CHRIST

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Instructions

● Registration is compulsory for every session.

● Students are expected to join the class atleast 5 mins before the start
time.
● Attendance will be seriously monitored, kindly pay attention in the
class.
● End of the each session question will be asked randomly and will be
graded.
● If power or connectivity problem students are expected to connect
through mobile phones.
● If students fail to attend the class for one hour completely, attendance
will not be given.

Excellence and Service

 Financial Services and Alternative
Investments - COH542A

Prof.Saravanakrishnan V

MISSION VISION CORE VALUES

CHRIST is a nurturing ground for an individual’s Excellence and Service Faith in God | Moral Uprightness
holistic development to make effective contribution to Love of Fellow Beings
the society in a dynamic environment Social Responsibility | Pursuit of Excellence
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Understanding SKS Microfinance

● Nature of organization
● Nature if industry in which organization operates.
● External environment that is effecting organization
● Problems being faced by management
● Identification of communication strategies.
● Any relevant strategy that can be added.
● Control and out-of-control situations.

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Introduction - MFI

● Microfinance has become a broadly known sector since the

pioneering work and success of Grameen Bank in Bangladesh.
● The bank adopted a simple mission: to alleviate poverty by provision
of small loans to economically active but disenfranchised people.

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Introduction - MFI

● Microfinance institutions (MFIs) provide a variety of services which

include micro loans, remittances, savings and transfers, insurance and
payment service that a commercial bank does not offer to low-income
clients in the banking system. However, unlike in the traditional
commercial banking sector, there is an understanding that the average
microfinance client does not have many assets, thus collateral is
usually sought in the form of social capital.

● Under the World Bank millennial goals, microloans, and other

financial services have been provided to 100 million poor people in
the world by 2006. Further, MFIs have become distinguished by their
impressive low level of default rates on the average and return on
equity ranging from 20 to 40 percent.

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Introduction - SKS Microfinance

● In an early interview at Wharton in 2008, Akula recounted having

worked with an NGO in India as a loan officer on the field in 1997. 
● The potential for impact that these loans had given him the idea of
setting up SKS as a more scaled up version for micro finance.
● He formed it as a charity in 1998 in Hyderabad, India as a part of his
PhD studies to explore the then non existent micro finance industry in
India.
● As of June 30, 2013 it has 51 lakh members associated with 1255
branches.
● It has a vision to serve 50 million households across India and other
parts of the world and also to create a commercial microfinance
model that delivers high value to its customers.
● SKS provide loans to women members in poor regions of India for a
range of income-generating activities.
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Rise of SKS
● SKS Microfinance expanded its operations rapidly and in course of
time, it won several awards for its achievements.
● Most of the money it received in the form of awards was also
reinvested to fund the expansion of its operations.
● SKS used a lot of advanced technological enhancements like the use
of smart cards to monitor the loans of borrowers.
● It made huge investments in acquiring modern technology in the
microfinance sector and thereby reducing transaction costs.
● The use of the latest technology helped in the automation of a number
of business processes and lowering of operating costs for the
Company.
● SKS developed its own fully automated and user friendly
Management Information System (MIS) called SKS MAPS
(Monitoring, Accounts, Portfolio, and Smart Cards) to monitor its
business process.
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Rise of SKS
● Recognizing the efforts of SKS, Friends of Women’s World Banking
India gave it first loan of Rs.5,00,000 to SKS in 2002.
● Later in 2004, SKS got its first partnership loan from ICICI for Rs.
200 million.
● Later, Vikram had arrived at the idea of converting SKS into a for-
profit ' . Organization to fuel its growth.
● Toward that end, he founded a private company called SKS
Microfinance Pvt Ltd. and five for-profit Mutual Benefit Trusts
(MBTs). The objective was to enhance the social and economic
welfare of the company and MBTs' members.
• Vikram raised US$ 500000 through donations
via MBTs and invested the amount in SKS
Microfinance Ltd. to become its sole owner.

