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Grameen Koota- A Best Practiced Microfinance Institution

The Centre for Self-help Development (CSD) organized a webinar talk on “Experience of Grameen Koota on Poverty Reduction and Employment Creation in India” to acquaint microfinance and cooperative officials, staff and concerned stakeholders with policies, strategies and working modalities for dealing with pertinent issues like poverty reduction, employment generation as well as overall sustainability of the MFIs. It focused on the business model of Grameen Koota based on the strategy of sustainability, resilience and socially relevant concept to tackle these issues as well as overall long term viability of MFIs . The talk program also prioritized on corporate governance policy to achieve highest standards of professionalism, ethics, accountability and integrity as well as disclosure and transparency in its business operations. It also gave due emphasis on risk management policy to provide guidance on identifying, managing and mitigating risks prone activities in the organization to ensure sustainable profitability with priorities on credit risk, reputation, technology, funding, operations, regulatory requirements and strategy.  Mr. Srivatsa HN, Business Head- Retail Finance and Group Lending, CreditAccess Grameen Limited, was the key speaker of the program which was moderated by Dr. Sumitra Manandhar Gurung, Chairman of the Swabalamban Laghubitta Bittiya Sanstha Ltd.

Mr. Srivatsa said, “CreditAccess Grameen Limited is the largest microfinance institution of India and also has the largest microfinance market share in the world. The institution was founded in May 1999 as a project under the T. Muniswamappa Trust (TMT), an NGO based in South Bengaluru. The Grameen Trust, Bangladesh provided seed capital funding of $35,000 to TMT for replicating the Grameen Bank Bangladesh microfinance model. The institution adapted the Grameen Bank’s group lending methodology of microfinance to the Indian environment and launched operations in Avalahalli on the outskirts of South Bengaluru. It offered collateral-free loans as well as other services to women from the bottom of the economic pyramid with the aim of creating equal opportunities and inclusive development for both rural and urban poor. The loans intended to help customers raise their standard of living and break the vicious poverty cycle. The institution steadily groomed a class of mature and financially literate women entrepreneurs who began to outgrow the group lending model. The target set of customers are women because they are ambitious and can contribute to community and country’s socio-economic environment. It has been observed that women tend to use resources more productively, thereby improving their financial access to increase their participation in the economic  activities of families as well as  the communities. In 2007, the microfinance activities of CreditAccess Grameen were transferred from NGO to a well-regulated and registered Non-Banking Financial Company (NBFC), which subsequently got reclassified into a regulated and governed Non-Banking Financial Company – Micro Finance Institutions (NBFC-MFI) entity by the Reserve Bank of India (RBI) in 2013. Grameen Koota continues to be the operating brand name of CreditAccess Grameen Limited (formerly known as Grameen Koota Financial Service Private Limited). A multitude of both financial plus non-financial products and services are offered to customers to cater to their life cycle needs at one of the lowest interest rates in the microfinance industry. The products are subject to periodic modifications based on feedback from customers and input from staff members.”

With regards to financial capital as of 2021 Mr. Srivatsa said, “ The gross assets under management ( AUM) is IRs 135,868.70 million (3.26%  year over year (YoY)), total income IRs 24,460.72 million (+44.60% YoY), Pre-Provision Operating Profit is IRs 9,517.61 million (+36.18% YoY), Return On Assets(ROA): 0.93% and Return on Equity (ROE): 4.04% and Gross Non-performing loan (GNPA) is 7.67% and provisioning is 6.90%. Similarly, it has Adjusted ROA: 1.84%, Adjusted ROE: 7.90%, Capital Adequacy: 26.79% (31.75% standalone) and Credit Rating A+/A1+ (stable outlook). As of latest data in context to outreach/manufactured capital he said, “It is present in 14 states and one union territory, 1,545 branches across 298 districts and 15 regional/ divisional offices/ processing centres.” As for natural capital/environmental friendly investment, he said, “99.80% loans having positive environmental & social impact.” He also spoke on social and relation capital where he said, “99.98% are women borrowers and total number of loans disbursed is 2.73 million.” Regarding human capital, he said, “As of current data there are 15,308 employees and percentage of employees from local community is 97.92%.”  He further added, “As of 2021 there are 1.5 products per customer (standalone), 87% customer retention rate (standalone),  and 5,971 branch audits performed through automated digital application (standalone). The organization is the only MFI to integrate world standard core banking solution and perform end-to-end digitization of field operations. ”

As per the general practice of human resource and organization development practice, he said, “90% of staff are fresh when they are recruited after screening. The family members of customers are given high priority for getting recruitment in the organization. The branch managers and loan officers are rotated across different branches bi-annually. Staff are given incentive for loan disbursement, loan collection, number of customers serviced and quality of service rendered to the customers. Internet audit is done 6 times in a year in branches, 4 times in a year in regional office and 4 times in a year in head office.  The internal audit team consist of 250 staff and every 5 branches have 1 audit manager and one business support manager. Quality control and field risk control are carried out which add strength to field exercise and are proactive approach for organizational transformation.”

