ABG Submission

Team ABC- SIBM Pune
Team Members
 Aryan Chakraborty
 Rishav Gandotra
 Vedant Basnyat
Executive Summary
Svatantra Microfin Private Limited provides affordable financial solutions to customers,
enabling them to become economically self-sustainable. Svatantra lends microcredits to women
entrepreneurs in rural India for an income generating activity. Being a new-age MFI, Svatantra
aims to create differentiation in the microfinance space, and has many firsts associated with it. It
was honored to be the first microfinance institution to receive the NBFC-MFI license from the
Reserve Bank of India. It is a leading entity to offer 100% cashless disbursement and the lowest
rate of interest at 22% amongst its peers. Svatantra is a rural focused microfinance institution.
The company follows Joint Group Liability model and offers loans ranging from INR 5,000 to
INR 35,000 per individual. It currently offers two main products, Svatantra Income Generation
Loan & Svatantra Home Improvement Loan. As a next-gen MFI, Svatantra believes that
innovation is central to create a sustainable and inclusive platform for its rural customers.
Svatantra has been honored with the prestigious Skoch Award for financial Inclusion.
Svatantra started operations in FY 2019-20 in the state of Maharashtra and subsequently
ventured in the fiscal year 2019-20 to the state of Madhya Pradesh The organisation currently
operates in 50 districts throughout five Indian states (Maharashtra, Madhya Pradesh, Uttar
Pradesh, Chhattisgarh, and Rajasthan), with a portfolio of INR 175 crore. In the MFI sector, the
company was rated A- (Bank Term Loan Rating) by ICRA during FY 2019-20, a notable success
for the company in less than three years of its inception.
The operational highlights of the company over last 3 year are:
The focus in the near future is on becoming a major category, systemically significant MFI (GLP
> INR 500 Cr), achieving profitability and RoE, and creating sustainable procedures using
cutting-edge IT technologies.
The company intends to diversify its whole portfolio of financial products in the medium to long
term, using an appropriate structure. Banks are the most inclusive businesses, providing a wide
range of services and products, and are thus vehicles for achieving comprehensive financial
inclusion. As a result, Svatantra aspires to become a Small Finance Bank (SFB), pending
regulatory approval.
Objectives and Approach:

Microfinance in India has evolved over the last 35 years, beginning with the Self Help Group
model in the 1970s and later bolstered by the SEWA Bank and Joint Liability Group models.
Many private microfinance players chose to become for-profit organisations after the year 2000,
and they quickly expanded their operations. Microfinance firms were considered to be low-risk,
high-return investments, and Private Equities invested liberally in institutions, fueling the growth
of microfinance institutions. In 2010, the business had a crisis in Andhra Pradesh (at the time, the
world's largest microfinance market), which exploded due to client over-indebtedness and lax
supervision.
The RBI reacted quickly, established the Malegam Committee to investigate the causes and
provide suggestions to avoid a repeat of the crisis. RBI implemented tougher regulation in
response to the Committee's recommendations, resulting in a more robust and mature
microfinance business. NBFC-MFIs are for-profit microfinance institutions that are self-
regulated by an industry organisation named MFIN (Microfinance Institutions Network). As of
June 2019, the sector had completely turned around in the last 3-4 years, with a CAGR of over
50% and penetration in 35 states and union territories. Over INR 60,000 Cr1 is held by NBFC-
MFIs. loan portfolio with NPA standing at well below 1% as of June, 2016. Banks and their
channel partners, NBFCs, NGO-MFIs and govt. programs also cater to the same client segment
with their microcredit products. The overall microfinance market stands at over INR 100,000
Cr2.
Last 2 years also the witnessed focus of microfinance institutions shifting to urban markets from
rural, where they had been focused since beginning. 67%2 of the microloans were lent to urban
borrowers in year 2019 as compared to 33% in year 2020.
KEY SOURCES OF HOUSING FINANCE

The role of savings
IT IS OFTEN assumed that low-income households cannot save for housing, as all their income
is needed for consumption – or if they can save, it is only sufficient for community-managed
emergency funds or small loans for livelihoods. But many case studies show the importance of
savings for shelter investment by low-income groups. Low-income individuals often start
savings to provide a fund they can draw on to help cope with emergencies or illness – and this
develops into savings for housing too. This is especially so if they have a local savings scheme
to which they can contribute, as in the community-managed savings groups that are the
foundation of so many federations of slum and shack dwellers.2 Savings may support housing
improvements outside of any housing programme, as shown by a study in two low-income
settlements in Tanzania.3 Renters and would-be owner-occupiers also helped to finance
construction with advance rent payments to their landlords (who owned the structures), once
settlements became more established.
Microfinance for house improvements

A growing number of microfinance agencies offer small loans for housing improvements. They
usually offer finance only to individual households living on land sites with reasonably secure
tenure, and they enable dwelling investment that usually entails adding a room, or an improved
roof and/or floor, toilets and/or bathrooms. Shelter microfinance emulates many aspects of
enterprise-oriented microfinance and is often embedded within the same agencies.
Industry Assessment
Bandhan, the world's largest NBFC-MFI, became a universal bank in 2020. In 2019, the Reserve
Bank of India (RBI) has granted licenses to ten non-bank financial companies (NBFCs) to
transform into distinct Small Finance Banks (SFBs). Eight of the ten NBFCs are large
microfinance organizations (NBFC-MFI). The license will allow SFBs to engage in banking
activities similar to Universal Banks, with two main exceptions:
75% of its Adjusted Net Bank Credit (ANBC) should be advanced to the priority sector as
categorized by the RBI.
At least 50% of its loans should constitute loans and advances of up to 25 lakhs
As a result, they will, like MFIs, target the unserved and underserved segments of society. The
eight MFIs that are anticipated to transform into SFBs account for roughly 40-50 percent of
the MFI industry's entire gross loan portfolio.
Individual loans, such as affordable housing and micro-enterprise loans, will be prioritized by
SFBs, who seek to reduce their group-based portfolio. As a result, current microfinance
institutions may face some obstacles. Because of the following enablers, SFBs can offer a
better value proposition for the same target market as MFIs:
· Ability to offer a bouquet of financial services and products including loans (assets), savings
(liabilities), insurance, investments etc.
· Better credit assessment through increased client engagement (offering the above financial
services and products) while creating a digital footprint
·Higher brand equity due to a larger impact in the underserved and unserved customer segments
The management at Swatantra Microfinance acknowledges these challenges and called a

brainstorming session to assess the impact of SFBs. They also discussed about some new
differentiated banks/ platforms already in the industry or likely to be licensed by the RBI like
Payment Banks, P2P lending platforms and IT for innovative credit assessment (eKYC, cKYC
etc.)
Having heard the discussion, the Chairperson formed a taskforce of 4 members to examine the
possible synergies of Svatantra with the upcoming differentiated banks/ platforms and IT
innovations which can be leveraged to mitigate some of the likely challenges posed by the SFBs.
The team has to come out with an executable business model in synergy with these newer
possibilities highlighting the feasibility, cost-benefit analysis, risks and challenges within the
regulatory framework. Chairperson also advised the team to assess the pros and cons of
transforming into an SFB.

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ABG Submission

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Team ABC- SIBM Pune

The operational highlights of the company over last 3 year are:

Objectives and Approach:

KEY SOURCES OF HOUSING FINANCE

Microfinance for house improvements

The management at Swatantra Microfinance acknowledges these challenges and called a

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