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SKS Rise

● In August 2010, SKS Microfinance — then India's largest

microlender — went public. Exuberant investors oversubscribed the
$350 million offering nearly 14 times. The stock surged more than 10
percent its first day. The company handed out 21,000 watches to
employees in celebration

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SKS Crisis

● In the year 2010, the flourishing

microfinance industry in India plunged
into a deep crisis. Some analysts and the
government of the southern Indian state of
Andhra Pradesh accused, the industry of
charging higher interest rates from the
borrowers and resorting to strong-arm
tactics to recover the loans from the poor.
● It was reported that, unable to repay the
loans, many of the poor borrowers had
taken their own lives. Reports said that a
shocking 200 borrowers of the
microfinance institutions had committed
suicide in late 2010.
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Reason
● Embraced the for-profit model, but preached mission statements like
empowering the poor and eradication of poverty which did not work
with for-profit model.
● When the company went for IPO, people looked at the numbers,
portfolio size, ESOPs (employees stock options) and the salary levels.
● They were all relevant for a for-profit mainstream operation but the
claim of eradicating poverty did not align with that.
● At the sector level in 2009 and 2010, SKS faced very severe
competition. There were 400 – 600 companies who were getting
funds in either equity nor debt.
● There was intense competition but no price war. All the competitors
were charging 31-32%. Because of it process dilution became the
selling proposition. The customers also moved from one competitor to
other thereby forcing the company to dilute them.

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Changes

● Other than reframing their strategies, the Andhra Pradesh crisis made
MFIs rethink about other business operations related to disbursement
and recovery of loans.
● SKS too implemented a number of steps to protect the interests of its
borrowers. It set up an external ombudsman to deal with all the
complaints of its borrowers and set up a toll-free helpline in 8 Indian
languages to help its borrowers.
● SKS also started a customer grievance cell to deal with the problems
of customers

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Towards corrective measures

● The annual report 2011-12 states that SKS Microfinance took some
proactive steps by adopting a three-pronged strategy to revitalize its
operations.

● 1) consolidation of existing borrower base instead of acquiring new

ones,

● 2) diversification into lending against gold, financing unorganized

retail stores and financing the purchase of mobile phones, and

● 3) continuing efforts to seek the Andhra Pradesh Government support

in resolving the situation in the State.

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New Strategy Adopted

● Client protection initiatives

● Credit growth in non-AP regions
● Cross Sale initiatives
● Governance platform Risk and Audit framework
● Expanding balance sheet

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Conclusion

● After posting profits in the third quarter of FY13 after seven straight
quarters of losses, country's lone listed micro-lender SKS
Microfinance hopes to continue the momentum and is expecting a
profit of around Rs 60 crore in the next fiscal.

● According to the company, it has raised Rs 2,150 crore of bank debt

in 2012 compared to Rs 950 crore raised in 2011, when the crisis was
at its peak. SKS has adequate funds to manage its operations spread in
various states.

● Looking at the SKS many microfinance companies in India postponed

their programme of going public. With posting profit in another
quarter, other companies may find themselves in promising
environment.
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● In 2014, the investors in the SKS Microfinance, Mauritius Unitus

Corporation, Sequoia Capital India Growth Investments and SKS
Mutual Benefit Trust as well as its founder Vikam Akula relinquished
their roles as promoters.

● In 2016, SKS Microfinance was renamed to Bharat Financial

Inclusion Ltd.

● In 2017, the company launched a loan approval system based on

Adhaar to reduce the time and cost involved in the loan approval
process. In the same year, it also launched its Kirana store (general
store) service which allowed its customers to do financial transactions
by visiting its designated stores.

● Later in 2017, the company entered into discussions of a possible

merger with IndusInd Bank. The merger received approvals from
Reserve Bank of India,Excellence
National Stock Exchange of India and
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Controversies on MFI

● High interest rates charged by MFIs

● Unethical recovery methods
● Lack of transparency
● Absence of governance structure
● Low repayment rates
● The Reserve Bank of India (RBI) responded by appointing an RBI
sub-committee know as the Malegam Committee.

