like healthcare, education, social security to prevent
formabuse, malnutrition, child marriage, trafficking, child labour, drug addiction
and all such issues.
The future plan for ESAF in this regard includes opening 300 more centres to
support 15,000 more kids. They want to establish library in each of the villages,
start training centres for teachers and to develop value-based, all round
development program for kids leading to the creation of value-based communities.

(2) Development of Micro-enterprise – This initiative of Micro Enterprise

Development (MED), ESAF Microfinance and Investments (P) Ltd. (EMFIL),
which was launched in 1995, is operational in 30 districts across 6 states of India
through 105 branches. More than 2.5 Lakhs of clients are covered by these services
that include financial as well as non-financial categories.
Microfinance activities are customised to meet the requirements of poor people.
MED is done through creating Self Help Groups and developing local economy
into modernised industrial level. Extending financial and business development
support services promote developing micro-enterprises and economic self-
sufficiency among poor people.

(3) The healthcare wing of ESAF, known as the ESAF Healthcare Services,
extends healthcare through an array of clinics, pharmacies, hospitals and diagnostic
laboratories. ESAF runs two hospitals and four clinics in Palakkad and Thrissur
districts in Kerala. The Palakkad facility is a 150 bedded hospital and another
location in Palakkad has a 50 bedded hospital. Poor patients get free treatment,
medicines and diagnostic facilities. ‘Suraksha’ and ‘Pariraksha’ cards are
distributed to all the members. ESAF provides healthcare services by organizing
workshops, seminars, exhibitions and the medical camps on eye care and cataract
operation, paediatric health, orthopaedic, gynaecology we well as on Ayurveda.
Seminars are done for HIV, Diabetes, Anti-tobacco, suicide, pain & palliative and
abortion to assist people.

(4) Natural Resource Management (NRM) – ESAF works to facilitate the proper
and sustainable use of natural resources and bring it within the reach of everybody.
These include:

 Projects on Non-conventional Energy and Green Conservation –

Encouraging bio-gas plants and incinerators for bio-degradable solid waste
management and green conservation projects through natural weed
control,safe disposal of waste and proper flow of drainage. ESAF projects
promote vermicomposting where various worms are used to convert the
biomass into manure
  Water supply in Rural Areas and Sanitation Projects – ESAF undertook
different World Bank aided projects like Jalanidhi and Jeevandhara to ensure
drinking water availability to the rural people.
 Engineering Services – Like planning, designing and undertaking new
buildings, interior works and helping in tsunami relief works by building
small budget affordable houses.
 Renewable and Micro Energy – ESAF promotes utilization of solar energy
and other renewable energy as a cheap source of energy for the poor
community.

(5) Human Resources Development – ESAF started ‘ESAF Centre for

Excellence’ in the year 2005 for employee development, skill building and creating
a highly efficient workforce. This was done by creating the training facility to
upgrade capacity, attain and maintain required quality and standardize the process
and products.

(6) Research and Development activities – ESAF conducts various R&D projects
to validate the work. These include studies to assess the impact and efficiency of
its microfinance products, monitoring social performance projects, developing
benchmarks and indicators for social performance and developing and
benchmarking other projects on health and livelihood issues of economically
challenged people.

ESAF SHG Federation

This is the Self Help Group (SHG) of ESAF that basically is a network of several
SHGs from different geographical locations. The members of SHG support each
other to achieve the economic and financial goals of each other and that as a group.
This helps in capacity building and social empowerment of women members. This
trust is completely owned by members and they have the freedom to take decision
collectively in the developmental activities.

Objective of the SHG Federation

  To facilitate connections between SHGs with Local organizations, banks,
govt. agencies
 To help SHG to attain sustainability
 To get better access towards development and marketing information
 To strengthen the capacity of member-SHGs by providing information,
training, on-site support in the fields of accounting, bookkeeping, financial
management, marketing, advocacy, accessing government schemes, bank-
linkage and so on
 To provide loans, more specifically multiple credit lines
 To provide voluntary savings facilities
 To assume marketing of the products and services of the SHG members
 To provide insurance services
 To create the socio-political environment for women to enable them to live
their lives to the best possible extent as they wish to

Major Activities of SHG Federation

SHG members not only participate in the loan program but involved in many
important activities like:

 Training the women to become entrepreneurs

 Promoting activities to generate income
 Promoting Activities for business development
 Leadership building among clients
 Extending various financial services and financing
 Capacity building
 Counselling
 Education

The Products and Services of ESAF

The main products of ESAF Microfinance are:

(1) Microcredit – Micro loans are provided for specific purposes to create
employment or business opportunity to its members. The different need based
loans include: (a) Income Generating Loans which has term of 50 to 75 weeks (b)
General Loan given for a term of 50 weeks, (c) Housing Loans with terms typically
4 to 7 years, (d) Vyapar Vikas Yojana Loans for a period of 4 months and (e)
Nirmal Loan (for clean water and sanitation) given for a period of 2 years.

