The purpose of financial inclusion

To paraphrase Dr. Amartya Sen:

Poverty limits the options that an individual has whether in terms of food to eat or the opportunities available to get out of poverty
The ultimate purpose of financial inclusion should be to increase the options available to people

Therefore, financial inclusion should focus on: Creating robust a rural economy, and Enabling higher and more stable incomes by encouraging entrepreneurship, job creation as well as employment opportunities for rural populations

Question we have to ask ourselves: Does conventional microfinance help achieve this?

Why do people need loans?

Productive (income-generating) purposes: Higher education and job training Farming inputs and investments Starting or running a micro-enterprise

Consumption: Big lump-sum expenses (health emergencies, weddings, death, etc.) Asset purchase (housing, vehicles, etc.) Other household expenses

Conventional microcredit one-size-fits all doesnt meet the needs of borrowing for productive purposes
High interest rates Fixed interest rates Fixed duration of loan Repayment begins immediately (to inculcate repayment discipline)

Doesnt work for: Students

Farmers

Micro-entrepreneurs

Next generation of micro-credit solutions must be personalized keeping in mind the purpose of loan
Return to investors: Interest rates: Loan duration: Repayment starts: Additional flexibility: Students Interest rate or profit-sharing or equity Capped to avoid exploitation; negotiable Dependent on purpose of loan Dependent on purpose of loan Repayment tokens to skip a payment Farmers Micro-entrepreneurs

Personalizing micro-credit: Examples

Education loans: College: Repayment begins upon graduation Employability training: Combining job placement services with training Farming loans (e.g. agricultural inputs): Repayment begins after 3 month grace period Micro-venture (e.g. Safe Drinking Water, Dairy): Investors get returns in the form of profit-sharing in the enterprise Negotiation of interest rates (within capped limit) using online platform

Beyond micro-credit: Micro-franchising

Success of micro-entrepreneurs depends not just on availability of credit, but also on business viability, business management skills and business support structures Microfinance organization creates a viable franchise business model after studying local economy

Micro-franchising

Entrepreneur receives complete template for starting and running the business:
Guidance for establishing and operating the business Financial investment and affordable repayment terms Equipment and materials for setting up

Ongoing support can include:

Providing or helping procure raw materials , equipment repair and maintenance, branding and marketing, skill building

Next generation of financial inclusion will help create an ecosystem to foster development of rural economy

1. Personalization of microcredit in-line with purpose of loan

2. Micro-ventures (profit-sharing)
3. Micro-franchising (creating viable businesses)

1.66 crores
Total Value of Investment

99%
Loan Repayment Rate

CNBC-TV18 and YourStory.in 2010 Award for Excellence in Sociopreneurship

IIM Lucknow Prerna Award, 2011 for Social Entrepreneurship

July 2011 Oct 2010 May 2010

Flexible financial services to meet the needs of small farmers by extending the grace period before loan repayment starts, and offering seasonal loans with lump-sum repayment after harvest.

MicroGraam opens doors for small investors thru online lending