Escolar Documentos
Profissional Documentos
Cultura Documentos
Karachi
November 1st , 2006
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Agenda
– Research Unit
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Microfinance: who are the targeted
clients?
HNI
Middle
Class
Poor and vulnerable households
economically at the Bottom of
the Pyramid
Low
LowIncome
Income
3
Microfinance: what is it?
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The challenge ahead: demand vs. supply
gap to bridge
Demand Supply
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Thus the need for institutions’ building
• Venture capital for start ups
Finance
• Cheaper cost of funds for on lending
• Product development
Systems • Technology platform
• Clients’ authentication by unique ID
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Agenda
– Research Unit
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CMF’s objectives and mission
• Established in 2005
• CMF’s objectives
– To address knowledge gaps in micro finance sector
– Experiment on ground solutions
• CMF’s mission
– Systematically research links between access to financial
services and participation of poor in larger economy
– Participate in maximizing access to financial services
Training
Influence
Research Advocacy
practice
Strategy
building
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MSU and RU re-enforcement loop
Impact of microfinance
• Impact Evaluation Studies
• Economics of micro enterprise
• Insights on HH "financial behavior"
• Constraints on HH productivity Research (RU)
• Experimentation on product design
• Micro finance transaction costs
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CMF collaborates with existing active
players in the microfinance sector
Universities/ Banks/Financial
MFIs/NGOs/Trust
Research Institutions Institutions
SMEs CDF
Manufacturing Insurance
CMF
Companies Companies
CAFS CIRM
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Agenda
– Research Unit
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Goals of Research is to maximize
microfinance impact through 3 axes
• Why are recovery rates so high?
Understand
• What is the financial behavior of clients?
better
• What is the impact of microfinance?
• Improve organizations
– Information management
– Role of HR policy and staff incentives
– More cost-effective processes
• Alternative channels
Expand access – SHGs
– Revive RRBs
– New channels (Kiosks, ATM, CF…)
• Policy
– Regulation
– Competition and information sharing
Maximize impact
4 On client 3
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1
Impact Experimentation
Morduch 1999
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1
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Product diversification and
communication strategies
Insurance
•Weather
•Life and Health
•Livestock Flexible loans
Savings •Small initial sizes
•Larger subsequent
loans
What do •Longer terms
low income
clients
Housing loans want?
•Build new homes •Group based
•Improve existing •Individual loans
homes
Remittances
products
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2
Microfinance Plus: address contextual
constraints
in
fr
as ts
tr u
uc p
tu in
re
Access to Impact
Financial services ?
en
t re
h pr
a lt en
He eu
r sh
i p
Return?
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3
Financing Processes
Policy issues
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Research projects: examples
•Impact of micro-credit •Effect of smokeless
In Spandana, Hyderabad Chulhas in Gram Vikas,
Orissa
•Experiment on repayment
schedules in VWS, Kolkota •Impact of treated
and KAS, Orissa bed-nets provided through
Credit in Orissa
•Impact of weather
Insurance and willingness •Delivering Nutrition
Impact and
to pay Microfinance plus •supplements through
product design
Microfinance groups
Maximize impact
On client
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Agenda
– Research Unit
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MSU: Objectives and areas of work
• Advice MFIs to define and execute a growth strategy by addressing their main
challenges
– Horizontal growth (Same Products & Same Customers Profile)
– Vertical growth (New Products &/or New Customers Profile)
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MSU: Areas of work with MFIs
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• Capital structure (equity/debt) • 3y strategic plan definition
and access to financial markets – Competitive position assessment
(VC, securitization…) (SWOT analysis)
2
• HR recruiting, training, incentives • Marketing strategy
– Customer segments to target
– Products to develop to serve these
• Organizational design segments (IL, insurance…)
3
– MIS – Portfolio management
– Processes of operations 4
– Governance • Market linkages creation
– Leverage of ICICI MFIs and
corporations clients
– Thematic consultations
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Reduction of MFIs cost of funds: Supply-
demand match assessment
Supply Demand
Evaluate investors
Identify potential assets to
risk/return appetite for
securitize/buy out
MFIs’ paper
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1
4 options to explore and 4 types of players
to interview to reduce MFIs costs of funds
Direct
Portfolio Portfolio
Bond issue medium/long
Securitization Buyout
term loan
• Identify gaps for supply to match demand => use MicroSave (CMF
partner) study as a starting point
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3
MFI Customers
Supply
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4
Market linkage example: cattle feed distribution
through Godrej Agrovet-Spandana (1/2)
• Dairy activity is a low revenue activity for farmers in spite of a growing milk
demand and therefore remains a marginal source income
– Milk yields from buffaloes is low because these are not fed good quality feed
– Farmers perceive dairying as a subsidiary activity because it only offers marginal income:
Initial they have no incentive to own more that 1 or 2 buffaloes
Situation – Farmers however willing to invest in dairy (cattle feed, high quality breeds, artificial
insemination…) often lack the funds to do so
• Godrej Agrovet, a concentrate cattle feed producer, is not presence in the areas
where Spandana (MFI with 700,000 clients) operates.
Spandana Customers
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4
Godrej Godrej
Cattle feed
Piloted
Distributor Spandana
Cattle feed Loan
Dealer Farmer
Milk Sales
Loan
Farmer Spandana Chiller Entrp. To be
piloted
Sales
Dealer Dairy
Dairy
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4
Godrej
1 1
Spandana buys cattle feed in bulk at
Cattle feed distributors price (premium for
Piloted delivery costs)
Spandana
2 Spandana provides a 0% loan for
2 Cattle feed Loan
farmers to buy cattle feed delivered at
village level and farmer pays back
Farmer according to seasonality
3 Sales 3
Milk
Spandana supports a chiller set up by
Loan providing a loan to a local
Spandana Chiller Entrp. To be entrepreneur
piloted
4 Sales 4
The entrepreneur pays back his loan
Dairy through direct sales to the dairy
• Business model needs to be downscaled initially (low profit for the Company)
Challenges • Financing the Distillation Unit (Rs 22-25 K)
• Solving logistics (extension support) and pilot project funding issues
Expected • Enhanced returns through the mint cropping (Rs 21K /Acre) as compared
to Rice (Rs 10K/Acre) and Wheat (Rs 8.4 K/Acre).
Impact
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• Identify client on the basis of land • Plant Mint yielding 55-60 Kg/Acre and
availability in the selected districts. can be harvested twice in 7-8 months.
• Finance Distillation Unit (Cost Rs. • Proper irrigation and timely crop
management.
Supply
• Handicraft
• Fisheries / Seaweed
• Trees plantation
• Food processing
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Thank you
For any question…
annie@ifmr.ac.in or sdjari@ifmr.ac.in
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Constraints to scaling access for the poor
Information Asymmetry High Costs of Intermediation
• No collateral • Low value transactions
• No credit history • Geographical isolation
• Difficult to evaluate • High supervision costs (no financial literacy)
enterprises’ potential • Informal activities: need flexible access
success • Illiteracy: traditional services inappropriate
• High cash handling costs
Provision of
microfinance is Poor Technology
constrained by…
Regulatory Issues
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CMF: Who are we?
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CMF’s Objectives
Training
Influence
Research Advocacy
practice
Strategy
building
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