Reliance’s perspectives on
Responsible Financing – What
incentives are needed?
Presentation by
Baboucarr Khan
Agenda
 Value proposition for the
microfinance clients
 Current & Recommended
Microfinance practices – two
schools of thought
 Responsible Microfinance practices
 Lessons learnt
 Reflection
Value Proposition
Working capital loans
Consumer credit
Savings
Retail foreign exchange
Money transfer services
Current practices
Recommended approach
Responsible Microfinance
Practices – The Reliance Way
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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 proxy
financials as well as family to establish size and
circumstances
Limit loan amounts to 50% of net worth of business
venture
Gauge loan repayment between the range of 60% and
70% 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 potential
issues
Lessons Learnt – Reliance
experience
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 and
clients to access larger loan amounts
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Lessons Learnt – Reliance
experience
 Women higher risk of loan proceeds being
transferred to husband
 Majority of micro-entrepreneurs are
migrants with limited assets & proof on
ownership
 Burden of caring for an ill member of the
family, ceremonies & burials
 Planning for the education of children
 Islamic vs conventional banking – interest
 Need to maintain a diversified portfolio
Lesson learnt Diversified Portfolio
Lesson learnt - Transparency &
Reporting to stakeholders
 Set Social Performance Indicators and
measure and report accordingly i.e. GRI;
CGAP standards
 Establish clearly the vision and mission of
company
 Instil the mindset of responsible financing
amongst employees, managers & directors
 Product portfolio and service offerings to
take into account interest of clients
 Influence government and regulators to
promulgate legislation that seeks to
address unfair practices.
Reflection
"If we stop thinking of the poor as
victims or as a burden and start
recognizing them as resilient and
creative entrepreneurs and valueconscious consumers, a whole new
world of opportunity will open up."
Mr. C.J. Prahalad – Fortune at the
bottom of the economic pyramid