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Landscape
Sizeable credit under-penetration at the bottom
of the pyramid, liberal PE/VC investments,
stringent regulations & diverse business models
have caused this sector to be attractive for
lenders
A sector catering to 32 mm customers with over
50% AUM CAGR over FY12-16, led by 22% &
21% CAGR rise in volume (no. of borrowers)
and value terms (loan per borrower)
SRO introduction (MFIN & Sa-Dhan), credit
information bureaus (CIB), cap on lending
spreads, provisioning requirement and capital
requirement have resulted in financial discipline
Average ticket size more than doubled to Rs
16,379 vs. ~Rs.7,550 in FY12. MFIs have 9,669
branches across 35 states/union territories
Challenges
Geographical Regions
Low Income States, North Eastern States with low
banking penetration
Unfulfilled credit & savings needs of Rs 67.4 tn
Products & Segments
Micro/small enterprises and Low Income
households for credit and savings needs
Competitor Benchmarking
Loa
Mca Gros
n
NI
P/ RO
Companies
p
s
ROE Boo
M
B A
(Cr) NPA
k
(Cr)
Bharat
Financial
Inclusion
14 12,0
3.8 24.9 5,20
Limited
%
85 0.1% 8.2 %
%
1
Equitas
2.8 19.1 4,41
Holding
11% 6,057 1.3% 5.9 %
%
9
Ujjivan
Financial
3.7 18.3 5,06
Services 12% 5,488 0.2% 4.5 %
%
4
Satin
Creditcare 10
2.2 22.2 3,27
Network
% 2,143 0.2% 6.5 %
%
1
Sustainability
Reducing
Constraints
Underserved
markets
Ability to Cross
Sell
Political Risk
Management
Deepening
Rather Than
Widening
Challenges to Transformation
Business Model related
High Costs of Transformation
Infrastructure, organisational, product
portfolio, servicing and risk management
Expected breakeven: 3-5 yrs
Efforts and Cost of Deposit Mobilization
High cost of deposit mobilisation owing to
small deposit sizes and skew towards
savings account
Expected lead time to attain low-cost
sustainable deposit funding: 5-7 yrs
Cost Effective Measures
Limited infrastructure and capacity of target
clients
Limited Scope of Cost Effective Measures
Such as Internet and Phone Banking
Regulations Related
Control Dilution
Obtaining long term potential capital for
40% promoter stake norm
Capped Foreign Ownership
Constrained domestic equity poses
challenge to MFI due to cap on foreign
capital (74%)
Added Capital Pressure
Regulatory requirements of CAR (15%),
CRR (4%) and SLR (22%)
Branding Related
Savings to Fuel the Liabilities
Lender positioning hinders attracting deposits;
needs shift from push to pull
Organisation related
Issues in Human Resource Management
Limited capabilities of MFIs employees
in liabilities, insurance, credit assessment
Change Management
Establishing multiple channels and
acquiring banking expertise
Risk Related
Vulnerability to Failure Due to Limited Risk
Exposure and Inexperience in Dealing with
High Ticket Loans
Concentration of big-ticket credit to few sectors
makes portfolio risky & vulnerable
Product
Portfolio
Operational
Model
Customers
Technology
Drivers
Organizational
Capabilities
Partnerships
IT Architecture
Enablers
Agent TAB and mPOS
IT architecture
Need to diversify into other new products in the group Lending Model:
Emergency loan that can be spot-disbursed
Education loan for the children of SHGs
Agricultural and farming loans for women
Svatantra can build capabilities in terms of employee skill in validation, risk assessment, cross-sell, up
sell, MIS, financial management by diversifying into
Micro insurances in collaboration with insurance companies
Loan insurance schemes
Micro Savings that can be collected weekly through Field agent
SMEs and Individual Lending Model to mitigate the risks of matured Groups, to reduce the transaction
costs and to tap the market of lower middle class. Svatantra should offer only selected product mix that
Capital Requirement
Activities
Prudential Norms
Shareholding &
Listing Agreement
CRR
Application
PSL
Application
Long Term
Medium
Immediate
Criticality
Low
SLR
Application
OpEx for
branch
conversion,
tech &
marketing
Savings on
optimisation
of cash
balance
Fall in Cost
of wholesale
funding
Increase in
Leverage
Mobilisation
of Retail
Deposits
Medium
Impact
High