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Y.H. Malegam?
● Yezdi Hirji Malegam is an Indian chartered accountant who was the
president of Institute of Chartered Accountants of India from 1979 to
1980.
● He was the chairman of National Advisory Committee on Accounting
Standards.
● Since 27 November 2000, he has been a board member of Reserve
Bank of India and holds a position as a trustee of The Willingdon
Sports Club.
● He is also engaged in various other fields of business and finance. He
has been a director of the Indian Central Bank's board for 17 years
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Y.H. Malegam Committee

 The RBI appointed a sub-committee known as the Malegam
Committee to study the issues and concerns of the microfinance
sector.
 This Committee of the Board was formed on October 15, 2010,
 Theunder the chairmanship
Committee submitted of
itsMr Y.H. in
report Malegam.
December
2011.
 The report contains suggestions to regulate the
microfinance sector, pricing of interest, increasing
transparency, and reducing the problems of
multiple lending and over borrowing.
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Objectives
● (a) To review the definition of microfinance and micro finance
institutions (MFIs) for the purpose of regulating non-banking financial
corporations (NBFCs) undertaking microfinance by the RBI;
● (b) To delineate objectives and scope of regulation of NBFCs
undertaking microfinance by the RBI;
● (c) To examine the prevalent practices of MFIs in regard to interest rates,
lending and recovery practices to identify trends that impinge on
borrowers’ interests.
● (d) To examine and make appropriate recommendations in regard to
applicability of money lending legislation of the States and other
relevant laws to NBFCs/MFIs.
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● (e) To recommend a grievance redressal system that could be put in

place to ensure adherence to the regulation recommendations;
● (e) To examine conditions under which loans to MFIs can be
classified as priority sector lending and make appropriate
recommendations;
● (f) To examine the role that bodies of MFIs could play in enhancing
transparency disclosure and best practices.

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Key Recommendations

● # 1. Classification of NBFC-MFI
● The Sub-Committee recommends that a NBFC-MFI may be defined
as “A company (other than a company licensed under Section 8 of the
Companies Act, 2013) which provides financial services pre-
dominantly to low-income borrowers with loans of small amounts, for
short-terms, on unsecured basis, mainly for income-generating
activities, with repayment schedules which are more frequent than
those normally stipulated by commercial banks and which further
conforms to the regulations specified in that behalf”.
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RECOMMENDATION # 2: NBFC TO SATISFY

CERTAIN CONDITIONS (NON-NEGOTIABLES)
● a) Not less than 90% of its total assets (other than cash and bank
balances and money market instruments) are in the nature of
“qualifying assets.”
b) For the purpose of (a) above, a “qualifying asset” shall mean a loan
which satisfies the following criteria:-
● i. the loan is given to a borrower who is a member of a household
whose annual income does not exceed Rs. 50,000;
● ii. the amount of the loan does not exceed Rs. 25,000 and the total
outstanding indebtedness of the borrower including this loan also
does not exceed Rs. 25,000;
● iii. the tenure of the loan is not less than 12 months where the loan
amount does not exceed Rs. 15,000 and 24 months in other cases with
a right to the borrower of prepayment without penalty in all cases;

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RECOMMENDATION#3 Capital of NBFC-MFI

a) Minimum net worth : All NBFC-MFIs are required should have a

minimum net-worth of Rs 1.5 crores.
b) Capital adequacy ratio: All NBFC-MFIs should be required to
maintain Capital adequacy ratio of 15%. Net owned funds should be
in the form of Tier 1 capital.

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RECOMMENDATION#4 Interest rate

(a) Pricing of interest rate
● Interest rate should be set as follows:
● a “margin cap” of 10% in respect of MFIs which have an outstanding loan
portfolio at the beginning of the year of Rs 100 crore,
● a “margin cap” of 12% in respect of MFIs, which have an outstanding loan
portfolio at the beginning of the year of an amount not exceeding Rs 100
crore, and
● a cap of 24% on individual loans.
(b) Transparency in interest charges
• There should be three components in the pricing of the loan: (i) processing fee,
not exceeding 1% of the gross loan amount, (ii) the interest charge, and (iii) the
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RECOMMENDATION#5 SECURITIZATION &

ASSIGNMENT
 Disclosure is made in the financial statements of MFIs of the
outstanding loan portfolio, which has been assigned or securitized and
the MFI continues as an agent for collection.

