Microfinance lending in India has been proven as one of the strategies to cater to the financial needs of the lower mass market. With a sizable population in the below poverty line segment in the country, this is a market a lot of financial services players including Banks, Development Finance Institutions and Mutual Funds have been trying to cater to. FSC wanted to enter the microfinance market and build a value proposition around the lending product for the low income clientele
The Positron team was asked to assist the client in creating the market entry strategy and a long term business case.
The Positron team worked with the client for two months to initiate the project team to microfinance, lending models and intermediaries functional in the space. Subsequently, Positron created a wholesale and retail strategy for the client that approached the market in a phased manner.
Understanding the market and clientele. This stage saw the client visiting microfinance institutions, groups and borrowers across the country.
Whole sale lending phase
FSC entered microfinance market by lending to Microfinance Institutions (MFIs). Positron helped the client formulate the wholesale lending policy (lending limits and credit risk metrics). The policy also spelled out lending eligibility parameters, terms of lending and monitoring process. Positron also worked with the client to identify appropriate MFIs and initiate the due diligence process. Positron assisted the client and MFIs to come to mutually acceptable terms in relation to the Credit Facility.
Retail lending phase
Positron helped FSC to understand the retail business model in microfinance and explore the possibility to acquire an MFI to take the long term agenda forward. This phase comprised of defining retail business proposition, geography of operations, suitability of investees and alignment with larger strategic goals of FSC.
Positron has helped FSC build ~ Rs 200 CR lending book in wholesale microfinance. Positron enabled the client to become an effective part of the microfinance ecosystem to enable creation of long term relationships with multiple stakeholders.
The client is one of the first and few financial literacy players in India. It enjoys a good reputation among financial services players and leverages its understanding of the bottom of the pyramid to create & deliver innovative financial inclusion enabling programs. The Indian financial markets are seeing a change with the central bank becoming more focussed on financial inclusion as well as with non banking players making some modes of entry into the financial space.
Given the need to be relevant and build scale, the client set upon a process of drafting the organizational strategy for the next three years. But not only was it important to define the future course of action, but the client also needed someone to assess the organization’s capability and capacity to deliver this new business strategy. On the basis of these inputs, the client also wants an operating strategy to be able to transition into the new business model as well as assistance in implementing the same.
The Positron team was asked to define the proposed new business strategy, assess organization’s capability & capacity and create the implementation road map for the new business model.
The Positron team worked with the client team for 3 months on all aspects including business model, operating strategy and organizational assessment.
Positron assisted the client to launch the new business model by looking at the external environment rather than the organization’s own capabilities. Positron helped the client in recruiting key resources, pitch for resources for new model and develop new client segment relationships. Some of the key deliverables that Positron achieved are as follows:
The Bank has a distinct offering for women customers through over 80 women only branches that is staffed with women managers as well as service staff. Most of the customers typically visit the branch for routine banking transactions. Therefore the focus of the branch staff is also towards service.
Most of the customers do have access to savings that could be invested in evolved financial products but that needs a change of focus of the branch service staff from pure service to cross-sales and service.
Positron was asked to define the training needs, design the training content and deliver the program among the shortlisted branch staff.
Positron worked with the Bank for 3 months on all aspects including understanding customer satisfaction scores, key problems faced by customers, branch managerial feedback on training needs and finally designing and conducting a two day training workshop. The steps that were taken as follows:
Positron assisted the client in creation of sales through service mindset among the women’s banking staff that enables the
As part of that strategy, the client was evaluating entry into a new sector of banking infrastructure. In India, one of the major reasons for financial exclusion is paucity of banking infrastructure as compared to the bankable population. Most of this banking infrastructure represent cost centres to the banks and don’t generate enough revenue to justify a scalable presence. Hence the client wanted to examine a possibility of creating a business that creates this infrastructure outside the ambit of the Banks and presents a win – win proposition to both the banks as well as its consumers.
The Positron team was asked to review and finalize the proposed business strategy, define value proposition for all stakeholders and validate the revenue assumptions for the business model.
The Positron team worked with the client team for 3 months on all aspects including business plan, value proposition and clients.
Positron assisted the client to launch a new business in a sector that was not directly linked to the client’s core sector but uses the capabilities to deliver a superior solution. Some of the key deliverables that Positron achieved are as follows:
Microfinance Institutions (MFIs) have been a preferred vehicle for investments by Private Equity firms in the growth story in the lower mass market of the population. A significant number of investments had happened during the period 2003-2006 in the sector and the early stage investors had made large returns on their part exits from the sector. PE Firm had studied the sector from a deal perspective and wanted to understand if the potential upside remained and whether it was still a good time to invest in the sector.
The Positron team was asked to assist the client in creating the investment hypothesis and identify target investments.
The Positron team works with the client for two months to initiate the project team to microfinance, lending models and intermediaries functional in the space. Key questions answered during this period:
Subsequently, Positron created an investment hypothesis based on:
Positron has helped PE Firm understand the sector and invest in two MFIs.
