Credit in Microfinance po eet ‘microfinance is slightly different from that of standard bank credits because of one major problem that one ofthe five Cs, that is collateral, cannot be abtained here. At least 85 per cent of Prsnaisbe ‘without colle 's (Mel s) loan has to be in the nature of ‘qualifying assets’ which means that it must be without collateral. This affects the eredit related decision significantly. Another problem tht Is face is that unlike a bank they do not have the record of past banking habits of the person. Banks, ens, oe deposit Beiliy, are in a better position than the MFls, as they already have some idea about their i OF are the MFIs lend to sel help group (SHG), they can use its record, bu fr Joint Liability ines ani crag lual lending, there is hardly any record for reference, other than the record of credit wureau. This makes the appraisal process of microfinance loan characteristically different from bank loans. Some basic principles of microfinance credit processes are as follows: D_Itis the household rather than the enterprise, for which the finance is being done. Unlike what the enterprise from the owner in the context of poor. First, it is not easy to check whether the loan has been utilised for any specific household standard accounting principle says, it is very difficult to separate the purpose. If it is for consumption purpose, then there is no other way than to look at th Tepayment capacity. In group loans, itis only taken by the face value of the borrower and practical purposes, it becomes a consumption loan. Second, if the loan is enterprise and there is hard evidence towards that, it is the house! labour component. In such micro enterprises, the owner, who also carri the enterprise, does not actually charge for the family labour contribute minus cost) does not include the labour payment, unless such labour is is unlikely. Thus, the net cash flow does not exactly indicate the net in Family labour also has to be accounted for. If the EMI/repayment is fixed wi consideration, the family may starve. Repayment terms depend on the cash flow. Banks generally expect repayment in terms of EMIS, which means repayment would be received on monthly basis. But in MFIs, this may not hold. Majority of the MFI borrowers do not get a monthly salary. Their cash flows come 0” @ daily or dor earns his/her income weekly basis. A rickshaw puller, betel shop owner, or a vegetable vent every day. Asking for a monthly repayment may not be suitable here. Credit Cycle closure of loan and feedback. Credit cycle includes several steps starting with identification of customer to the Figure 5.1 provides an indicative diagram of the eredit proce Figure 5.1: Credit Cycle Note: Adapted from FAO/FFM (2009) and George, Venkata. and Mugwang’a (2010). taken for the purpose of hold members who contribute the jes out substantial tasks of -d, The net cash flow (income hired from outside, which .come from the enterprise. ithout taking this into22 : Delivery of Products and Services Sie nal manual of Annapurna Finance proval (adapted from operatio Pvt Ltd (AMPL, 2013) Figure 5.2: Process of Loan Appraisal and API Delivery Systems and Structure Delivery of financial services is not just about products, but structure. A set of very good products can only realise their poten systems and structure. Let us start from the lowest level at also about people, systems and organisation tial when delivered through the organisational which the microfinance operations start. The smallest unit of an MEI is its branch which may be covering about 20-25 Km radius at its location. A branch is headed by a branch manager and under him five to six Joan officers/executives/field officers/customer relationship officers operate. Designation of these people may differ from MFI to MFI, but the span of control is around five to six. If the MFI has more number of field level staff, it generally adds another layer of officers, such fn fects branch manager or similar kind of designation. Branches of MFIs are the foundation stone of ir businesses. These are profit centres and invariably contribute to the business of the organisation. Aofficers are in the field, unless they have a meeting to attend in the branch. These branch managers report to an officer who is generally called area manager or so, designation. The responsibility of such a manager is to check weather the branches are being run not. The area ntanager reports to a regional office, or state level office which is headed by a senior of the company (generally known as associate vice pres' ident or regional manager or zonal Manage), tum reports to the head office. Generally, the head office is staffed by various departments like operations, finance, marketing resources and MIS, each of which is headed by a very senior manager generally known as chief, officer/ chief finance officer/ or may be something like general manager or vice president. These fi, heads report to the managing director who runs the company on behalf of the Board of Directors, , companies, by statutory mandate, there have to be positions like company secretaries. Typica