(2) Insurance – ESAF offers Life Insurance products at highly competitive rates.
This service is there for both normal and accidental deaths. For Insurance sector,
ESAF has alliance with Star Union Dai-ichi Life Insurance Company and United
India Insurance.

(3) Business Development Services are offered by ESAF to the poor people in the
form of training for skill development as well as for the market access so that they
are able to develop their own businesses. These assistances are for starting own
business or to expand their existing businesses.

(4) Other Miscellaneous Services — There are several other value added services
by ESAF apart from microfinance and skill development. These services aim for
an overall benefit and development of the clients. Strategic alliances are made by
ESAF with different Central and State Governments, Agencies and Corporations in
order to extend several services to its clients. These are:

Swalambhan Yojana (NPS) — ESAF provides Swalambhan Yojana (under

National Pension Scheme) services to the client. This is done in alliance with the
Government of India. This is the social security scheme that will enable the poor
section to earn some fixed income, the same way Government servants earn after
the retirement.

Vyapar Sewa (also called Sanchar Sakthi) – ESAF provides marketing services
to its clients. These services are enabled by mobile phones and available through
the scheme of Central Government called Sanchar Sakthi.
Jeevan Shudh – Under this service, ESAF provides ‘Pureit’ – a table top device
for multi-stage water purification. This is ESAF’s initiative to provide healthy
lifestyle for its clients by arranging purified water. ESAF, in alliance with
Hindustan Unilever, provides it in an easy purchase scheme by instalment
payments. ‘Pureit’ gives the safety same as the boiling water and requires no
electricity or running water to operate. When the efficiency reduces below the
drinkable quality, its ‘Auto shut’ mechanism prevents the flow of water and stops
functioning till the parts are changed.

Money Transfer—ESAF offers money transferring service to its clients for

overseas payments and receipts. This is done in collaboration with Western Union
Money Transfer.

Micro Energy – In an effort to promote clean energy, ESAF collaborated with

Micro Energy Credit, USA. Products operated by green energy and energy saving
devices like solar lights, water purifiers and cooking stoves are being provided to
the people for a healthy life.

Apart from the Microfinance loans for IGL, ESAF has introduced a couple of more
loan products to improve the living of its clients. These are:

ESAF Vidya Jyoti Loan – For educational purpose of its clients’ children, ESAF
has introduced this loan program. ESAF believes that through proper education,
families can come out of the poverty and lead a more productive life. Vidya Jyoti
loan is given to ESAF members’ children for both tuition and non-tuition
requirements. At places where primary education is free, these loans are given also
to support the cost of buying books, examination fees, transport, uniforms, etc.
Features of the loan include:

Loan Amount:

Up to 10th Standard — Rs 8,000

11th and 12th Standard — Rs15,000
College level and above — Rs16,000 to Rs50,000
Interest Rate: 22.99% and it is on diminishing basis
Processing Fee is 1% of loan amount plus service tax. The loan term is of 1 year or
2 years based on the loan amount. The repayment frequency is either weekly,
fortnightly or monthly. Members need to be at least 1 year in the Income
Generating Loan (IGL) cycle with ESAF to avail this loan.

ESAF House Improvement Loans (HIL):

Under this scheme, ESAF has reached out to its clients and extended loans for
improvement of the dwellings. About 45% of the clients had inadequate housing
like mud wall, no proper roofing or no toilet facility. ESAF introduced HIL of a
maximum of Rs 75,000, to be repaid on a monthly basis. Strict Credit Bureau
check, completing minimum one loan cycle with ESAF and being resident of the
same house for over three years are the eligibility criteria for the loan. ESAF has
created a big impact across the states through this successful initiative.

The bank will also look at an IPO by June 2021

Thrissur-based ESAF Small Finance Bank is planning to open another 165
branches in the current financial year, making it one of the fastest additions in the
country. At present, the bank with a customer base of about 27 lakh, has a total of
300 branches across the country.
ESAF Small Finance Bank is also looking to foray into two new states – Gujarat
and West Bengal – in this fiscal, increasing its total footprint to 14. The banks’
presence now spans across 12 states including Madhya Pradesh, Orissa, Bihar,
Chhattisgarh and Jharkhand among others, ESAF Small Finance Bank Managing
Director (MD) and Chief Executive Officer (CEO) K Paul Thomas said.
The bank will also look at an Initial Public Offering (IPO) by June 2021. “We will
hit the market at the right time,” he said.

The bank has a network of 432 banking outlets (including microfinance outlets),
with total loans and advances of about Rs 4,660 crore and deposits of about Rs
3,500 crore.
ESAF, which launched its small finance banking business in March 2017, gets
about 99 per cent of the business from rural areas, with the majority being women
borrowers, Thomas added.
On Wednesday, ESAF Small Finance Bank entered into a strategic partnership
with private life insurance company PNB MetLife, which will enable the bank’s
customers access the insurance firm’s financial services.
“Many middle and lower socio-economic class families from non-metro cities do
not have access to the services offered by the formal finance sector. This tie-up
will help PNB MetLife and ESAF SFB reach many more Indians and further the
Indian Government's agenda of holistic financial inclusion,” he added.