CASE STUDY ASSINGMENT

Rishabh shukla
0191pgm127

Ans.1
INCEPTION OF IDEA After graduating from Jamnalal Bajaj School of Management in Mumbai
in 1994, Viswanathan spent 10 years in the financial service sector. He joined Housing
Development Finance Corporation (HDFC) Bank in 2000 and was among the first employees
in the nascent commercial and business banking division. As vice-president of the division,
he was instrumental in setting up company policies and procedures, and went on to build
and manage business worth ₹65 billion.1 However, after spending 10 successful years at
HDFC Bank, Viswanathan followed his desire to start something on his own. In January 2009,
Kozhialam Veeraraghavan Balaji and a group of four friends contacted Viswanathan and
convinced him to partner for a new business venture. Having spent many years in the
financial services sector, Viswanathan had the expertise and credibility to attract
investment. The idea interested him and he looked forward to a fresh challenge.
Viswanathan and his friends had substantial experience in commercial vehicle finance. Their
first thought was to start something related to warehousing and logistics. However, this idea
required huge amounts of land and expertise that they did not have. Another booming area
was the commercial vehicle dealership business, as many commercial vehicle manufacturers
such as Volvo, Bharat Benz, etc., had entered the Indian market by 2009. However, they
realized that their five-member team had much greater management capabilities than what
was needed to run a car dealership business. After evaluating and deliberating over many
potential business ideas, they realized that their core skill lay in borrowing and lending. All
of them had worked in this business, and if there was anything that they would be able to
do well, it would be the business of borrowing and lending. They turned to microfinance.
Two of Viswanathan’s former colleagues had set up microfinance institutions (MFIs) (Equitas
and Suryoday Micro Finance) in the past, and were doing well. The first round of equity
infusion in Equitas had happened at a very good valuation, while Suryoday had received an
investment commitment from private equity investors. This made the microfinance sector
look promising (see Exhibit 2). Within the group, there was a belief that this was a great
opportunity because the work complemented the team’s skills and abilities. “We believed
that if those people, who are like us, who we have worked with before, who possess a skill
set largely similar to ours, can make it big in microfinance, then so can we,” said
Viswanathan. In November 2009, Viswanathan and the rest of the team started M Power
Micro Finance, focusing mainly on microfinance operations

ANS. 2
BIRTH OF M POWER In November 2009, M Power was registered as a non-banking financial
company (NBFC) in Mumbai, with paid-in capital of ₹50 million contributed by Viswanathan
and the rest ofthe team. Viswanathan and Balaji committed themselves full time to M
Power, while other members of the team planned to join after a certain scale of operations
was achieved. After obtaining their NBFC license from the Reserve Bank of India in April
2010, M Power began operations in Vadodara, Gujarat. The Company’s Mission and Vision
“True to the tagline ‘Nurture Dreams, Transform Lives,’ M Power Micro Finance would strive
to nurture the many dreams of the BOP [bottom of pyramid] segment and try and address
the challenges to transform the lives of the poor at large.” “M Power Micro Finance would
strive to become the country’s bestmanaged . . . [microfinance company] in terms of scale,
quality and transparency.”2

ANS.3
M Power’s promoters planned to capitalize on their professional network to gain access to
additional funding. Having spent many years in the financial services sector, Viswanathan
had established a healthy network of bankers that could aid with access to funds. He had
been negotiating with banks, including the State Bank of India, Corporation Bank and
Development Credit Bank, for availing of credit lines.
THE INITIAL DAYS
After receiving an operating license, M Power opened ten branches between May and
September 2010 in Vadodara. The systems and processes that it had put in place seemed to
be working. As its need for funds grew, M Power managed to secure a loan for ₹5 million
from Kotak Mahindra Bank. Additional loans of ₹10 million from MAS Financial Services
(MAS) and Ananya Finance were also secured. Both MAS and Ananya were microfinance
companies based in Gujarat and were familiar with the market and the risks involved.
Moreover, when Viswanathan had worked at HDFC Bank he had facilitated a loan to MAS
and had a close relationship with the management teams of both companies. The company
was being courted by a number of private equity investors focused on microfinance. M
Power’s strong management team, coupled with the growth potential of business in
Gujarat’s untapped market, was a Do Not Copy or Post high value proposition for investors.
Avishkar, a Mumbai-based private equity firm, quoted M Power at 1.6 times book value.
Similarly, Incofin, an international investment advisory firm, quoted M Power at 2.25 times
book value. Both were willing to invest between ₹40 million and ₹45 million in M Power.
Given the positive outlook for the microfinance sector in 2009 and 2010, funding did not
seem to be a problem. Viswanathan put Avishkar and Incofin on hold and explored the
possibility of securing investments from a more credible and powerful investor: HDFC. Since
banks were always falling short of fulfilling their prime sector lending (PSL)4numbers, it
would make sense for HDFC to invest in a microfinance institution that was categorized as a
prime sector lending institution. Viswanathan approached a retired executive director of
HDFC and pitched the case for M Power. The executive liked M Power’s proposition and
took it up with the managing director of HDFC. After a couple of rounds of negotiation, they
worked out a deal. All formalities related to pricing decisions, holdings and board seats were
agreed upon.

ANS. 4

What’s ‘troubling’ the organization?

- Where is it happening (Source of the trouble)?

- Does Management have all the facts related to the trouble at hand? Has a Sr Management
team validated the facts?

- If facts are not available then a small team needs to be assigned to get the facts right.

- Once we have the facts, we will often realize that in a failing organization there are multiple
problems that need to be addressed. We need to group them in different buckets such as

 Quality – Is it a bad quality product?

 Feature – Does the product miss a core feature that’s needed for the market?
 Process – Is the process broken? Or are there too many processes in place which
might burden the organization? Or is the process implemented wrong? Are there
insufficient processes?
 Communication – Is the communication channel broken between the different
organizations within the company? Or within a department?
 Roles and Responsibility – Do people have clarity in their roles? What to expect?
Where to go when there is a crisis? Is there an escalation channel established? Are
people taking ownership?
 Accountability – Are people held accountable for the corresponding deliverables /
tasks? Is accountability in place?
 People – Do people in Sr Management work in tandem? Are people motivated to
work together?
 Transparency – Are people transparent and trying to bring issues to attention in the
meetings?
 Delay in making decisions – Are people waiting for approvals from their supervisors
for everyday activities before making decisions? Do people have the power to decide?
Do they have a good understanding of when they have to ask for their supervisor for
approval? Is that communication established?
 Challenging Status Quo – Do people challenge Status Quo? – If not figure out why?
Create an environment that welcomes challenging the status Quo.
 Super Dominant characters – Beware of super dominant characters within the
company. These people usually hold very senior titles within the organization.
Nothing happens without their approval and most of the times projects start just
because the head wanted to get this going. Eventually in these types of organizations
people stop thinking and just become executioners of what is being asked of them.
This cripples the organization in the long run.