organisation structure of a mid-sized MFI is shown in Figure 5.3. — ae _ Jy Wescay = | atone Figure 5.3: Structure of MFI Ba Inreal life, many MFIs works as a part of holding companies, hence they may have a more com corporate office. In the context of an SFB, the structure is slightly different. While the overall structure would bes? they have to deal with the deposit function also. As a bank branch, it must have a counter throvgt! it can deal with the customer. There are dedicated employees (Teller) for this purpose. The on structure of a typical SFB would be as shown in Figure 5.4.Delivery of Products and Services 57 | Head of HR/ Marketing/ IT 1 \ Mani agers (various functions 4 Figure 5.4: Structure of an SFB Redressal of Customers’ Grievances Customers’ grievance redressal is an important function of MFIs, particularly since the onset of the Andhra Pradesh (AP) crisis, Whi and file a complaint; with increasing scale, this kind of mechanisi advanced technology in this regard. A case in point is that of Ann: This has been insisted again and again, ile the customer can walk into a branch sm does not work. Some MFIs have used apurana Finance as given in Box 5.1. (EE Box 3.1. Customer Grievance Redressal in Annapurna Finance Annapurna Finance Pvt Ltd has a Grievance and Customer Feedback Cell, which has implemented an interactive voice recording system (IVRS) for dealing with customer complaint and feedback. A team of. technically qualified people are hired to handle this. Exee tives also routinely call customers to find if they have any grievances. Based on these inputs, actions are taken to resolve the pt roblem (AMPL, 2017:41). Customers can make a call to a toll-free number which is forwarded to the grievance cell. The team handling the cell attends the call. Grievances are recorded and classified based on various parameters, such as query, service request and complaint. This is forwarded to the concer med department; which must report in 24 hours on the status of whether the matter was resolved or not. It is also conveyed to customer on the same day. The status of the complaint (open or closed) is updated. Open cases are regularly monitored; in ease they are not resolved in 15 days, the matter is escalated to the Grievance Redressal Officer (GRO). In case it is still not resolved in another 15 days, the matter goes to the General Manager, Department of Non: Banking Supervision, RBI for a final decision (AMPL, 2017: 42) eet” Delivery of Insurance Products The delivery of insurance is a relatively simple process because the MFI does not make the product, rather only markets and distributes it. The first step is contact with customers, in which the field officersMicrofinance Management features. If the customer agrees to buy the ’ d followed by which the premium is cole 58 communicate then detailed risk asses records are maintained at MFI level “Product communication about the need of the product and product’s sment and documents are processe Figure 5.5: Processing of Microinsurance Product through an MFI (Adapted from World Bank, This is followed by passing the information to the insurer, as that is the original party insuringl Then the MFI transfers the premium to the insurer followed by which the latter issues policy docuné completes the second important event of the insurance process. In the event of a claim, the claimit verification and claim settlement are done. As of now, credit is the main product of the MFIs. All other products are generally bundled w* products or are of limited scale. es aSen; clud Joan? When does the cust nee ne laan ie an iMpOI _ e secured loan? Timing of delivery of loan is an important component, which many times the service provider forgets. In such a situation, the customer moves to another source of credit, and the MFI/SHPI loses a business opportunity. Moreover, the customer may end up paying a higher interest rate (see Box 6.1). Box 6.1. Why Do They Pay Higher Interest? d substantially by Meo Muslim community, of Alwar district, Rajasthan, which is populate goats during the bakr-id celebration. Such is the demand that a fully-grown goat (0 to 260,000 easily. The SHGs of the area have found a business opportunity in ly stage and the rear them until they become marketable. They f the kids. Any delay would result in two things, amount of initial investment would go up thus decreasing the expected return, and they may not get the quality of kid they want. When these SHGs approached the banks, the latter often took months together for processing such loans. MFIs provided loans in time, terest rate. This was acceptable to the SHG members, who would otherwise take rate. According to the SHG members, the return from In some parts there is a great demand for can be sold at around 750,00 this market, and they purchase kids at an ear! would require credit at the time of purchase o but they charged a higher in loans from the moneylenders at a much higher interest the investment is higher than the cost of the interest. Feedback Figure 6.1: Product Development Process (adapted from Cooper 1994, Edgett, 1996, ITBF, 2009).