Retail asset backed lending is carried out based on the income of the borrower and loan to asset value (LTV). The product is distinct for Car Loans, Commercial Vehicle and Construction Equipment finance. Retail NBFC was no different in its approach though geographically it has larger concentration in Eastern and Central India. It operates mostly in non-metro cities and towns as well as peri-urban locations with a hub and spoke model of servicing. The different verticals of business – Car loans, Commercial Vehicles, Construction Equipment and tractor loans have distinct staff at each location mostly sourcing borrowers through tie ups with new vehicle dealers. The borrower profile is people with business income and no clear proof of income – truck owners, small fleet operators and traders.
Retail NBFC had grown it business significantly during FY 2004 and FY2005. Most of the advances made during that time were for purchase of new trucks and vehicles for trade with tenure of 5 years. In 2010, Retail NBFC had a large number of clients who were completing their loans and relationship was expected to close.
Positron was asked to identify borrowers who are valuable customers and should be approached for additional advances. Also, establish a process for engaging with the existing clients and increase depth of the relationship.
Positron worked with Retail NBFC for a three-month project during the start of the financial year. The activities undertaken are as follows:
Positron assisted the client in deriving value from a customer who has a proven track record and significantly lower cost of acquisition. The project resulted in:
The client is one of the first lending organizations that lends to Proprietors and owners of Affordable Private Schools (APS).
APS is a segment which caters to children of low income households. Traditionally these schools have enrolments from a specific catchment (mostly based in urban slums and semi urban locations) and cater to the primary schooling requirements. These schools are capital starved due to the low amount of fees and lack the ability to build suitable infrastructure and teaching ability. Positron client steps in filling this gap by extending loans for various small and medium term projects like setting up labs, computers, adding classrooms etc.
The Positron team was asked to assist the client in raising debt funds for on-lending to APS.
The Positron team works with the client through the financial year in this mandate. At the start of the financial year, the target based on the number of loans to be made and disbursement cycle is divided into a quarterly requirement. Positron Team undertakes the following activities:
Positron assisted the client in raising debt required as per their business plans for the first year of operations. Now Positron continues to assist the client achieve debt raising targets on a quarterly basis.
The client is one of the first and largest wholesale lending organizations that lends to underlying financial institutions for lending programs for income generating poor women.
Any organization that lends to the poor usually does not get easy access to capital from the financial sector. Hence this wholesale financial institution was formed with the intent of supporting grass roots organizations that lend to the poor women who are doing small home based businesses for income generation. Over the years, the regulator’s focus on priority sector lending has encouraged banks to lend to these organizations directly but they would do so for large established players or those who have already demonstrated scale. So over the years, the client focussed on start ups and nurturing organizations to scale. Given this dual focus of financial and developmental agenda, there may have been lapses in the credit policy and process and now the client wishes to redefine the credit policy as well as identify cases that don’t meet the credit norms and relationships needs to be phased out.
The Positron team was asked to conduct a credit portfolio audit, design the new credit policy and identify problematic cases.
The Positron team worked with the client team for 4 months on all aspects including policy, process and product.
Positron assisted the lender to improve its credit department’s quality so as to prepare for a period of rapid growth that was expected to be launched in the next 6 months. Some of the key deliverables that Positron achieved are as follows:
The Indian Consumer is still very intimidated with innovative financial products especially those which are linked to stock market hence their engagement levels are very low. Hence despite being tempted by the high returns offered by some of these financial service products, most consumers don’t invest in these products or invest for the wrong reason. The players and the regulator realise that one of the key influencers to this investment process is communication tools or investing documents that can improve the engagement process of the investor dramatically. Some of these documents are mandatory and some being optional in nature. This was a unique initiative where the regulator also collaborated on the project. The basic problem was that all these communication tools use language and adopt a format that acts as a barrier to the retail investor.
A lot of the information being shared in these documents today is from an investor protection point of view, however the current knowledge level of the investor makes it diffcult for him to derive any benefits from it. One of the key challenges then is to design the communication tools to reflect investor protection but also investor awareness and education needs in the investment process.
Positron was asked to obtain insights from existing investors and redesign document templates that can be made compliance proof and then launched in the industry.
Positron adopted a phased approach to this project where the outcome was to be new document templates:
Positron assisted the client in an indepth evaluation of the existing investing documents, an understanding of the consumer perspective and finally redesign of the new document templates.
Some of the key deliverables from this initiative were:
The mutual fund industry typically suffers from a third party service problem – as in most of the service delivery is through a third party like an R&T agent. This makes the MF company’s service staff less confident about the service delivery and usually they end up with a haphazard approach. Also given that the company provides services through a national footprint, there are uneven service deliveries across locations due to inconsistent people quality as also changing customer expectations.
However mutual fund is a continuous relationship product. A customer is typically a customer for life. So in order to make the customer make repeat purchase, each service encounter has to be a faultless one. One of the key challenges then is to train the service staff to provide service in a confident and effective manner. Positron was asked to inculcate a feeling of confidence in service delivery among front line service staff and contact centre with over 15 cities outreach.
Positron was asked to not only identify the gaps but also intervene using learning solutions, review progress and coach on areas of improvement.
Positron is working with the company for the last 6 months on this Learning intervention for improved service delivery. The steps that Positron adopted were as follows:
Positron assisted the client in creation of a truly customer aligned service organization. Some of the key deliverables achieved from this initiative (as assessed by the Client) were: