Case 5 The MFI BC Business Model Case Study
Case 5 The MFI BC Business Model Case Study
Case 5 The MFI BC Business Model Case Study
Acknowledgements
This study would not have been possible without
the support of the Bill & Melinda Gates Foundation.
We would also like to thank Cashpor, ICICI Bank and
Eko India for their support to the project and the
case study. Lastly, we would like to acknowledge
Intellecap as a knowledge partner in the
development of this case study.
Except for use in a review, the reproduction or utilization of this work or part of it in any form or by
electronics, or other means not known or hereafter invented, including xerography, photocopying,
recording, and in any information storage, transmission or retrieval system, including CD ROM, online or
via the Internet, is forbidden without the written permission of Grameen Foundation.
Contents
Executive Summary ..............................................................................................................................3
Section I : Financial Viability & the Business Correspondent Model ......................................................5
Section II : Understanding the Business Model......................................................................................6
Section III: Analyzing the Business Model .............................................................................................9
Section IV: Strengths and Weaknesses of the Model ...........................................................................13
Section V: Conclusion..........................................................................................................................15
Annexure I: About the Project.............................................................................................................16
Executive Summary
Access to finance helps poor families build assets,
cope with risks and climb out of poverty. Poor
households have irregular income flows and need
credit services to invest in livelihood generating
opportunities, savings to meet planned and
unplanned expenditures and insurance for risk
management. Hence, it is important that they are
able to access a wide range of financial services.
Financial inclusion, therefore, has been identified as
a priority area by policy makers and donors the
world over.
http://gpfi.org/about-gpfi/about-the-g20/why-financial-inclusion-matters
Grameen Foundation's Microsavings Initiative is a three year project funded by the Bill & Melinda Gates Foundation. It was
launched in November 2009 with a goal of reaching 1.45 million new savers in Asia and Africa by the end of
2012.http://www.grameenfoundation.org/microsavings-initiative
3
Financial Viability:
The project has earned lower revenues than costs
incurred in the initial 20 months. It is projected that
in FY 2013-14 (See figure 1.1), the incremental
revenues generated will be able to meet
incremental costs.
4,000,000
3,500,000
3,000,000
2,500,000
2,000,000
1,500,000
1,000,000
500,000
0
2012
2013
Fiscal Year
Direct Income
4
Direct Costs
2014 (projected)
Section I:
Financial Viability & the Business
Correspondent Model
Even after 65 years of Independence, a large
proportion of India's population is excluded from
the financial mainstream. Financial inclusion,
therefore, occupies a preeminent spot in the
development agenda of the Government of India.
As per a World Bank study, about 65% of adult
Indians do not have an account in any formal
financial institution; the figure is even more dismal
for women, with a mere 26% linked to any formal
financial institution. In a one year period (April
2011-March 2012), only 12% of the adult
population used a formal account for savings and
8% availed loans from a formal institution.
Demirguc-Kunt, A. & Klapper, L., Measuring Financial Inclusion: The Global Findex Database Washington D.C: The World Bank, 2012. Retrieved from
http://wwwwds.worldbank.org/servlet/WDSContentServer/WDSP/IB/2012/04/19/000158349_20120419083611/Rendered/PDF/WPS6025.pdf
The financial year in India starts from April
Ibid.
Tyler, E., Ravi, A. et.al. From Social Banking to Financial Inclusion: Understanding the Potential for Financial Services Innovation in India Washington
D.C: New America Foundation, 2012. Retrieved
fromhttp://newamerica.net/publications/policy/from_social_banking_to_financial_inclusion_understanding_the_potential_for_fin_0
Sa-Dhan.Financial Inclusion: A Study on the Efficacy of Banking Correspondent Model.India: Sa-dhan and Citi Foundation, 2012. Retrieved from
http://www.citigroup.com/citi/microfinance/data/business_cor_study.pdf.
The Customer Service Point (CSP) is typically a recognizable person in the village who are either stationary (typically a shop in the village) or mobile
(visiting a series of villages on pre-defined days and offering door-step services), offering account opening, deposits, withdrawals and balance
checking on behalf of the BC.
Section II:
Understanding the Business Model
123,426
INR 105,637,098
INR 248
Active Accounts
EKO
ICICI Bank
Cashpor (BC)
Mobile Tower
Eko Server
Mobile Tower
Section III:
Analyzing the Business Model
This section examines costs that are incurred in
running the savings operation as well as the tradeoffs and decisions that have significantly impacted
costs. It also analyses the sources of revenue and
proportion of revenue generated by each source.
