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Reliances perspectives on
Responsible Financing Whatincentives are needed?
Presentation byBaboucarr Khan
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Agenda
Value proposition for themicrofinance clients
Current & RecommendedMicrofinance practices twoschools of
thought
Responsible Microfinance practices Lessons learnt
Reflection
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Value Proposition
Working capital loans
Consumer credit
Savings
Retail foreign exchange
Money transfer services
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Current practices
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Recommended approach
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Responsible MicrofinancePractices The Reliance Way
Start relationship with Savings not Loans Establish a pattern of
banking history to determine cash
flow generation capacity Conduct the personal character check
and business
reference with key contacts and business partners
Visit business to verify loan purpose, prepare proxyfinancials
as well as family to establish size andcircumstances
Limit loan amounts to 50% of net worth of businessventure
Gauge loan repayment between the range of 60% and70% of net
income after family expenses
Be transparent with loan covenants and terms Conduct site visits
to ensure amount disbursed was used
in line with loan purpose Continuous monitoring is key to
ensuring business
continuity or provide early warnings of any potentialissues
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Lessons Learnt Relianceexperience
Low level of literacy on part of clients
Information asymmetry
Lack of trust of MFIs and Tax man
Methodology suited for trading enterprises Monitoring and
reminders are critical
Diversion of funds is always a risk
Absence of permanent addresses business & residential
Risk of collusion between loan officers andclients to access
larger loan amounts
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Lessons Learnt Relianceexperience
Women higher risk of loan proceeds beingtransferred to
husband
Majority of micro-entrepreneurs are
migrants with limited assets & proof onownership
Burden of caring for an ill member of thefamily, ceremonies
& burials
Planning for the education of children
Islamic vs conventional banking interest
Need to maintain a diversified portfolio
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Lesson learnt -Diversified Portfolio
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Lesson learnt - Transparency &Reporting to stakeholders
Set Social Performance Indicators andmeasure and report
accordingly i.e. GRI;CGAP standards
Establish clearly the vision and mission ofcompany
Instil the mindset of responsible financingamongst employees,
managers & directors
Product portfolio and service offerings to
take into account interest of clients Influence government and
regulators to
promulgate legislation that seeks toaddress unfair
practices.
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Reflection
"If we stop thinking of the poor asvictims or as a burden and
startrecognizing them as resilient and
creative entrepreneurs and value-conscious consumers, a whole
newworld of opportunity will open up."
Mr. C.J. Prahalad Fortune at thebottom of the economic
pyramid