The organization also has competitive edge in adhering latest technology based on high tech delivery model. On this, Mr. Srivasta said, “It has digitalized all customers touch points where field force are equipped with hand held tabs for managing Kendra meeting including interest collection. It has also practiced cashless disbursement/digital repayment options for customers. It also has robust core banking service (CBS) to support innovative product. Core banking allows inter-connectivity between branches of the same financial institution and facilitates management of loan, and credit processing. It has also facilitated in minimizing turn around time (TAT). Turn Around Time means the time consumed from starting a process until its completion. In the case of a loan application, the TAT will be from the submission of the loan application to the loan disbursal. Similarly, the company is also listed in Bombay Stock Exchange.”

Mr. Srivasta on geographical selection and expansion of services said,” The organization has a strategy for calibrated expansion through contiguous district based approach. It believes in deeper penetration within a particular district within three years of consecutive operation and then only opts for graduation through market diversification. The geography selection is based on availability of infrastructure, capacity, historical performance, trend, socio-economic and political climate risk and growth potential. It also ensures consistent replication and expansion of this service to other geographical areas. It also believes that faring well with demographics/culture of nearby district enables effective cultural evaluation and better serving to contiguous districts or areas.”

Regarding future upgrades, endeavors and investments,  he said, “It has plan for upgrading  of core banking service (CBS) to the latest version for high scalability, investment in enterprise service bus and micro service architecture external financing and fintech ecosystem.  It also has strategy for enhancement of existing mobility apps including automation of entry through image reading and single platform for all apps, investment in zero code platform and tools leading to faster implementation of new technology and active exploration of partnerships with fintech players to implement them. Fintech refers to the integration of technology into offerings by financial services companies in order to improve their use and delivery to consumers digital lending and credit. The organization constantly improvises on making innovative digital solution.”

Mr. Srivatsa also shed light on integrating risk management in operating process where he said, “The purpose of the risk management policy is to provide guidance on identifying, managing and mitigating risks arising across risk taking activities in the organization to ensure sustainable profitability. The policy applies to activities and processes associated with the normal operations of the organization and covers areas such as credit risk, reputation, technology, funding, operations, regulatory, strategy, etc. The risk architecture will support our Company’s vision to be the preferred business partner of Indian households lacking access to formal credit, enriching their lives by providing convenient and reliable solutions, matching their evolving needs. For this the organization focuses on target customer segment, customer due-diligence, flexible lending model, customer engagement model, employee incentive scheme and employment rotation policy. It also had strict adherence with four practice codes which include right product, ticket size and repayment frequency, red signal for over leveraging, practice of local language and follow KYC norms of Reserve Bank of India (RBI).” Among other practices it also refrains in internal affairs of borrowers except for the purpose of transaction related matters but at the same times promotes grievance handling mechanism.

With regards to loan products, he said, “Income Generation Loan supports business enterprises and income enhancement activities of the clients like purchasing fixed assets to installing additional machinery. These loans also meet the additional working capital requirements of the client’s businesses. Grameen Koota is following weekly, fortnightly or monthly collections based on the flexibility of customers. Clients can avail loans up to IRs. 1,00,000/- for Income Generation Loans where the interest rate is 19.25% per annum on declining balances. The loan ticket is for minimum 52 weeks to maximum of 156 weeks depending on the loan amount. There are other top-up loans like  home improvement loans, family welfare loan and CreditAccess Grameen. The maximum processing time of income generation loan is 14 days and the other top-up loans are disbursed in a single day. These lending are based on joint liabilities and self-help group. It also has retail loans like Grameen Udyog loan which is the flagship product under retail finance and offered to our customers who require higher loan amount in their individual capacity to meet their working. Customers can avail loan up to IRs.1,50,000/- with interest rate of 22% per annum on reducing balance and the tenure is  24 months. Similarly, another type of retail lone is Grameen Vikas loan. This is a high ticket asset backed business loan, offered to the customers who have high credit requirement for business expansion and inventory purchase. Customers can avail loan up to Rs.5,00,000/- with interest rate of 22% per annum on reducing balance. The tenure is minimum 24 months to maximum 60 months depending on the loan amount. Similarly, Grameen Savaari Loan, another type of retail loan,  is offered to the customers for purchase of new two-wheelers, which will provide support in their income generation activity. Customers can avail loan up to Rs.70,000/- The interest rate is 22% per annum on reducing balance and the tenure is 24 months. Another retail loan, Grameen Suvidha loan  are offered as intermediary loans to the customers to meet additional needs and is usually given for the upkeep of assets or inventory related to business. Customers can avail loan up 15% of sanctioned Udyog/Savaari loan amount. The interest rate is 22% per annum on reducing balance and the tenure is 6 months.  Apart from loans, it also has schemes like life insurance and NPS Swavalamban Launched in 2009 by Government of India, the National Pension Scheme from PFRDA made way for every working citizen of India to save part of their income for their pension. As an aggregator of the National Pension Scheme (NPS), CA Grameen collects the contribution amount from the customers at the branch office. In lieu of the same, CAGL is issuing contribution receipts to the members. The NPS contribution amount is deposited in NPS Swavalamban account of the members with TAT”.

