Tags : Strategy & Management, SKS Microfinance, Ritesh Chatterjee, Financial Services, Credit Bureau, Chief Process Officer, Cashless, biometric, Bharat Financial Inclusion, Aadhaar- based instant loan approval
The Hyderabad-based firm is among the largest microfinance companies in India with a presence across 18 states covering 1,00,000 villages, catering to its 63.65 lakh women members. It provides collateral-free loans to individuals, usually women, to fund income-generating activities like Kirana shops, poultry farms and tailoring shops. Bharat
Financial Inclusion is the only microfinance entity to have the lowest interest rate of 19.75 % in the industry. It disburses loans of over Rs 15 crores every year.
In an industry-first initiative, the MFI is leveraging Aadhaar which is already the world’s largest biometric database to dole out loans instantly.
In the new system based on Aadhaar-enabled biometric authentication, the members can apply for a loan instantly. At the start of a weekly meeting at the loan center, the Sangam manager/ loan officer announces the names of the members who are eligible to take the loan. He then asks every eligible member if she would like to take the loan on that particular day. If the member is interested, she can apply for the loan instantly.
Her data will be, then, sent to the credit bureau for approval. The status report/ update from the credit bureau is received within 10 seconds and the client is informed about her eligibility status. After taking the member’s consent, her loan is processed for disbursement. If the member has a bank account registered with Bharat Financial Inclusion, then the loan amount is credited to her account on the same day.
The transaction happens on the Sangam manager’s tablet device. The member is asked to place her finger on the biometric device on the tab. The data is sent for verification and the response is received.
After the KYC verification, the data is sent for credit bureau clearance. Once the member has been verified, she is deemed eligible for the loan. All of this happens in just about 15 seconds. If the member is eligible the Sangam manager fills the loan form based on her requirement and takes her signature. He then gives her a carbon copy of the application form, collects the insurance and loan fee. This completes the instant loan disbursement process and the loan gets credited on the same day.
The digital initiative is aimed a providing an abiding competitive advantage and customer delight. It will increase the ease of doing business and will help the MFI take the big tech stride towards cashless transactions.
With the instant loan approval, it will be able to dole out loans easily. “Typically, if a member participates in a center meeting today, she doesn’t know if she will get a loan until next week. Even if she is eligible for the loan by our company standards we still need approval from a credit bureau. The offline procedure would take time. And if she has an immediate need for finance, she will scout the market for a loan during the week-long wait. By giving her instant approval, under the new system, we prevent her from going to the competition,” explains Ritesh Chatterjee, Chief Process Officer, Bharat Financial Inclusion.
The digital initiative provides the MFI a sure-fire way of enriching its data with the government certified Aadhar scheme. “Bharat Financial Inclusion is targeting a customer base of over 95 lakh customers in the next 18 months. With the new system, we will have the most authentic data coming from Aadhar. This will ensure that we bring the right members on board. For instance, if a member owes an amount of over Rs 1.5 lakh to another MFI or is enrolled with 3 other MFIs then there’s no point bringing her on board. She will provide little in terms of business opportunity. That’s where the Aadhaar- based authentication helps the microlender filter customers based on their credit history,” explains Srinivas Peddada, CIO, Bharat Financial Inclusion.
The system has been piloted successfully in the Bhubaneshwar and Puri branches. And the response has been overwhelming. Over the next one year, Bharat Financial Inclusion aims to provide biometric devices and SIM card for all its 10,000 Sangam managers. In the long run, the cost benefits realized from the initiative will be passed on to the members.
By Dr Priyanka Jayashankar, Associate Editor
Microfinance Focus, May 09, 2013:
(On the sidelines of the 9th Annual Zell Center Chicago Microfinance Conference, Priyanka Jayashankar spoke to Accion Chicago’s COO Robin Lee Greiner and CEO Jonathan Brereton).
“We believe the board has to be actively engaged and lead committees ranging from portfolio research, review, audit, marketing and fund raising to research and policy,” emphasized Robin Lee Greiner, the COO of Accion Chicago. She made a strong case for corporate governance to promote best practices in microfinance. In her view, robust credit policies and loan-loss provisioning enable organisations like Accion Chicago to remain sustainable in the long-run.
Practical solutions to lofty goals
Accion Chicago is contributing its mite to strengthen the microfinance industry in the Midwest. The organisation partnered the City of Chicago to form the Chicago Microlending Institute, which could serve as a platform for sharing best practices and promoting micro-lending among other organisations. Currently, Accion Chicago covers 90% of the microloan market in Illinois and Northwest Indiana. However, it meets only 10% of Chicago’s credit needs. “We want the microfinance industry to grow as there are very few strong players. It is good for the industry if there is healthy competition,” stated Robin Lee Greiner.
Accion Chicago, which has the backing of the US Small Business Loan Administration, the US Department of Treasury, the US Department of Commerce, Illinois Department of Commerce and Economic Opportunity and the City of Chicago, is also witnessing more self-employment in the recession era. “It is a historic reality that people who are laid off turn to self-employment,” pointed out Jonathan Brereton, the CEO of Accion Chicago.
Microlenders can play a catalytic role in job creation and help channelize the government’s stimulus funds (in the form of microloans) towards microenterprises in times of a credit crunch. “The government needs organisations like ours to promote small businesses. We provide a practical solution to a lofty goal, as we know how to create jobs,” said Robin Lee Greiner.
Product development and outcomes
Accion Chicago offers ‘Credit-Builder’ loans in the range of$500 to $2500 for entrepreneurs to purchase equipment or manage inventory. Start-up loans and business loans are offered up to the maximum limits of $20,000 and $50,000 respectively. Usually, 18 months is the shortest loan tenor. While describing how clients, who initially avail of credit builder loans, eventually borrow loans of a higher denomination, Robin Lee Greiner noted, “About 25% of the clients who repay our loans come back to us borrow more.”
Accion Chicago has adopted an individual lending model and it encourages its clients to graduate into the mainstream banking system. “Internationally, the line between consumer micro-lending and business micro-lending has been blurred,” said the CEO Jonathan Brereton, and he pointed out that Accion Chicago only caters to the credit requirements of businesses.
Accion Chicago has also conducted a study to assess how its microloans have impacted job creation, business expansion and income generation. Greiner believes that loan products have to be customized as per the requirements of different market segments. “We can customize solutions, as clients’ requirements in New Mexico would be different from those of clients in Chicago.”
The organisation is also leveraging social networking sites to innovate its marketing strategies. A pilot test is currently taking place with the professional networking site LinkedIn, wherein an Accion Chicago loan officer can approach a bank officer, if he/she rejects a loan application. “This way, we can draw more loan applicants,” explained Robin Lee Greiner.
Reaching out to minorities
Accion Chicago is joining hands with minority-run businesses. About 70% of its clients are people of color and 19% are Latinos. First-generation entrepreneurs constitute 20% of Accion Chicago’s clientele. “Immigrants need microfinance as they do not have any credit history,” pointed out Accion Chicago’s COO.
While only 20% of the businesses in the US are run by women, 48% of Accion’s clients are women. “As long as we are increasing credit access for female entrepreneurs, minority entrepreneurs, we feel are we are being successful,” said the CEO Jonathan Brereton. Accion Chicago’s clients have forayed into sectors such as food and beverages, retail, construction, transport and services.
The organisation has roped in a team of ethnically diverse loan officers to serve its multicultural clientele. The loan officers impart financial education to the clients and also refer them to partner organisations. Indicating that only one out of every ten loan applicants is selected, Robin Lee Greiner reasoned, “it won’t serve anybody if we give a loan that he/she can’t understand or afford to pay back.”