MICRO LENDING STARTUP

(MARKET ENTRY)

Jahanvi Sehgal
Case Assignment
 OVERVIEW
About Micro-lending
Microlending is the process of granting "micro" or small loans
Microlending Risk and Reward
known as micro-loans to those with financial need. These loans Reward: Lenders may earn a better return than through
are generally used by entrepreneurs with a business idea or traditional savings as even those with excellent credit scores
those who need extra cash to expand their business. can expect to pay slightly more than traditional credit
Risk: Considering the fact that these loans are not typically
Objective of Micro-lending backed by any sort of collateral, if a borrower defaults, the
Microlending has emerged as a socially conscious way to lender may expect little or nothing to be recovered.
provide funds to individuals in need with affordable rates
and terms to help them repay them. The main goal is to help Players in the Indian Micro-finance industry
small entrepreneurs who would otherwise be unable to
borrow launch or expand businesses, thereby reducing
poverty in impoverished areas.
India’s Micro-finance industry
The pie chart suggests that
borrowers are more
inclined to take loans from
MFIs (Micro-Finance
Institutions).
 DEEPER DIVE INTO MICRO-LENDING IN INDIA
Customer Centricity
According to a survey, 60% of borrowers have indicated a preference for taking microloans from MFIs compared to
banks and other financial institutions.
Approximately 30% of the borrowers claim that their preference for MFIs and NBFCs was due to instant access to credit.
Though interest rates play a significant role in the choice of a financial institution, around 20% of MFI and NBFC borrowers also
cite flexible repayment schedules as a major decision parameter, indicating their willingness to take credit at higher
interest rates in their hour of need.

Opportunities for Growth Risks in the Micro-finance Landscape

Among the respondents of a survey, taking credit from
informal channels, a high percentage (>50%) have cited lack of
financial literacy and limited awareness of financial sources as
challenges in accessing credit, emphasizing the opportunity for
microfinance growth through relevant awareness
initiatives.
71% of the financial institutions believe that Eastern India
offers the maximum potential for growth in future due to
relative saturation in the southern markets.
 DEEPER DIVE INTO MICRO-LENDING IN INDIA
Market size of Micro-lending Expected market size of Micro-lending in a few years
(Currently) India aims to become a USD 5 trillion economy by 2025 and the microfinance
industry will play a leading role in uplifting the lives of millions of low-income
Micro-finance loans in India rose by 10 per
households and enabling them to contribute to the country’s economic growth.
cent sequentially to Rs 2.53 trillion in January-
As the microfinance industry tackles the current set of challenges, it is imperative
March 2021 (Q4FY21) from to Rs 2.31
for the industry to establish strong governance and regulatory practices. The
trillion in quarter ended December 2020.
future course of the industry will be determined by the ability of players to forge
However, the stress on repayments profile
new partnerships, develop new products, create new investment channels and
only moved up in Q4 over Q3, showing an
leverage technology to meet the demands of consumers.
adverse economic downturn on the income
Therefore, there is a lot of scope for expansion and growth for micro-
of those at the bottom of the pyramid,
lending companies in India. The market is expected to grow @15% CAGR.
indicating an increased need for micro-loans.

Key Micro-finance Companies in India

 DEEPER DIVE INTO MICRO-LENDING IN INDIA
Major challenges faced by Indian Micro-finance industry
1. Though MFIs hold the largest share of the loan portfolio in India, their growth is adversely affected due to limited fund
availability and high customer acquisition and servicing costs arising from operations in remote geographies. As a
result, the rates offered by the MFIs may range from 24% for larger NBFC-MFIs to 35–45% for smaller MFIs, resulting in
a structural problem of unaffordability for end customers.
2. As this sector mainly deals with the poorer section of the country, over-indebtedness is a common and serious
challenge. Some of the other challenges are:
high rates of interest,
over-dependence on the banking system,
illiteracy and lack of awareness about the products
3. One of the major risks in microlending
has been the issue of overborrowing,
with nearly 35% of the borrowers having
access to two or more lenders:
 Conclusion and

Strategies
Conclusion
Considering the facts that
the market is growing currently and will keep growing in the near future too,
the interest rates are sort of high,
there aren't any market major dominants or a lot of players in this industry,
the risk can be said to be a bit high but it's rewarding too,
there is a great need for the micro-lenders in the market and not a lot of regulations currently
the start-up should enter the Indian market.

Strategies for Expansion

1. According to a survey, 71% of the financial institutions believe that Eastern India offers the maximum potential for
growth in future due to relative saturation in the southern markets, so the start-up should focus on the same.
2. The start-up should get the necessary:
certifications and the paperwork done
legal documents made
protect intellectual property with copyrights
hire Employees, and start with the marekting ideation and the awareness campaigns.