Mr. Srivatsa also spoke on factors or influences that impact the operation of business, where he said, “The organization has categorized factors that influence the business as external environment, inputs and outputs. An external environment is composed of all the outside factors or influences that impact the operation of business. The success of the company depends on its ability to adapt to the changing environment. For example the technological environment is ever evolving and technology upgradation as well as choice of right technology is the critical factor that either enriches the organization or may be cause for its downfall or doom. Other factors are financial inclusion, financial literacy, digital literacy, evolving customer behavior, awareness on health and education, rural economic condition, climate change, market force, regulators and socio-political environment where the company is constantly adapting to the change in the environment. The severity and effect of pandemic also comes under external environment. Similarly, inputs are composed of various elements present inside the organization that can affect or can be affected with, the choices, activities and decisions of the organization like financial aspects where the organization gives emphasis on diversified lender’s base, longer tenor borrowings and cost of fund. For manufacturing/service the organization focuses on pan India presence, deep rural presentation, branches and offices. Regarding delivery mechanism/human resource the company gives emphasis on young workforce, rural recruitment, extensive training, employee retention and benefit and growth. In context to intellectual aspect the organization emphasizes on stable and scalable technology infrastructure, risk management framework and prudential provisioning.  Regarding social relationships the organization gives preference on customer engagement, community investment/CSR initiative, investors/lenders/lending agencies engagement and regulations as well as advocacy and lobbying mechanism for government agencies, central banks and other regulating agencies. This has given stellar outputs in financial capital with highest worldwide assets under management (AUM), best operating efficiency in India and high percentage of active borrowers. It has made mark in human capital including “Great Place to Work” and amongst India’s best workplace in BFSI 2020-Top 30. Regarding intellectual capital it has  87% (standalone) customer retention rate and end to end digitalization of field operations. In terms of social relationship standard it has achieved a comprehensive social rating of Σa with positive outlook from MCril.

One of the participants Mr. Udaya Raj Khatiwada, CEO of the Swabalamban Laghubitta Bittiya Sanstha Ltd queried on the techniques to reduce operation cost. Regarding this, Mr. Srivatsa said, “One of the important strategies is to opt for market penetration where it is necessary to have less number of centers but more customers so that the field officer will be able to handle more number of customers thereby optimizing his/her centre visits by having contacts with more customers. Another strategy is to focus on product diversity where a customer is eligible for various loans at one time. This will help in customer retention and discourage multiple borrowing because the customer after being eligible for income generating loan will also qualified for other top up loans like home improvement loan or family welfare loan. Other technique is build robust monitoring, business, R&D and risk structure which will help in developing customer friendly and market oriented products which will also help minimize risk, curtail default and at the same time lower credit cost, enhance quality and support in optimizing resources. Similarly it is also necessary to focus on customer centric approach where the staff members make periodic field visits and incorporate valuable inputs like ticket size and type of loans thus incorporating bottom up approach of planning which can be valuable in reshaping the policies and working modality of the organization. Developing and prescribing policies, strategies and working procedures inside closed doors and cubicle of the organization will be counterproductive.”

Another participant Mr. Govind Raut, Assistant CEO of Muktinath Bikas Bank Ltd queried on the gross non-performing asset (GNPA) due to the effect of lockdown as well as Jagrati Program currently being implemented by the organization. To this Mr. Srivatsa said, “ GNPA is directly related to microeconomic factor which has affected hospitality business as well as major part of service industry. Having said that, the impact of loan default in our organization is one of the lowest in this sector. We believe in expediting loan processing mechanism but take utmost care in loan appraisal techniques. For income generating loan,  it takes a maximum of 2 weeks to process and for other top-up loans under IRs. 15,000 it is processed in a single day. A declaration is taken from the customer to deposit the amount in a particular bank and the amount is deposited in that bank as per the customer’s choice. The process is further expedited in case of top-up loans due to usage of tablets and opting for paperless system. Similarly, Jagrati Program is based on social awareness on social aspect and not based on marketing concept to build, enhance and expand commercial purpose. During the COVID-19 pandemic short videos like vaccination drive and similarly during monsoon precautionary measures on malaria were shown. The first 10 minutes of centre meeting is allocated for loan collection, the next 10 minutes for orientation towards loan products and the last 10 minutes is allocated for Jagrati Program where a readymade letter on social issues/affairs is read to the customers through tablets.”

Mr. Shankar Man Shrestha, Chairman of CSD and chair of the webinar talk program said, “Grameen Koota is adhering to Grameen Model as well as maintained its core values, code of conduct, follows strict compliance mechanism and has not compromised on the fundamentals of microfinance. The same cannot be said about MFIs in Nepal whose prime motive is profit maximization thereby relinquishing the basic tenets of microfinance. Nepalese microfinance can learn from successful national and international MFIs which will help attain mutual growth and overall sustainability of the sector.” In the end he thanked webinar moderator, key speakers as well as all the participants present for making it lively, interactive and successful.

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