BPEP India Ltd: Banking Service for the poor in Bangladesh

Agenda

What is Micro finance Why Micro finance Testing Ground Bangladesh Grameen Bank Strategy SafeSave Customers Grameen v. SafeSave Strategy Grameen v. SafeSave Sustainability Grameen v. SafeSave Finances Recommendation for Mr. Subramaniam

What is Micro finance ?

Lending to Economically excluded classes Minimum or No Collateral Requirements Formal or Semi-formal Modus Operandi Helpful in developing micro-enterprise Training for Managing Finances Potential driver of Inclusive Growth in

Developing Countries Poverty Reduction Strategy

Why Micro finance ?

Major Population of Developing Countries

deprived of Banking Services Bank & Regular Lending Institutions dont consider the poor as Customers Include the poor effectively in the economic cycle of the nation Effective way to assist & empower Microenterprises both at group & individual levels Growth Driver in developing countries

Testing Ground - Bangladesh

Population of 150 million Slow Economic Progress Low Per Capita Income of population

below poverty line Slow Growth in Development, Infrastructure, Industry, & Resources Poor perceived to be non-customers by Conventional Banks

Grameen Bank Introduction

Brain-child of Nobel Prize winner Md. Yunus Institutionalized in 1983 90 % members as Poor Women Major stock holders members Minor stock holders Government Bank for the economically excluded classes Assist Poor in setting up micro-enterprises

Grameen Bank Strategy

Entered as Blue Ocean Strategy Social Entrepreneurship = Business & Social

Service at the same time New Segment Creation Target women as they are better managers of finance Credit Risk Factor
Cohesive yet non-related Group Time Bound Credit Policy

Decentralized Structure & Empowerment at all

levels Highly Sustainability as closely knitted with basic needs of major section of Population

Grameen Bank Competitive Scope

Poor Customer Women Group

Competitive Scope

Rural Geography Urban Standardized Product Risk Covered Banking

Porter- Competitve Strategy

Differentiation Competitive Adv Low Cost

Differentiation
Com pt. Sco pe

Low Cost Leadership

Integrated Focused Differentiation Focused Cost Leadership

Grameen Bank Competitive Advantage

Time

Employees Grass Root Level Better understaning of customers Customers Women Groups High Risk Suppliers Funds from International Agencies

How Long Sustainable as attached to basic needs of poor Stretch Blue Ocean

Human

Space

Over what geographies Whole of Bangladesh What kinds of physical resources Very minimal to Basic

Grameen Profile Video

Grameen Bank Limitations

Grameen model not for poorest of the poor Social Exclusion made training &

participation of the members difficult Perceived as debt trap by some Lack of Informality Less probability of success in urban areas Model inflexible for needs for livelihood, lifecycle needs, emergency needs and other social spending Malfunctioning at branch levels reported

Grameen Bank Sustainability

The model is sustainable as

It targets a huge group of customers Needs of customers are basic Creates Value for the customers Innovative idea

SafeSave - Introduction
Founded by Dr. Stuart Rutherford in 1996,

located in the slums of Dhaka. Began as a partnership between Rutherford and Rabeya Islam. Targeted the urban slum dwellers. Offered flexible savings and loans services for consumption and not only for investments.

SafeSave Strategy
Customized Products rather than Standardized

Products Concentration on Individuals rather than only groups Emphasized savings rather than loans. Hired slum inhabitants as staff to connect with the customers. Unlike Grameen bank, loans were not mandatory, and no minimum principal was required. Loans had no fixed terms or repayment schedules. Minimum Overhead expenses to reduce costs & encourage efficiency Offered savings, loans, and loan-related services at clients doorstep, daily.

SafeSave's Modus Operandi

SafeSave offered saving accounts to any resident living within 1 km distance from the branch office. All collectors were highly trustworthy slum dwellers with a few years of schooling. Loan collectors visited each client everyday at their home or business for transactions. Clients had the freedom to close their accounts any time provided no due pending. Also clients required no guarantors for loans nor attendance at weekly meetings.

Tests of Entrepreneurship
Tests of a successful Entrepreneurship :
Innovation - Highly Innovative concept
Value Creation Created economic freedom, flexibility

for a greater part of the population

Factors :
Motivation High both at top and bottom levels Capability Highly capability of the Initiator and also

the selected workers Resources Unique market of Poor customers Opportunities Good Opportunity due to untapped market

SafeSave Sustainability
Critical factors for sustainability:
Entrepreneurial Motivation Profitability and scalability over time Cost and Convenience to the customers Social impact

SafeSave team was highly motivated and responsive to its members. Repayment levels of SafeSave loans were high because clients feared loosing their access to financial services. In 2002 Shohoz Shonchoy was founded with innovative approaches to money management services for very poor villagers.