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RECOMMENDATION#6 LENDING PROCESS

 MFIs should lend to an individual borrower only as a member of a JLG (Joint

Liability Group) and should have the responsibility of ensuring that borrower is not a
member of another JLG. A borrower cannot be a member of more than one SHG
(Self Help Group)/JLG.
 Not more than two MFIs should lend to the same borrower.
 There must be a minimum period of moratorium between the grant of the loan and
the commencement of its repayment.
● Recovery of loan given in violation of the regulations should be deferred till all prior
existing loans are fully repaid.
● All sanctioning and disbursement of loans should be done only at a central location
and more than one individual should be involved in this function.
● There should be close supervision of the disbursement function.
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RECOMMENDATION #7 RECOVERY PROCESS

● MFIs should ensure that coercive methods of recovery are not used.
In case of use of coercive methods, MFIs should be subject to severe
penalties.

● MFIs should have a proper Code of Conduct and proper systems for
recruitment, training and supervision of field staff to ensure the
prevention of coercive methods of recovery.
○ the loan is without collateral;
○ the aggregate amount of loans given for income generation purposes is not less
than 75% of the total loans given by the MFIs;
○ the loan is repayable by weekly, fortnightly or monthly installments at the
choice of the borrower.

● The income it derives from other services is in accordance with the

regulation specified in that behalf
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RECOMMENDATION #8 CREDIT INFORMATION

BUREAU
● One or more credit information bureaus should be established
and be operational as soon as possible and all MFIs should be
required to become members of such bureau. In the meantime,
the responsibility to obtain information from potential
borrowers regarding existing borrowings should be on the MFI.

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RECOMMENDATION #9 Funding of MFIs

● Bank lending to the microfinance sector both through the SHG-Bank

Linkage Programme and directly should be significantly increased
and this should result in a reduction in the lending interest rates.
● Bank advances to the MFIs shall continue to enjoy “priority sector
lending” status. However, advances to MFIs which do not comply
with the regulation should be denied such status.
● MFIs should be encouraged to issue preference capital with a ceiling
on the coupon rate and this can be treated as part of Tier 2 capital
subject to capital adequacy norms.

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RECOMMENDATION #10 Monitoring of compliance

● The primary responsibility for ensuring compliance with the

regulations should rest with the MFI itself and it should be penalized
in case of noncompliance.

● Banks should also conduct surveillance of MFIs through their

branches.

● The RBIs should have the responsibility for off-site and on-site
supervision of MFIs.

● The RBI should have the power to remove from office the CEO
and/or a director in the event of persistent violation of the regulations.

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RECOMMENDATION #11 Legislation

● a) Moneylenders Act: According to the Committee, NBFC-MFIs

should be exempted from the provisions of the Money Lending Acts,
especially since there are recommendations regarding interest margin
caps and increased regulation.
● b) The Micro Finance (Development and Regulation) Bill, 2010
● c) The Andhra Pradesh Micro Finance Institutions (Regulation of
Money Lending) Act
● If the Committee’s recommendations are accepted, there shall be no
need for a separate Andhra Pradesh Micro Finance Bill.

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● According to Y H Malegam which are the components of pricing?

● A) Processing Fee @1%, Insurance and Interest Rate
● B) Processing Fee @ 2% and Interest Rate
● C) Processing Fee, Interest Rate and Legal Charges
● D) Processing Fee @ 1%, Interest Rate and Advance Commission

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● Y H Malegam committee sets interest rate for microfinance at __

● A) 22%
● B) 23%
● C) 24%
● D) 25%

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● Which are the following statement are correct according to Y H

Malegam?
● A) Every MFI should provide the borrower with a loan card which
shows the effective rate of interest and other terms and conditions.
● B) There should not be any recovery of the security deposit.
● C)There should be a standard loan agreement.
● D) All the Above

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● What is the tenure of the loan according to Y H Malegam Committee?

