This Case is developed by and is the sole property of Svatantra Microfin Pvt. Ltd.

This is for academic purposes only and is not intended to be copied or displayed or reproduced at any
place outside the Campus.

Introduction
Ananya Birla was contemplative during the end of the month meeting with her Senior Management Team. As
Chairperson of Svatantra Microfin, a next gen MFI that has recently been awarded the Fastest Growing Indian
Company Excellence, she was informed that the total active client base had now touched 46,000 and the gross
loan portfolio stood at nearly 53 crores. She knew that while the business is in a good stead, there is always a
constant need to innovate and adapt to the latest technologies, refine processes and introduce initiatives that
could perhaps disrupt the way microfinance is practiced in India or even the world.
Svatantra was her first venture in 2012 as a result of her belief that microfinance can play an essential role in
promoting financial inclusion. She started Svatantra at the cross roads of Microfinance practice in India, after
the defining Andhra Pradesh crisis of 2010, that not only saw hundreds of billions of rupees being defaulted,
but also many institutions not being able to weather the storm and closing operations. It was her strong
principles which translated into policy and close monitoring that saw Svatantra grow and reach this stage even
in such dubious market conditions.
The upcoming three years have already been planned. The main objective for Svatantra during this period, is
to increase operational areas across India and client base to achieve scale and break-even. Annexure 1
describes the expansion plan for Svatantra, and outlines the goals that Svatantra is set to achieve over the next
few years with respect to the number of branches, number of clients and gross loan portfolio. Annexure 2
details this expansion plan taking into account other key financial details such as cost of funds, cost of
operations, cost of borrowing and how they are expected to evolve during this period of expansion.
With the expansion plans for the next few years in place, now the road forward to 2020 needs to be defined.
The Financial Inclusion 2020 campaign, initiated by the Centre aims to build a movement that mobilises
stakeholders to achieve full global financial inclusion. It is thus quintessential for Ananya to plan and map the
road beyond scalability. Being a next gen MFI, she aims to ideate and innovate new products thatll enable
Svatantra to continue to lead the way in providing access to a range of affordable and high quality financial
services. This also leads to the dilemma of which latest technologies can be adopted that would, not only deliver
these services with convenience and dignity, but also be suitable for the rural landscape. By addressing such
key aspects, she truly wants to differentiate Svatantra not only amongst the industry players but also in the
minds of its customers and emerge as a real example of Rural-Urban connect in the country.
Company Overview
Svatantra Microfin is a start-up that provides affordable financial solutions to its customers enabling them to
become economically self-sustainable. Svatantra lends microcredits to women entrepreneurs in rural India to
start or expand an income generating activity. Svatantra being a new-age MFI aims to revolutionise the
microfinance space. It is first microfinance institution honored with the NBFC-MFI license from the Reserve
Bank of India. It was the first institution to make 100% cashless disbursement and to charge the lowest rate of

This Case is developed by and is the sole property of Svatantra Microfin Pvt. Ltd. This is for academic purposes only and is not intended to be copied or displayed or reproduced at any
place outside the Campus.

interest in the industry at 22%. Svatantra, being a rural focused microfinance institution, offers loans between
INR 10,000 30,000 per individual following a Joint Group Liability model and currently offers two main
products, Svatantra Group Loan & Svatantra Home Improvement Loan.
Industry Overview
Microfinance as a practice was first developed by Mohammad Yunus in the 1980s until it was formalized as the
Grameen Bank. It was mainly practiced in Bangladesh, and later spilled over into the Indian market which has
since then developed to become a strong industry in its own right. The flagship product line for Microfinance
is Micro Credit which includes loans such as Individual, Education, Housing, Emergency and Consumption. MFIs
also offer products and services such as Micro Insurance and Remittance Services. In the past 3 years gross
loan portfolio has grown by a CAGR of 40% whereas the average number of borrowers, in the same period, has
increased by 18%. At the end of 2014-15, there were over 30.5 million clients in India alone, disbursed in all
corners of the country. The total portfolio of the industry was valued at Rs 401.38 billion.
Market Environment
This robust growth over last few years was due to MFIs strategic shift in operations combined with a more
regulated and organised market environment. MFIs have introduced various high ticket size products which
have resulted in higher disbursement and hence outstanding loan portfolio.
The following initiatives were taken by the industry to grow and give a holistic range of products:
i.

Individual microenterprise loans given to individuals and not just as group loans

ii.