Revenue
Cashpor's savings program revenues are
commissions that it receives from ICICI Bank, with
three drivers: - new accounts, transactions and float
(balance maintained in the accounts).
2,500,000
2,000,000
1,500,000
1,000,000
500,000
0
Fiscal Year
2012
Enrolment Income
2013
Transactions Income
9
2014 (Projected)
Float Income
Costs
4,000,000
3,000,000
2,000,000
1,000,000
0
2012
2013
2014 (Projected)
Fiscal Year
Incentives costs
Digitization
10
Admin costs
Training costs
11
209,306
0
(500,000)
(1,000,000)
(1,092,997)
(1,357,677)
(1,500,000)
2012
2013
2014(Projected)
Fiscal Year
60
40
20
0
2012
2013
12
2014
Section IV:
Strengths and Weaknesses of the Model
In order to develop a comprehensive understanding
of the model and determine its financial viability, it
is important to take stock of the strengths that
would help it become sustainable and weaknesses
that need to be improved upon.
For the past 8 years, Noorjahan and her group of 24 friends have been part of the Cashpor's BX Dhamariya Center. They meet every week
to repay the loans that they have taken from Cashpor for income generating activities ranging from saree weaving, tailoring to running a
small shop. All 25 women in the group have opened savings bank accounts, and save regularly.
The members recall that they readily opened the savings bank account as they had trust in Cashpor due to their longstanding relationship
with members had a bank account. We thought that bank accounts were meant only for the rich. She further elaborates, As there are
no restrictions on the amount of deposit, we generally deposit any money leftover after we pay the loan installment (for example, if they
have to repay INR 470 as installment, the members generally get a INR 500 rupee note, and save INR 30 each time they repay the
installment).
13
14
Section V:
Conclusion
Financial viability is a major concern for BCs as its
facilitation requires a long gestation period. Insights
from the Cashpor project show that leveraging
existing infrastructure, rather than creating a
parallel BC infrastructure helps not only in keeping
the fixed costs low but also proves beneficial in
acquiring customers for the savings operation.
Moreover, MFIs like Cashpor who have an
understanding of the financial inclusion space, a
ready customer base and robust risk management
systems have the necessary prerequisites to run a
successful BC.
Annexure I:
About the Project
An estimated 145 million people in India are
unbanked. Only 55% of Indians have a deposit
account in a bank and a mere 9% have credit
accounts. Less than 20% of individuals own any kind
of life insurance and less than 9% own any other
type of insurance. Last mile reach and appropriate
products are major challenges in financial inclusion,
and the RBI is trying to correct this through various
policy measures such as promotion of No Frill
Accounts (NFAs) in 2005 and the technology driven
Business Correspondent (BC) Model in 2006.
Small savings solutions have a big impact on the underserved. Goddi lives in Dewhai, a small village 75 km from
Varanasi. She is 30 years old and is married and has four children. She and her husband own six buffaloes, and earn an
income by selling milk. Goddi first heard about Cashpor from her fellow villagers. She needed money to invest in the
farm and to buy animals, so gaining access to credit from Cashpor was a good fit. A few months ago, a Cashpor field
officer told her about its savings account and how it could help her to save in order to provide security for her family.
Goddi didn't think twice about it she opened an account immediately and began depositing her savings there. She
puts money in her savings account every week, even if she only has 10 rupees ($0.20) to deposit. This is her first
savings account at a bank; before this, she used to hide money in rice bags, and rats would occasionally get into the
bags and eat her money. With h er savings account at Cashpor, Goddi can be assured that she is saving money in a
safe place and can access it if she chooses to grow her business or needs to pay for an emergency expense.
16
Impact
The enrollment numbers in the project demonstrate
that the initiative has helped meet the demand for a
reliable and safe place for Cashpor customers to
keep their money. The savings service is offered at
131 branches in eight out of 20 districts that Cashpor
operates. As of March 2013, more than 120,000
customers have opened accounts with an average of
with an average savings balance per member of INR
248 (~4.16)
EKO/Project Management: Ensures that all aspects of our work are integrated as we
facilitate the entire process required for credit-only organizations to offer savings
products.
Project Management
Change Leadership: Facilitate changes required to transforms Cashpor from a creditonly institution to one that incorporates savings through appropriate interventions
such as capacity building of staff.
Change Leadership
Market Research,
Data Analytics &
Product Design
BC Project
Information Technology
17