How does microfinance work in India

Microfinance - How Does Microfinance Work In India? // Part 1

Microfinance - Ramkrishna Atre is the head of product development at the Indian microfinance institution Annapurna. The institute is financed by GLS Alternative Investments - Microfinance Fund. Microfinance is now a recognized means of achieving the United Nations' sustainability goals.

Atre is one of the winners of our Technical Assistance Program 2018. In an interview with our fund specialist Stefan Fritz he tells about working at Annapurna. He knows many examples of how microcredit helped people improve their living conditions. Atre provides an insight into the efforts microfinance institutions are making to meet the high standards of the GLS Alternative Investment microfinance fund.

What is your goal in your daily work at Annapurna?

We want everyone to have access to financial services. This goal is known in the industry as financial participation. With our offers, we primarily address women in rural regions who do not have access to them. We provide many of them with group loans with which they can generate an income. These loans can improve the living conditions of our customers and also increase their livelihoods.

Which loans do you grant exactly?

In addition to group loans for women, we also grant loans to disadvantaged groups such as people with disabilities, widows, single mothers and transgender people. We offer you secure access to drinking water and sanitary facilities or house renovations in rural areas. We also finance dairy farmers who need money for milk production or who want to insure their livestock. We also have offers for access to solar systems, the procurement of household goods or daily shopping.

How are these loans actually used?

The credit goes primarily to agriculture, related activities and small businesses. We have also developed tailored loans for small and medium-sized companies, with which our customers mainly cover their business expenses.

What do your customers value most?

We are active in areas where people cannot get funding through conventional banking channels. It is therefore crucial for them that we lend you the right amount of money at the right time.

Why are there no loans from a conventional bank?

Many people in underserved regions have no formal security or are unable to provide an overview of payments they have made in the past (Ed: so-called payment history). In addition, traditional financial institutions do not understand the needs of these people. The result: your applications are rejected or, after a long waiting period, only partially financed.

So Anapurna's microfinance is different from that of a conventional bank?

That's true. The average loan amount is 28,000 Indian rupees (equivalent to 360 euros) with an average duration of 18 months.

How do you protect your customers from the negative consequences of loan financing, e.g. B. from over-indebtedness?

In many ways. Annapurna didn't start out as a for-profit institute. Instead, we started our microfinance business with the non-governmental organization Peoples Forum. This organization takes care of people who live on the edge of society. The vision of building a more sustainable society has therefore been the cornerstone of Annapurna since it was founded. Of course we have evolved since then. We are regularly certified by the Smart Campaign. This is the strictest customer protection certification in the industry. We have also standardized our processes and guidelines. They are among the most advanced in the industry. For example, we have aligned them with the general standards of social performance management.

What is important when talking to customers?

To ensure good credit quality and avoid over-indebtedness, a team of valuation specialists checks the creditworthiness of customers. We go through our terms and conditions with them and regularly encourage them to use the loan funds to increase their own income. This process ensures that the customer gets the right amount at the right time and for a meaningful purpose.

How do you take into account the economic situation and the exchange with your customers when developing microcredit?

Before each market launch, we carry out a careful market analysis and intensive customer feedback. After all, we want to make sure that our offers meet a brisk demand. We also receive feedback from a selected group of customers every quarter. This is how we can tell if there are problems or suggestions, e.g. B. on the work of our employees, our services or the repayment of the loan. In this way, we have launched a wide range of offers on the market with which we cover the needs of our customers.

You can find out more about microfinance / microcredit / microfinance in practice in Part 2 of the interview. It will appear on the blog shortly.

Annapurna Microfinance Pvt. Ltd.

Annapurna is a fast growing microfinance institution in India. It initiates and promotes self-help groups made up of women, the destitute, the disadvantaged or the needy. The aim is to improve their social and economic conditions. The company started out as a not-for-profit organization in the early 1990s. In 2005 it put its focus on microfinance, mainly to provide for poor women in rural areas. Annapurna has been a regulated microfinance institution since 2009.

Ramkrishna Atre

Ramkrishna Atre is Head of Product Development at Annapurna Finance (P) Ltd. Bhubaneswar. He is responsible for researching new products, introducing them and monitoring them. Before moving to Annapurna in 2013, he worked at FINO Patyech. He holds a PGDFM (Post Graduate Diploma in Financial Management) from the Indian Institute for Forest Management and a certification for the financing of small and medium-sized enterprises (SMEs) from the Frankfurt School of Finance and Management. At the beginning of December 2018 Ramkrishna Atre visited the GLS Bank in Bochum.

Photos:Annapurna Finance

More articles on microfinance HERE.

Technical Assistance: Microfinance specialists Ram and Mirjana in Bochum

Bettina Schmoll is in the online editorial department, tweets and posts on the GLS Bank's social media channels and is responsible for the GLS website.