● A) 12 Months for loan less than Rs.15,000
● B) 12 Months for loan less than Rs.20,000
● C) 24 Months for loan less than Rs. 15,000
● D) 24 Months for loan less than Rs. 20,000

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● Microfinance and poverty

● Microfinance and economic development
● Microfinance and rural development
● Microfinance and women empowerment
● Microfinance and informal finance sector
● Microfinance and small business development.

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Issues faced by microfinance in India

● Financial illiteracy
● Low Outreach ● Loan Default
● Lack of information ● Low Education Level
● Inability to generate funds ● Language Barrier
● Heavy dependence on banks & FIs ● Late Payments
● Weak governance ● High Transaction Cost
● Interest Rate ● Lack of access to Funding
● Regional Imbalances ● Loan Collection Method
● Negligence of Urban Poor ● Unregulated Microfinance
● Client Retention Institutions
● Lack of Insurance Services

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Development of microfinance in India

● Commercial banks nationalized in 1969 and directed to lend 40% of their loan at
concessional rate to priority sector (agriculture and other rural activities and weaker
section of society in general).
○ Aim - provide resources to help the poor to start their micro enterprise to attain
self sufficiency.

● GOI launched
○ Small Farmers Development Scheme (SFDS) 1974-75,
○ Twenty Point Program (TPP) 1975,
○ National Rural Development Program (NRDP) 1980
○ Integrated Rural Development Program (IRDP) 1980
○ Rural Landless Employment Guarantee Program (RLEGP) 1983
○ Jawhar Rozgar Yojna (JRY) 1989

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List of the Re-structured Twenty Point Programme -

2006
Point
No.
Item

1 Poverty Eradication

2 Power to People

3 Support to Farmers

4 Labour Welfare

5 Food Security

6 Housing for All

7 Clean Drinking Water

8 Health for All

9 Education for All

10 Welfare of Scheduled Castes, Scheduled Tribes, Minorities and OBCs

11 Women Welfare

12 Child Welfare

13 Youth Development

14 Improvement of Slums

15 Environment Protection and Afforestation

16 Social Security

17 Rural Roads

18 Energization of Rural Areas

19 Development of Backward Areas

20 IT enabled e-Governance

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Development of microfinance in India

● The planning commission constituted a committee in 1997 to review the effectiveness of

self-employment and wage employment programs.
○ Recommendation to merger all self employment programs and shift importance from
individual beneficiary approach to a group based approach.

● On 1st April 1999 a Swarnajayanti Gram Swarojgar Yojana (SGSY) launched by

amalgamating programs like IRDP (Integrated Rural Development Program), TRYSEM
(Training of Rural Youth for Self Employment), DWCRA (Development of Women and
Children in Rural Areas), SITRA (Supply of Improved Toolkits to Rural Artisans), GKY
(Ganga Kalyan Yojana) and MWS (Million Wells Schemes).
○ It was a program covering all aspects of self-employment such as formation of Self
Help Groups (SHGs), training, credit, technology, infrastructure and marketing.
○ The program aimed at establishing a large number of microenterprises in rural areas

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Development of microfinance in India

● India advocated financial inclusion of majority of population for

economic development of our country

● In August 2014, Pradhan Mantri Jan Dhan Yojana (PMJDY) launched

to enable individuals to open bank savings account with no minimum
balance requirements, a debit card, an overdraft facility of INR 5 000
per household, as well as an accident and life insurance.

● As of November 2016, around 255 million bank accounts were

opened, with over 54% of them accompanied by an Aadhaar number
and a balance of over INR 456 billion under the scheme.

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Development of microfinance in India

● Microfinance service providers:
○ National Bank for Agriculture and Rural Development (NABARD),
○ Small Industries Development Bank of India (SIDBI) and
○ Rashtriya MahilaKosh (RMK).

● NGOs which lend credit to SELF HELP GROUP (SHGs):

○ MYRADA in Bangalore,
○ Self Help Women’s Association (SEWA) in Ahmadabad,
○ PRADAN in Tamilnadu and Bihar,
○ ADITHI in Patna, SPARC in Mumbai.
 
● The NGOs that are directly providing credit to the borrowers:
○ SHARE in Hyderabad,
○ ASA in Trichy,
○ RDO LOYALAM Bank in Manipur

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Thank You

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