Dr. P.V. Viswanath

 

pviswanath@pace.edu

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FIN 680V/ FIN 360:
Microfinance and Small Business Financing in India

 
   

Report on the class's trip to India. The report is put together from write-ups from several individuals.

Day 4: Thanjavur

On Wednesday, we ventured to Thanjavur, where we went to meet with Kshetriya Gramin Financial Services (KGFS).  KGFS mission is to “maximize the financial wellbeing of every individual and every enterprise by providing complete access to financial services in rural India”.  

In the morning, we went to the KGFS offices, where Mr. Guru, the CEO, and Mr. Ravi, the head of the Vellaaru KGFS talked to us about the KGFS method. KGFS employs wealth managers, who get to know their customers and ascertain their income, assets, liabilities and expenditures, as well as their living environments and circumstances.  The wealth managers find out their customers goals and set out to help their customers achieve these goals by breaking the goals down into monthly terms. (Jianqiao)

KGFS provides structured products to provide insurance to household earners.  They encourage their customers to have diversified investments; for example they encourage them to not only open savings accounts but to also invest in commodities such as gold.  This diversification technique also helps KGFS to reduce the risk of loan delinquencies.

The presenters mentioned that they were focusing on bringing wealth management to India.  After a household enrolls at the branch, the wealth takes them through the four building blocks of financial stability: Plan, Grow, Protect and Diversify.  “Plan” is a process that assists the household to account for all its current and planned expense against current and future income.   Plan helps the household to assess their present situation and their financial goals.  “Grow” is when the household attempts to increase your income, decrease your liabilities, or make use of your assets.  “Protect” is when the wealth manager seeks to ensure that extreme shocks don’t result in the household having to reduce basic needs. “Diversify” relates to what households should do in reference to their current assets to ensure optimal returns.  Although they were trying to promote wealth management, there was an element of risk management involved as well.  (Khalid)

Over the past 4 years KGFS has accumulated over 130,000 customers.  Mr. Guru felt that inappropriate incentives for MFI employees were probably the reason for the recent crisis in Andhra Pradesh. He explained that KGFS wealth managers do not receive incentives for lending, and also explained that their rate structure is based on Cost, Loan Loss Provisions and Return on Equity.  He explained that most of their loans are based on Joint Lending Groups – this policy helps KGFS to weed out risky borrowers, as non-risky borrowers will not want to pair up with risky borrowers. In terms of mission drift, Mr.Guru admitted that they want to be profitable; however it was not their only goal. KGFS wants to take care of all the people in the area, poor and rich, male and female. He noted that they have instituted auditing measures to maintain a balance between the profit goal and social mission goal. (Jianqiao)

After leaving the KGFS offices, we went to visit one of their financial institutions in Mathur village, to get a first-hand experience of how KGFS branches operate.  Upon arrival we noticed that most of the clients in the bank were women, which tied back to our classroom lecture where we learnt that most Microfinance institutions focus their lending on women.  We were first given a brief introduction about the KGFS model. We were told that the KGFS model has the advantages of low-capital requirements, low operation cost and low break-even volume, compared to a rural commercial bank. Most of the employees of the branches came from the local district in order to obtain the trust of the local community; this also has the advantage of avoiding language problems. However, the managers of each branch would be selected from nearby villages in order to avoid biases in lending. After the introductory lecture, the staff there showed us their information management system, which records nearly all the information of each member and household, such as income, education level, financial records, properties. Customers themselves could also access to most of this information; hence they would understand the benefit of being a safe borrower clearly. When discussing competition among different MFIs, the staff said that they try to gain a competitive advantage by creating new products rather than competing on price. After leaving the branch we also went to visit the home of one of the villagers, who explained the benefits of the loans and insurance policies provided to her household by KGFS. (Jianqiao)

The KGFS visit really impressed to me, letting us obtain a first hand understanding of microfinance in practice and giving us a vivid picture of the importance of microfinance for to the poor people in rural areas. (Jianqiao)

Thanjavur Selfhelp group

Lubin students with members of a self-help group related to the KGFS operation in Thanjavur

thanjavur temple visit

At the Thanjavur temple with some local fans of Pace :-)

branch

KGFS Branch at Mathur -- most of the clients are women

guru

Group Picture with Swathi, an economist at KGFS

Day 5: Kanchipuram

On Thursday we went to Kanchipuram, where we visited Hand in Hand (HIH).  We started off with a presentation by several people, including Mrs. Dr Kalpana Sankar, CEO, Hand in Hand, India. HIH started out as a small NGO, operating in the South Indian state of Tamil Nadu in 2004 with only 10 people working under her Dr. Sankar now there are over 3500 people.

The officers at HIH explained to us that three-hundred million people in India live in abject poverty, earning less than $2 a day.  They explained that they, like many other Microfinance Institutions, also focus on women, as a tool to fight poverty. They work to offer programs that give confidence to the poor.

Hand in Hand believes no one should be given anything for free; they claim to be socially responsible and have made loans in excess of $120 million USD in the last 8 years.  Their clients over the past 8 years have saved $50 million USD, and they have worked to reduce child labor abuses from 80% to 5% in Kancheepuram.

bauty parlor

Beauty Parlor financed by Hand in Hand

bakery

Bakery unit financed by Hand in Hand

weaver

Silk Weaving Unit in Kanchipuram

Weaving at Kanchi

Woman at work on a sewing machine bought through a Hand-in-Hand microloan

Hand in Hand operates under a 5-Pillar model for empowering the poor, including Self-Help Groups, Environment, Child Labor Elimination, Health, and Citizens Center Enterprises.  Self-Help Groups are created to monitor and mobilize women to form self-help groups, to which they make micro loans in order to help them set up small businesses.  They believe that "environmental degradation affects the poor most," so they work on initiatives such as planting trees, cleaning ponds and creating waste management programs that have impacted over 2 million households. 

After meeting with the representatives at Hand in Hand we went to meet with some of the small business owners in the villages that were affiliated with HIH.  We met with a woman, who successfully started her own bakery, through loans from Hand in Hand.  We also met with a hairdresser, and a silk weaver in the village. I felt the work that Hand in Hand provided to the villagers was the most productive of the Micro-finance institutions we visited. 

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