Housing Loans

iii.

Dairy Loans

iv.

Education Loans

v.

Non-Income Generating Loans (vocational training, healthcare requirements etc.)

vi.

Cross selling products

Identifying and addressing needs of rural areas by providing products such as water purifiers, solar
lanterns, biomass cook stoves etc. These products require both awareness and financing options.
Further, the Government is likely to experiment with various newer entities including Payment Banks, Small
Finance Banks to pursue the cause of deepening financial inclusion in the country.
Regulations
Reserve Bank of India has put in place following guidelines:

An NBFC-MFI needs to maintain minimum of 85% of its assets as qualifying assets, i.e loans given under
joint liability to a group of individuals

The total indebtedness of the client should not exceed Rs. 60,000 in first cycle and Rs. 1,00,000 in
subsequent cycles.

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place outside the Campus.

Loans under qualifying assets should be at least for 12 months and any loan beyond Rs. 15,000 should be
for not less than 24 months (with options of weekly/fortnightly/monthly repayment frequency)

Client with income less than Rs. 1,20,000 in rural and Rs. 1,60,000 in urban are the target segment

Not more than 50% of the loans can be given for non-income generating purposes

This may constrain MFIs to offer diversified loans for consumption etc. under the NBFC-MFI structure.

Rural Market Scenario

Typically, in the rural market, MFIs open a branch to cater to the clients in radius of 10 km to 30 km in the rural
areas. A large proportion of the operating practices are still manual.
These include:
1.

Customer identification and group formations, wherein MFI loan officers travel to different villages to
identify customers and new areas of lending

2.

Group screening, training and appraisal through manual KYCs and credit bureau checks

3.

Majority of MFIs still have cash disbursements and loan officers travel to each group in different villages
to disburse the loan

4.

Weekly/Monthly collections take place in cash as well and are generally collected from the customer
locations

While the above mentioned processes remains the same across most institutions, MFIs try to differentiate
themselves with respect to the area covered from their branch locations and range of products and services
they offer. Outreach and coverage is the largest hindrance faced by MFIs and has the largest scope for
improvement. Currently only 10 % of the 300 million people below poverty line are being served by MFIs and
amongst them only 10% of MFI clients have access to the full range of microfinance services, with the majority
being deemed non-creditworthy and only utilising microcredit. There thus remains immense scope for MFIs to
still explore.
International Scenario
Digital
Globally MFIs have been integrating digital technologies in the processes mentioned above to improve
operational efficiency and optimise cost. Few of the interventions that have been introduced by MFIs across
the globe: Digital on-boarding of clients, finger/voice biometrics as additional options for customer
authentication, field-force management tools to track field staff, agents, leveraging alternative data sources
such as Big Data for credit decisions.
It now becomes imperative to evaluate the pros and cons of implementing these digital technologies in India.
Owing to the level of education and modernization across rural India, it becomes difficult to apply and scale
heavily digitized process. An example of such a hindrance lies with digital mobile banking and its slow growth
across the rural segment.
Manhattan Branch - Urban Importance

This Case is developed by and is the sole property of Svatantra Microfin Pvt. Ltd. This is for academic purposes only and is not intended to be copied or displayed or reproduced at any
place outside the Campus.

While majority of Microfinance activities take place in rural areas, with time, its operations have also found a
place in the urban market. The importance of Microfinance in the urban context can be best exemplified, in
Mohammad Yunus opening a branch of Grameen America in Manhattan after 2 prior branches in New York City
in Queens and Brooklyn, all of which were opened because of strong local support and increase demand of
microfinance services.
This is primarily due to its high demand, growing income disparity in urban areas across the world and high
rates of rural-urban migration. To put it in Indian context, about 14% of the urban population in India is below
the poverty line.
Challenges
As the Microfinance industry continues to evolve, it is imperative for Svatantra to continually develop its
practices, processes and adopt a strategy that is centered on overcoming the various challenges it currently
faces.
Primary challenges faced by Svatantra at this stage can be classified as follows:
i) Operational Operational challenges revolve around a variety of key aspects. One being the delivery
mechanism and customer retention and the level of technology that can be adopted in processes and
systems to develop.
ii) Business Development / Strategy Business Development challenges are mainly focused on identifying the
appropriate expansion strategy for Svatantra. Currently, Svatantra follows an organic expansion approach
and has thus far opened 31 branches across 2 states and 16 districts
iii) Risk Risk challenges are in line with those that the industry as a whole face and involve many key areas of
operations and human resource management. Few of these include effective loan assessment to ensure no
delinquency or default of loans and Human Resource risks revolve around staff fraud
iv) Finance Like any financial services industry challenges revolve around two main themes namely, cost of
funds and regulations with respect to raising funds. Regulations require NBFC-MFIs to maintain Capital
Adequacy Ratio (CAR) of 15%). Besides term loans MFIs tap into alternative fund sources include outside
equity investment, portfolio buyouts and securitization of loans
v) Human Resources The two key challenges for HR department has been recruitment to keep up with
expansion plans and retention.. This requires not only decentralization but also attracting new talent and
building an employer brand. Implementation of best practices such as managing performance and career
development options is imperative
vi) Marketing The greatest challenge in marketing initiatives have been creating a strong rural-urban connect
owing to the different areas of operation and promotion. It is a challenge to engage the urban audience in
themes that are not directly related to the urban sphere and revolves around the rural landscape.

