Distribution channel of Micro Finance institution in India

Group No. 7

Contents
2 Literature Review
4 Distribution Issues
5
Initiatives
6 Further Analysis
3 Financial Services Vs FMCG
1 Introduction
Lit. Review Distr. Issues Distr. Strategy Initiatives Future Action Fin. Ser. Vs FMCG Intro
Definition
It refers to the provision of financial services to
low-income clients.
Credit
Savings/Deposits
Insurance Plans
Money Transfer
Key Features of Micro Finance
Lend to
the poor
Do not
take
security
Prefer
saving
over
borrowing
Small
short-
term
loans
Cost
covering
interest
rates
Prefer
women
customer
s over
men
Microfinance is small scale financial services
Intro Lit. Review Distr. Issues Distr. Strategy Initiatives Future Action Fin. Ser. Vs FMCG
It refers to the provision of financial services to low-income clients.
Fin. Ser. Vs FMCG Intro
Lit. Review Distr. Issues Distr. Strategy Initiatives Future Action Fin. Ser. Vs FMCG Intro

5
What low
income
clients
need?
Protection
against Health
shocks
Need to build or
improve homes
Lifecycle needs
Send money to
their families
when migrate
Protect against
sudden death
Protection against
weather shocks
Protection against
loss of assets
Intro Lit. Review Distr. Strategy Distr. Issues Initiatives Future Action Fin. Ser. Vs FMCG
The race to the bottom, Rajiv Bhuva
Addressable market size of 6-7 crore potential customers with market size of Rs 40,000
crore (current 50 Lakhs customers are tapped)

Reaching customers through wholesale lending by MFIs, alliance partners with local area
banks, large corporates entering big retailing and contract farming

MFI industry is dominated with several innovations as under
Franchisee model: ICICI Bank in collaboration with Intellecap, an MFI development
company, and Cashpor, an MFI
ABN Amro Bank is using the ABN Amro India Foundation (AAIF) to create capacities
among start-up MFIs in the underserved regions.

International banks can be classified as three distinct types:
Those that enter micro-finance business alone
Specialised banks, which focus on micro-finance, such as Mibanco of Peru and K-REP
Bank of Kenya,
Banks for which micro-finance is a public mandate, such as Bank Rakyat Indonesia
and Banco do Nordeste of Brazil.
http://business.outlookindia.com/inner.aspx?articleid=252&subcatgid=161&editionid=17&catgid=7
Intro Lit. Review Distr. Strategy Distr. Issues Initiatives Future Action Fin. Ser. Vs FMCG
Getting BoP Products in Consumers HandsMFIs and Micro-dealers,Nilima
Achwal
Difficult to reach a BoP member - physically or in marketing - to sell any product.

Patnership between Microfinance institutions (MFIs) and BOP product company.

Benefits: interest on products bought on credit, commissions to the MFI or to loan officers
for selling the products

Degrees of MFI involvement:

Consumer financiers, where the MFI agrees to offer loans for the borrowers to buy
the products
Customer order aggregators
Micro-dealer facilitators, employing borrowers to be salespeople in their own
communities
MFIs as sales agents, having loan officers sell the products directly
http://business.outlookindia.com/inner.aspx?articleid=252&subcatgid=161&editionid=17&catgid=7
Characteristics Financial Services FMCG
Product Definition Not very well defined
Eg: Current account consists
of several elements
Very well defined

Eg: A soap is a single entity
Brand Differentiation Build long term relationships Commuinicate competitive
edge or USP
Consumer Motivation Customer loyalty is easier Customer loyalty is hard to
win and retain
Measurement of brand
strength
Concept of repeat purchase
is less meaningful. Focus is
on qualitative data.
Accurate measurement due
to methods such as
awareness levels and
propensity to repurchase
Product Benefits Product benefits might
confuse the consumer
Product features help attract
the consumer
Intro Lit. Review Distr. Issues Distr. Strategy Initiatives Future Action Fin. Ser. Vs FMCG
Competition Scale Of Investment
Scattered Customers Rural Infrastructure
Irregularity In Payments Cultural Diversity
Competition - new financial service
providers
Continuous pressure to maintain growth
Concentration on urban areas
New branches require high capital outlay,
advanced technologies and providing
educational facilities
Lower funds available due to lower income
Average income levels of rural households
lower by 85% compared to urban
households
Rural consumption is subject to income
irregularities

Accessibility problem in rural areas
Huge costs on infrastructure
Lack of accessibility, awareness and
willingness
Lack of infrastructural facilities like roads,
electricity, telecom and internet
Operational hurdles for players

