Comparison of SSFL with other Micro-Finance Institution in India

Chapter 1
Introduction Introduction:Microfinance has been a development and economic tool which has helped in bringing about financial inclusion in India1. It has been viewed as an important tool of women empowerment and to alleviate poverty. It has served to provide financial services and credit to the unprivileged and unbanked sector in India thereby bringing about financial inclusion. The loans provided by microfinance institutions serve the low-income population in various ways as follows: They provide purposes. working capital loans for business

They provide loans for accessing necessities such as food, clothes, shelter and education. They serve as alternatives to the loans provided by money lenders. In addition to various micro finance institutions, various other players contributing to provision of microcredit include banks, insurance companies, agricultural and dairy cooperatives, etc. The main components of microfinance are as follows: Deposits Loans Payment services Money transfers Insurance to the poor Majority of the population in India belong to the unbanked sector. Though India has a dense and a robust formal

financial system, it has failed to reach the deprived segment of the population. Next to China, India has the highest size of unbanked population in the world. Thus, microfinance sector aims to improve the living of the poor income households thereby providing banking services to the deprived low income population. The various players in the microfinance sector can be classified as follows: SHG-Bank linkage Model: This model contributes about 58% of the outstanding loan portfolio. Non-banking finance companies: This accounts for about 34% of the outstanding loan portfolio. Others: Includes trusts, societies etc. This accounts for the remaining 8% of the outstanding loan portfolio.

Scope of the study:The scope of the research is limited to the microfinance institutions in India. Also, microfinance institutions have been taken as a sample from the Microfinance Information Exchange (MIX). The five star rated microfinance institutions were alone selected. This rating has been given by MIX to the microfinance institutions based on the level of disclosure, quality of disclosure, financial parameters etc. Based on this sample of MFIs taken, the performance of the MFIs in India is analyzed. The study does not take into account the smaller MFIs in India and the MFIs in various other geographical regions in the world

Significance/Justification of Study:In trying to justify why the current study is important, it is vital to mention that researchers have found this area of study very important to the development of the socioeconomic activities in developing countries and their contributions to the development of small and medium size businesses in India. A study of this nature is equally very important because it is going to enlighten the government and the public on the role Spandana Sphoorty Financials Ltd. is playing in the Microfinance sector since it is in partnership with some NGOs and with the government. Microfinance as a whole provides the rural population a means to have access to financial services in their localities to boost their living standards in a sustainable manner in line with the millennium development goals of alleviating poverty in developing countries. They can contribute in the fight against poverty by improving the agricultural sector which is the main source of living to the inhabitants of such developing nations. Thus it will pave a way forward for potential NGOs wishing to help in the sustainable development of SMEs to understand the difficulties they may come across and how they can succeed in their endeavors. Objectives: Promote microfinance at national and community level. Increase public awareness and wider access to information on microfinance Encourage Entrepreneurship and Self-Sufficiency To investigate the extent in which SSFL helps its members in developing their small or medium size businesses. To find out whether SSFLs members feel they have reasonable and fair access micro-financing.

To study different aspects of microfinance in India for expansion of microfinance activities at SSFL.

Chapter 2 Profiles Industry profile

Indian Microfinance in the Global Context:It is critical to evaluate the progress of the Indian microfinance sector within the context of global microfinance. With one of the highest growth rates globally since 2002, the Indian microfinance sector has emerged as one of the most socially conscious, commercially viable, and financially sustainable. According to a MIX market study, India has one of the lowest average loan sizes of around $150 as well as the lowest yield on portfolio of 21.2%. The small loan size combined with the low interest rates testify to the social inclination of Indian MFIs, which seek to genuinely foster financial inclusion among the poor and alleviate poverty. In conjunction with this goal, Indian MFIs have succeeded not only in comfortably covering costs, but also returning healthy profits and Return on Assets (ROA). This highlights Indian MFIs operational efficiency and ability to function on tight budgets. True, MFIs in other countries such as Brazil and Mexico have higher profit margins, but they offer significantly larger loans with interest rates typically between 40-65%.9 The inherent efficiency and resiliency of the Indian microfinance industry proved critical during the recent financial meltdown during which growth continued unabated despite a slowdown in the flow of funds which negatively affected growth in microfinance in other markets around the world. This demonstrated selfsustainability is prognostic of the long term viability and potential of the sector. Moreover, the Indian financial system as a whole has demonstrated its long-term confidence in the industry through its own investment choices. Whereas the global average of domestic investment in microfinance hovers around 65%, over 90% of the funding in India comes through domestic channels, highlighting confidence in the

underlying business model and expectations of high future growth and returns.

