Paramarsh_IMTG_rambli

ngsouls_7838590567
Business strategy for Trident
Microfin based on Research &
Consulting

Srikanth Kumar Konduri

srikanthkonduri@live.co.uk

Satya Bharadwaj Adibatla

satyabharadwaj@yahoo.com

Indicators & reasons of poor

Indicators: (After October
2010)
consumer
confidence
in MFI sector
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 mending 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