Local customs, culture and language
problems

Involved in agricultural activities
Fail to make regular investments as income
is dependent on monsoon
Intro Lit. Review Distr. Issues Distr. Strategy Initiatives Future Action Fin. Ser. Vs FMCG
Distr. Strategy
1. MFI as Sales Agent
2. MFI as Micro dealer
Facilitator
3. MFI as Customer
Order Aggregator
5. MFI as Consumer
Financer
4. MFI as Customer
Data or Access Provider
MFI Distribution Channels in India
Intro Lit. Review Initiatives Future Action Fin. Ser. Vs FMCG Distr. Issues
Applications of Different Distribution Channels
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Intro Lit. Review Distr. Strategy Distr. Issues Initiatives Future Action Fin. Ser. Vs FMCG

The Micro Finance Institutions (Development and Regulations) Bill 2011

The Reserve Bank of India is the sole regulator for all microfinance
institutions, with power to regulate interest rate caps, margin
caps, and prudential norms. All institutions must register with RBI.
Formation of a Micro Finance Development Council, which will
advise the central government on a variety of issues relating to
microfinance
Formation of State Advisory Councils to oversee microfinance at
state level
Creation of Micro Finance Development Fund for investment,
training, capacity building, or other expenditures as determined
by RBI

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Andhra Pradesh Microfinance Institutions (Regulation of Moneylending)
Act, 2010
Aimed at regulating the sector in general by keeping tabs on the lending and recoveries
of the MFIs in the state.

The ordinance prohibits MFIs from lending to the self help groups (SHGs) that are already
covered by the formal banking system without seeking prior approval of the banks.

Similarly, the MFIs are also mandated to change their recovery practices from weekly
basis to monthly basis.

The MFIs are also asked to conduct their meetings with the borrowers in a prominent
government facility like village panchayat office.
Intro Lit. Review Distr. Strategy Distr. Issues Initiatives Future Action Fin. Ser. Vs FMCG
Distribution challenges for MFIs
Customer acquisition and retention
penetrating new markets
servicing hard-to-reach areas
Product diversification
being able to offer valuable products such as micro-savings
remittances, profitably and efficiently
Operational efficiency
reducing branch congestion
getting the most out of the MFIs tellers and loan officers
reducing cash in the financial system to save money
more transparent, less vulnerable to fraud risk, and safer for the client
Cash reduction
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Traditional Distribution Model
Branches
Loan
Officer
Clients
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Future Distribution Model
Retail outlets,
payment systems,
(ATMs, POS, cards,
cell phones)
Promoters Clients
Intro Lit. Review Distr. Strategy Distr. Issues Initiatives Future Action Fin. Ser. Vs FMCG
Future Distribution strategy
Replace cash-based transactions with debit- and credit-
card-based business models
Use of banking correspondents and agents to increase
convenience to the end customer
Incorporation of microfinance into cell-phone banking
platforms
Development of multi-channel strategies
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Questionnaire
Field Interviews
Does your organization engage in Direct Selling ? Yes / No (dichotomous)

Question 4

If Yes, Then which of following approaches are effective? (First two)
1. Direct Mail 2. Targeted Press Advertisement 3. Leaflets 4. Radio


Question 5

What is the head-count of your organization/branch? Of these, How many are
part of the Sales Force?
Question 2

Name and Experience in the Industry?

Question 1

What are the Major Channel Outcomes intended at your Organization? (MCQ)

1. Costs 2. Volumes 3. Control 4. Flexibility

Question 3

Field Interviews
Questionnaire
If yes, Then what determines the use of Multiple Channels? (MCQ)
1. Nature of Products 2.Costs/Investments 3.Socio-Politico Factors
Question 7

Are there Multiple Channels deployed in your Organization?

Question 6


In your estimate, what percentage of total potential market/clients do you
currently reach through microfinancial services


Question 8

What/How is the Nature of Training provided to the Sales Staff?
. Question 9

Field Interviews
Questionnaire
What are the challenges faced in distribution for MFI Products?



Question 11

What kind of Sales Promotion Schemes are carried out by your organization?
( MCQs)
1. Time Bound 2. Activity-Based 3. Segment- Focussed

Question 13

Is the regulated environment an impediment to channel design? Yes/No
Question 12
How has technology been used to improve channel design ?
Question 14
How often is the Marketing Channel Audited and What are the Parameter
involved?
Question 15




Thanks!