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!
4 thoughts on “India microfinance”
thanks for sharing your observations, it’s always interesting to hear about the real-time happenings on the ground. I pulled the paragraph about businesses-in-a-box over to my readers, hope it translates into more people getting access to your thoughts.Do you have any more details about the distribution system, what role does the MFI play, what’s their incentive?
There are multiple incentives for the MFI:* They get to offer their clients a new business opportunity which has lower risk (as much has been already thought through and pre-arranged) and higher profit margin than most of their other alternatives. This is a differentiation (value-add) for MFI as it seeks to attract and retain clients.* Lower risk and higher margins means that the borrower is much more capable and therefore likely to repay their loan* In some cases, there is a revenue share (or marketing commission) component for the MFI. Since the middlemen are being eliminated, there is considerablely more margin, so some of that can be shared with the MFI.Do you have other thoughts on possible incentives?
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really great observation of microfinance in india..in india with the help of microfinance people make their life much better and also make women empowered. women are big client of microfinance. could u tell me in which area of india you have visited??
because possibility of micro finance in different area of india is totally different.