This Case is developed by and is the sole property of Svatantra Microfin Pvt. Ltd. This is for academic purposes only and is not intended to be copied or displayed or reproduced at any
place outside the Campus.

Having heard all of the challenges, the Chairperson suggested forming a taskforce of 3 to 4 members to workout
options enabled by technology and processes across functions, which can help Svatantra truly differentiate
itself and emerge as the most preferred MFI by customers.
Annexure 1
Expansion Plan
GLP (Rs Crs)
Branches
Clients

Year 1
6.95
6
8,084

Year 2
32
16
32,800

Year 3 (P)
151
51
98,000

Year 4 (P)
416
91
2,20,000

Year 5 (P)
745
141
350000

Man Power
Field
HO

47
27
20

172
146
26

390
350
40

745
700
45

1119
1059
60

Annexure 2
Percentage of Average Portfolio
Interest Yield
Operation Cost
Salary
Operating
Cost
(comprise
of
rent,
conveyance to field staff for acquiring clients
and collections, depreciation, electricity, etc)
Cost of Funds
Leverage (D:E ratio)
Cost of Borrowing
Cost of Equity (Notional)
Average GLP (Monthly Avg)
Loan Portfolio Outstanding as on year end
No. of Customers
Ticket Size

Year 1
21%
43%
13%
30%

Year 2
21%
28.2%
13.5%
15.3%

Year 3 (P)
22%
18.2%
10.6%
7.6%

Year 4 (P)
22%
10.8%
7.0%
3.8%

Year 5 (P)
22%
7.8%
5.4%
2.4%

0.01
0.30%
16.0%
2.05
6.95
8084
9,876

2.5%
0.7
2.5%
16.0%
16
32
32,800
9,698

8.7%
3.6
8.7%
16.0%
71
151
98,000
15,408

9.9%
3.1
11.1%
16.0%
271
416
2,20,000
19,000

13.0%
3.8
11.2%
16.0%
573
745
350,000
21,000

This Case is developed by and is the sole property of Svatantra Microfin Pvt. Ltd. This is for academic purposes only and is not intended to be copied or displayed or reproduced at any
place outside the Campus.

EVALUATION CRITERIA:
1.

2.

3.

OUTCOME
a. Innovative, unique and creative
b. Feasible as per Svatantras vision
OBJECTIVE AND APPROACH
a. Hypothesis development
b. Clarity of approach
INDUSTRY ASSESSMENT PROBLEM DEFINITION
a. Use of case facts
b. Development of industry view
c. Efforts put in external research
d. Identification of key success factors/challenges

IMPORTANT INSTRUCTIONS

Teams will submit a case analysis/solution in a single spaced, 12-point Times New Roman font, 6 pager
document (excluding TOC, Cover page). The first page of the document must comprise of an executive
summary of the solution suggested by the team. The executive summary should be limited to one page
only.

Wherever necessary, the participants must make references to the sources of information and data.

Last date for submission of case solutions is 19th October 2015. Teams must upload their entries on
the website.

For full details please visit www.svatantramicrofin.com , follow

www.facebook.com/svatantramicrofinance or contact us at
campus.connect@svatantra.adityabirla.com

This Case is developed by and is the sole property of Svatantra Microfin Pvt. Ltd. This is for academic purposes only and is not intended to be copied or displayed or reproduced at any
place outside the Campus.