Critical factors for sustainability:

Entrepreneurial Motivation Profitability and scalability over time Cost and Convenience to the customers Social impact

SafeSave is successful in the above factors

Grameen Vs Safesave Product Strategy

Grameen MFI Standardized Product Domain Saving Behavior Safesave MFI Responsive Product

Promotes Regular Saving

Accepts Non Regular Saving

Withdrawal Restricted Behavior Borrowing Behavior

Non-restricted

Regular

Options flexible
Non-regular & Non-Fixed Periods

Repayment Regular & Behavior Amortizing in Fixed Periods Effect of Borrowing on Saving No Effect

No Saving while in-debts Saving accelerated

Grameen Vs Safesave Customer Strategies

Grameen MFI Model based on providing loans for setup of microenterprises and investments. Services offered only to women customers.

Safesave MFI Model based on savings, loans provided on the basis of savings each customer had. Services offered to both men and women.

1.

2.

3.
4. 5.

Customers considered as group of five Individual customers are considered. people. No loans for consumption, life-cycle needs or emergency needs. Inflexible schemes and policies. Encouraged loans for consumption, lifecycle or emergency needs. Flexible schemes and repayment

Grameen - II
Incorporated on the lines of Safesave to reach

the poorest of poor in both rural and urban areas. Grameen shifted its major focus on savings from both its members and the public. Provision of flexible loans to members. Joint liability was eliminated. A special program oriented towards the very poor sections including services like subsidized loans to beggars

PEST Analysis
Government helpful towards micro-finance ventures Political Regulations softened by government, e.g. tax exemptions Good ROI from micro-finance in the past Economic Support from Other parts of the World More people below poverty line Absence of regular banking for such people Use of hand held devices improves efficiency

Social

Techno

Porters 5 Forces
Entry Barrier : Low
- Government Support - Initial Capital Low

Supplier Power : Low

- Government Support -Private Firms -World Grants

Industry Competition :Medium - Few market players Grameen, ASA, BRAC,Proshika, SafeSave

Buyer Power : Low

- Less Option for poor

Threat of Substitutes : Low

- No Major Substitutes

Data Analysis - Lucrative Market in South Asia

400.00
350.00 300.00 250.00 In Millions 200.00 150.00 100.00 50.00 0.00 Population Below US$ 1per day

Population Below US$ 1per day

India 389.10

Bangladesh 63.31

Pakistan 26.88

Data Analysis - High Return on Networth

Return on Networth
Return on Networth

22.67 13.72

16.34
8.58

GRAMEEN SAFESAVE Return on Networth

ASA
BRAC

Return on Networth = Net Profit/Net Worth Industry standard is 15.33 %

Strong Growth trends in client base

Client Base Growth Trend
8000000 7000000 6000000 5000000 4000000 3000000 2000000 1000000 0 2004 Grameen 2005 ASA BRAC 2006

Data Analysis - Grameen Vs SafeSave

300.00 250.00

Net Profit per Client

200.00 In Takas

150.00

100.00

50.00

0.00 SafeSave Grameen

2004 10.59 135.09

2005 52.77 246.33

2006 70.35 250.56

Questions
? Does MFI Sector offer an attractive investment opportunity ? ? If so, which business models and organizations should be targeted by BPEP ? ? What should be the nature, kind and size of investments
Kya Karein Kya Na Karein ?

BPEP should offer ?

Micro-Finance As a Business
MFI Business is profitable in Bangladesh.

Exhibit 1 shows that countries of Indian

subcontinent are comparable in terms of Population, Economy, Human Development and Poverty.
The Business Model of Bangladesh can be

replicated to Indian Subcontinent due to comparable conditions.

However.
Lets see the financial figures to decide investment suggestion

Recommendations for Subramaniam

Does MFI Sector offer an attractive investment opportunity ? As per ROI figures, removing grant figures Grameen 22.87%(2006) SaveSafe- 6.72%(2006) ASA- 22.38%(2006) BRAC- 20.27%(2006)

Hence, it is an attractive investment Opportunity.

ROI of MFIs
30 25

20 Grameen 15 Safesave ASA 10 BRAC

0 2004 2005 2006 2007

ROI Grameen Safesave ASA BRAC

2004 8.95 12.50 27.17

2005 21.21 5.56 24.75 18.79

2006 22.87 6.72 22.38 20.27

2007 1.82 7.75 16.39 9.85

Recommendations for Subramaniam

If so, which business models and organizations should be targeted by BPEP ? If investment is to be made. Grameen-II model is recommeneded Business and Organizational model are stronger for Grameen Bank, for better sustainability and economic yield, eespecially after implementation of Grameen-II. SafeSave is next recommendation

What should be the nature, kind and size of investments BPEP should offer ?

From the data provided in case, we cant able to conclude size and nature of investment. However, in our opinion, they should go for debt in tune with Grameen banks model.

Thank You