Banks Offer Innovative Education Loans

8/8/2019 Banks Offer Innovative Education Loans

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Banks offer innovative education loans

Last week, Indian Institutes of Management (IIMs) Bangalore and Kozhikoderaised their fees by Rs 1.5 lakh and Rs 1 lakh, respectively. IIM Ahmedabad [

Images ] is also expected to soon raise its fee by Rs 1 lakh.

After the fee hike, IIM-A would charge Rs 12.5 lakh for the post graduate

programme in management (PGPM) for two years and IIM-B would charge Rs

13 lakh. Indian School of Business (ISB), too, hiked its annual fee by Rs 80,000 to Rs 15.3 lakh for the one-year

course.

No wonder, while qualifying for theses courses means a lot for the students, funding them requires significant

financial capability. Then, there are educational loans that are offered by most banks and financial institutions. Many

of them are coming with innovative products to tap this market.

Union Bank of India [ Get Quote ] recently launched an education product known as 'Union Education (Special

Education Loan Scheme)' designed for studies at top-rung Indian B-schools.

Under the new scheme, the bank is to cover the IIMs at Ahmedabad, Bangalore, Calcutta, Indore, Kozhikode and

Lucknow [ Images ]; SP Jain Institute of Management and Research, Mumbai [ Images ]; XLRI, Jamshedpur and

Indian School of Business (ISB), Hyderabad, among others.

This scheme has a single rate of interest for all kinds of courses. For instance, loans up to Rs 20 lakh for ISB and Rs

15 lakh for other institutes would come at the same fixed rate of 10.5 per cent for male students and 10 per cent for

female students.

In addition, there is no collateral. Also, there is 100 per cent funding for all these courses, except for ISB, where 95

per cent of the course fees is given. S L Bansal, general manager - retail banking, Union Bank of India said "We have

kept a margin of five per cent with loans for ISB because the course fee is high. Also, students have to pay this 5 per

cent as registration fee, unlike other institutes. For other banks, the five per cent margin kicks-in when the loan

amount exceeds Rs 4 lakh.

The repayment period is also higher. Union Bank is offering a repayment period of seven years. Other banks,

generally, allow four years. The loan would be available for the course tenure and the repayment holiday or

moratorium period is the course period plus one year or six months after securing employment, whichever is earlier.

Others like HDFC Bank [ Get Quote ] also offer an exclusive product for premier management institutes, where the

collateral is as per mandated by the Reserve Bank of India, said the bank spokesperson. According to the bank's

website, for a two-year post-graduate diploma course, there is no collateral needed for loans up to Rs 12 lakh.

The loan is available for up to seven years, including the repayment holiday period. Loans worth Rs 15 lakh for the

one-year executive programme does not require any guarantee and collateral. Loans above Rs 15 lakh will need
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adequate collateral. "Our fixed rate of interest is between 10.50-13 per cent. Very soon we will also be launching the

floating interest rates," said the bank spokesperson.

State Bank of India [ Get Quote ], the country's largest bank, has no fixed-rate education loan. The floating rate

education product charges 11.75 per cent for loans above Rs 7.5 lakh. A concession of 0.5 per cent is given to

female students. The bank sanctions loans up to Rs 10 lakh for studies in India and for loans above Rs 7.5 lakh, a

collateral security equivalent to the full value of loan is required.

Axis Bank offers an education loan at 15.75 per cent (floating) for loans above Rs 7.5 lakh, the repayment period

being four years, as per loan site apnapaisa.com. The bank offers loans up to Rs 10 lakh for studies in India with a

third party guarantee and/or collateral security depending on individual cases, says the bank website.

Financial experts said that if you are looking for an educational loan, it would be a smart idea to start scouting for it

quite early. "Go through brochures of different banks as it will help you to zero-in on the best one," said financial

planner Suresh Sadagopan.

The three most important points that one needs to look at are:

Collateral or guarantee required for the loan

Rate of interest

Moratorium period

"Once you have all the details, you can try and negotiate the loan rate. Bank managers normally have the powers to

reduce the rate by 0.25 to 0.5 per cent, depending on the quality of the customer," added Sadagopan.
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Banks offers innovative products to lure NRI into real estate

Currently there is a boom in the real estate market in the country so the industry players

are trying to allure people by offering a slew of innovative products to people who are

willing to pay the price. If the deal gets stuck on the right point then from real estate

developers to real estate fund managers, from banks to housing finance companies it will

be a party time for all.

According to sources behind those exhilarated times, some banks, with operations in India

and outside, are offering innovative products to non-resident Indians (NRIs), which could

turn tricky in case Indian real estate market falls into a trough.

This process in turn involves the foreign and Indian operations of the same bank, the NRI

and his friends, relatives and associates based in India. To begin with, NRI, with the help

of his friends and others, establishes an Indian company that could do business in the real

estate sector. The bank in India gives some loan to the company to buy land in India.

However, the NRI keeps a fixed deposit with the wealth management division or privatebanking arm of the same banks overseas operation. Unofficially, the foreign branch of

the bank, with FD in its record, gives guarantee for the loan given by the banks Indian

operation to the company set up by the associates of the NRI. But the same is not

officially shown as a guarantee in the records of the two branches involved.