Company profile:-

Spandana Sphoorty Financial Limited

About SSFL:Spandana Sphoorty Financial Limited is one of the largest Microfinance Institution (MFI) in the world. Spandana provides micro-credit and credit-plus services to low-income households and individuals to improve their quality of life. Spandana has steadfastly worked on improving processes for credit delivery and client servicing. This has helped in establishing benchmarks in operational efficiencies, cost management and customer support. Thus the viability and scalability of microfinance model has been re-enforced. Supported by leading Banks and DFIs, Spandana has demonstrated its ability to raise funds and leverage different capital structures. We constantly endeavor to deliver quality services to our clients, by reaching out to their doorstep, through our on-roll staff and by maintaining highest levels of transparency and integrity. We strive to be the most preferred employer in the Industry.

Board of Directors:Mrs. G. Padmaja Reddy Ms. M. Asha Latha Mr. Avinash Umapathy Mr. Vikram Singh Rathore Mr. Deepak Alok Mr. Lakshmi Narasaiah Gunturu Mr. Siddharth Kothari Mr. Vinit Rai

Bankers:-

Bankers to Spandana:-

Outreach:-

Key Outreach Indicators

Mar Mar 2006 Mar 2007 Mar 2008 Mar 2009 Mar 2010 Mar 2011 2005

Gross Loan Portfolio (Rs. in mn)

2,388

2,894

3,983

7,313

18,683

35,405

34,359

Cum. Disbursements (Rs. in mn)

4,887

11,274

17,814

29,687

59,890

117,998

170,932

No. of Clients (in `000)

391

784

972

1,240

2,543

4,164

5,152

No. of Borrowers (in `000)

386

722

916

1,189

2,432

3,663

4,177

No. of Branches (#)

96

208

295

435

944

1,533

1,731

No. of States

10

12

12

OUTREACH of SSFL:-

Snapshots(as on 31st March 2011):Parameters

Number of Clients Number of Branches Portfolio Outstanding Disbursements (FY 2011) No. of Districts 5.15 mn 1,731 Rs. 34,359 mn Rs. 52,934 mn 172

Products and services:-

1.

Credit Products:PURPOSE
Small Ventures

PRODUCT
ABHILASHA Income Generating Loan - (IGL) SPHOORTY Individual Loan (IL)

TERMS
-Loan Size INR 2000 to 30,000 -50 to 104 weekly repayment -Loan Size INR 15,000 to 50,000 -24 Months, monthly repayment. -Loan size INR 50,000 to 3,00,000 - 3 years tailored repayment in -Loan size INR 8000 to 15000 -12 to 24 months, monthly repayment -Loan size INR 2000 to 10,000 -50 week Weekly repayment

INTEREST RATE
12.5% (flat)

Small & Medium Enterprises

26% diminishing balance method

Karshak Individual Loan (IL)

Agriculture & Commercial

19-25% diminishing balance method 26% diminishing method

PRAGATHI Group based lending

Any Micro Enterprise

SAMRUDHHI IGL and Group based lending

Second and subsequent loan to existing borrowers of Abhilasha scheme

12.5 % (flat)

2.

Credit Plus Services:-

Spandana Jaldhara Safe drinking water intervention Access to safe drinking water, a Millennium Development Goal, is a precondition for health and for success in the fight against poverty, hunger and child deaths. Spandana has partnered with Unilever and PATH in the Spandana Jaldhara Project so that safe drinking water is available to the low income households. Spandana facilitates distribution of water purifier at affordable rates along with funding and service support to clients. Renewable-energy product portfolio The introduction of Solar lanterns by Spandan has helped in improving the conditions at the households level. It is more cost effective, reduces the use of kerosine based lighting and also plays a vital role in reducing carbon emmisions. Solar lanterns are also helping the children to study during power cuts while the elders are able to continue to work on their income generating activities. Additionally, the households also get an additional small income out of the carbon credits. Spandana is partnering with Micro-Energy Credits for this purpose. Curtail financial vulnerabilities through lifeinsurance In association with Max New York Life, Spandana offers a credit life protection for the borrower and her spouse avoiding over indebtness in case of exigency (death of borrower/spouse). About 10 million members are protected through this policy. Our endeavor in partnership with the insurer is to offer a speedy settlement of such claims to the nominee in events of an eventuality. New Market Linkages Spandana continues to explore partnerships to create new market linkages that can synergize with its existing microfinance operations.

