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Setting up a Micro Finance Venture in India

Suggested Strategies for Entrepreneurs

Benefit From Gray Arrow Kaytek's Strategic Consulting Insights

Down Arrow Microfinance is projected to be one of the fast growing financial segments in India and other developing countries for the next few years.

It is also one of the few proven mechanisms that has worked in helping millions of people strive to rise out of poverty.

For one of the prospective microfinance entrepreneurs in one of India's Northern states, Kaytek has suggested some thoughts and strategies.

These are presented below.

Gray Arrow 1.0 - All Kaytek Consulting Inputs are constrained by our limited perception and current knowledge of the entrepreneur's capabilities and strengths at this point in time.

Gray Arrow 2.0 - You have proposed an NBFC (Non-Banking Financial Companies) organization structure. These have strict rules and regulations as per the Reserve Bank of India (RBI).

Also, there are several regulatory changes being planned by the Government of India in the microfinance sector.

Have you factored in the same in your business plan ?

Gray Arrow 3.0 - Microfinance leaders like SKS Microfinance have demonstrated both a strong community driven self-help culture as well as the characteristics of profit-making business organizations.

A successful microfinance venture should perhaps successfully emulate and demonstrate best practices of both financial and social entrepreneurship excellence.

Gray Arrow 4.0 - Your growth plans in terms of volumes of number of families being serviced (from 8000 to 300000) seem extremely ambitious.

Would appreciate a note on the scaleability mechanisms and structure you propose in your organization for the same.

Gray Arrow 5.0 - Even though the operational procedures of Microfinance Institutions (MFI's) may be well established, the skills essential in creating a new organization cannot be easily replicated by others.

e.g. in the software industry, perhaps Infosys has a position that every new entrant wants to emulate.

However, whether others can do the same or not is a different ball game.

Gray Arrow 6.0 - Systems need to serve the unique needs of the organisation and it's stakeholders.

The eco-system of your Microfinance venture may or may not be similar to others by virtue of differences in markets, timings, geographies, promoter strengths, etc.

Both strategies and systems of each specific microfinance venture will have to be homegrown.

Generic elements of other MFI leaders could be adopted as a possible foundation only.

Above this foundation, organization-specific proprietary elements would have to be built.

Gray Arrow 7.0 - Besides the first mover advantage that you plan to have in your specific geographic area, you have mentioned support to local entrepreneurs and community groups in the areas of

7.1 - Credit-Availability

7.2 - Marketing

7.3 - Advertisement

7.4 - Technology

One is looking at a possible future scenario of intense focus on rural and semi-urban areas by large conglomerates and multinationals and specialised players.

Creating a specialised niche and specific differentiation strategies as regards 7.1 to 7.4 above would be the key to survival and success.

Gray Arrow 8.0 - What are the unique non-duplicable advantages that your Microfinance venture (or it's current promoter's or future management team) will have that will enable it to survive expected competitive entries from both private and public players in the near future ?

A unique non-duplicable advantage will have to be created.

Perhaps, if one digs deeper into the collective experiences of the promoters of your organization and the needs of the marketplace, one can get the seeds of such an advantage. Such an advantage will prove to be the differentiating factor in your venture from the many other similar ones.

It is crucial to the long term sustainability, success and scalability of the new venture.

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Updated on 24th February 2009.
Created on 25th July 2006.

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