Chapter 3 Literature Survey

Conceptual and theoretical review Concept of Microfinance:Microfinance is a general term to describe financial services to low-income individuals or to those who do not have access to typical banking services. Microfinance is also the idea that low-income individuals are capable of lifting themselves out of poverty if given access to financial services. While some studies indicate that microfinance can play a role in the battle against poverty, it is also recognized that is not always the appropriate method, and that it should never be seen as the only tool for ending poverty. Microfinance is defined as any activity that includes the provision of financial services such as credit, savings, and insurance to low income individuals which fall just above the nationally defined poverty line, and poor individuals which fall below that poverty line, with the goal of creating social value. The creation of social value includes poverty alleviation and the broader impact of improving livelihood opportunities through the provision of capital for micro enterprise, and insurance and savings for risk mitigation and consumption smoothing. A large variety of actors provide microfinance in India, using a range of microfinance delivery methods. Since the ICICI Bank in India, various actors have endeavored to provide access to financial services to the poor in creative ways. Governments also have piloted national programs, NGOs have undertaken the activity of raising donor funds for on-lending, and some banks have partnered with public organizations or made small inroads themselves in providing such services. This has resulted in a rather broad definition of microfinance as any activity that targets poor and low-income individuals for the provision of

financial services. The range of activities undertaken in microfinance include group lending, individual lending, the provision of savings and insurance, capacity building, and agricultural business development services. Whatever the form of activity however, the overarching goal that unifies all actors in the provision of microfinance is the creation of social value. Microfinance refers to small scale financial services for both credits and deposits- that are provided to people who farm or fish or herd; operate small or micro enterprise where goods are produced, recycled, repaired, or traded; provide services; work for wages or commissions; gain income from renting out small amounts of land, vehicles, draft animals, or machinery and tools; and to other individuals and local groups in developing countries in both rural and urban areas. In India, microfinance is generally understood but not clearly defined. For instance, if an SHG gives a loan for an economic activity, it is seen as microfinance. But if a commercial bank gives a similar loan, it is unlikely that it would be treated as microfinance. In the Indian context there are some value attributes of microfinance: 1. Microfinance is an activity undertaken by the alternate sector (NGOs). Therefore, a loan given by a market intermediary to a small borrower is not seen as microfinance. However when an NGO gives a similar loan it is treated as microfinance. It is assumed that microfinance is given with a laudable intention and has institutional and non exploitative connotations. Therefore, we define microfinance not by form but by the intent of the lender. 2. Second, microfinance is something done predominantly with the poor. Banks usually do not qualify to be MFOs because they do not predominantly cater to the poor. However, there is ambivalence about the regional rural banks (RRBs) and the new local area banks (LABs).

3. Third, microfinance grows out of developmental roots. This can be termed the alternative commercial sector. MFOs classified under this head are promoted by the alternative sector and target the poor. However these MFOs need not necessarily be developmental in incorporation. There are MFOs that are offshoots of NGOs and are run commercially. There are commercial MFOs promoted by people who have developmental credentials. We do not find commercial organizations having microfinance business. 4. Last, the Reserve Bank of India (RBI) has defined microfinance by specifying criteria for exempting MFOs from its registration guidelines. This definition is limited to not-forprofit companies and only two MFOs in India qualify to be classified as microfinance companies. Microfinance in India: At present lending to the economically active poor both rural and urban is pegged at around Rs 7000 crore in the Indian banks credit outstanding. As against this, according to even the most conservative estimates, the total demand for credit requirements for this part of Indian society is somewhere around Rs 2,00,000 crores.

Who are the clients of micro finance? The typical micro finance clients are low-income persons that do not have access to formal financial institutions. Micro finance clients are typically self-employed, often household based entrepreneurs. In rural areas, they are usually small farmers and others who are engaged in small income-generating activities such as food processing and petty trade. Inurban areas, micro finance activities are more diverse and include shopkeepers, service providers, artisans, street vendors, etc. Micro finance clients are poor and vulnerable non- poor who have a relatively unstable source of income. Access to conventional formal financial institutions, for many reasons, is inversely related to income: the poorer you are the less likely that you have access. On the other hand, the chances are that, the poorer you are, the more expensive or onerous informal financial arrangements. Moreover, informal arrangements may not sui tably meet certain financial

service needs or may exclude you anyway. Individuals in this excluded and under-served market segment are the clients of micro finance. As we broaden the notion of the types of services micro finance encompasses, the potential market of micro finance clients also expands. It depends on local conditions and political climate, activeness of cooperatives, SHG & NGOs and support mechanism. For instance, micro credit might have a far more limited market scope than say a more diversified range of financial services, which includes various types of savings products, payment and remittance services, and various insurance products. For example, many very poor farmers may not really wish to borrow, but rather, would like a safer place to save the proceeds from their harvest as these are consumed over several months by the requirements of daily living. Central government in India has established a strong & extensive link between NABARD (National Bank for Agriculture & Rural Development), State Cooperative Bank, District Cooperative Banks, Primary Agriculture & Marketing Societies at national, state, district and village level.