But as per current FDI rules in real estate, on any residential project foreign money can

be invested, on a land measuring 25 acres or more. For commercial properties, the

minimum stipulated area should be 50,000 square metres.

But, market players say with the realty boom, NRIs are still finding tough to get land at

market rate because whenever the seller gets to know foreign money is involved, they

demand prices higher than the market rates. If the buyer wants to buy adjoining plots

which should aggregate at least 25 acres the rates are increased further.
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In such a situation, the the associates of NRI buys smaller plots of adjoining land to

establish the company without raising the rates much or even raising suspicion of the

sellers that an aggregation is on play or even foreign money is involved. Like this NRI is

able to get the plots at market rate and once enough number of plots are bought, those

are aggregated (to at least 25 acres) and the company then transfers the same to the NRI

to comply with FDI rule. While the NRI pays back the bank in India, his FD kept in the

bank overseas is also released at the same time.

How Indian Banks Cope with Unwanted Baggage in the Global Pecking OrderPublished: January 10, 2008 in India Knowledge@Wharton

India's banking industry these days finds itself on a treadmill

where it has to keep pace with the country's rapid growth by

servicing a customer base with global options. A report by

consulting firm McKinsey & Co. finds that while Indian banks

fare well by global standards on a few counts, including

increasing shareholder value, they will have to do much more

to stay competitive. India Knowledge@Wharton spoke with

experts at Wharton, McKinsey and the Indian School of Business about how India's bankscan deal with the challenges they face.

McKinsey, with support from the Indian Banks Association, tracked 14 leading Indian banks

and their customers in five surveys. These covered their performance in personal financial

services, retail banking, IT benchmarks, organizational performance and asset liability

management. The institutions included seven public sector banks, four from the private

sector and three foreign organizations.

India's banks have had "unprecedented opportunities" in the last four years of India's rapid

growth, lifting their valuations, according to the McKinsey report. It is now time to look at

how well they are positioned for continued growth, the report adds. Joydeep Sengupta,

director at McKinsey and leader of the firm's financial services practice in India andSoutheast Asia, who co-authored the report with McKinsey partner Renny Thomas, says

their effort is the first of its kind to benchmark Indian banks' performance on a global scale.

India's banking industry fared better than its Asian peers on two out of five objectives that

McKinsey identified. They scored high marks in increasing shareholder value and allocating

capital efficiently, the report finds. They also compare favorably on a third parameter --

contributing to India's GDP (gross domestic product) -- on a global scale, the report adds.


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Indian banks, however, don't look as good in fostering "financial inclusion"; banks in other

countries do a better job of tapping household savings, the McKinsey report says. Also, they

could do a better job of managing intermediation costs more efficiently, read as the spread

between the interest rate on loans advanced and that paid for deposits.

Indian banks have a lot of ground to cover in participating in the country's GDP, says Rajesh

Chakrabarti, professor of finance at the Indian School of Business in Hyderabad. "Bank

credit accounts for about 40% of GDP in India, but it far exceeds the GDP in other Asian

countries like Hong Kong, China, Taiwan, Singapore and Malaysia," he says.

Indian banks achieved the highest pre-tax returns on investment across Asia at 17.9% in

2006, compared to those in Malaysia (16.3%), China (15.1%) and Thailand (9.1%), the

report says. That performance helped Indian banks post the highest returns to shareholders

as measured by stock market banking indices, it adds. Between January 2000 and October

2007, Indian banks delivered returns to shareholders of 36.76% (compounded annual

growth rate), compared to 24.03% for the entire Indian stock market. In the same period,

Chinese banks achieved returns to shareholders of 17.57%, while British banks managed

only 9.34%. All those ranked better than the 7.16% by all shares on the FTSE (FinancialTimes Stock Exchange) index and 4.54% on the Dow Jones index, as tracked by the

McKinsey report.

Chakrabarti says foreign banks operating in India have been the most profitable, and he

attributes that to their ability to attract corporate current accounts, on which they pay zero

interest; savings accounts pay interest rates of 3.5%, while longer-term deposits attract

rates of up to 9%, the peak rate being that for senior citizens. "The current deposits keep

their overall interest rates low and margins high," Chakrabarti notes.

Better Capital Allocation

Indian banks have improved capital allocation dramatically during the past four years, and

this is evident in the decline of their gross non-performing assets (NPAs) as a proportion oftotal loans -- from 9% in 2003 to about 3%, the report finds. Indian banks could achieve

that with a lot of help from a booming economy, but they deserve credit also for making

better lending choices, McKinsey says.

For instance, Indian banks reduced their exposure to industries where they were losing

money, such as paper, steel, textiles, hotels and tourism, from 56% percent in 2003 to

22% in 2007. They achieved this by increasing their exposure to borrowers that brought

positive returns including paints, cement, automobiles and pharmaceuticals, from 44% to

78% in the last four years, the report says.

The intermediation cost -- or the spread between the average deposit rate and the lending

rate -- at Indian banks is high at 5.1%, compared to that in the U.S. (2.9%), Singapore(2.4%) and China (3.4%), according to McKinsey. A significant reason for this is that Indian

regulators require banks to maintain 25% of their deposits in what is called a "statutory

liquidity ratio," or SLR, which in effect allows government-sponsored programs to access

those funds at below-market interest rates. India's central bank also requires banks to

earmark 40% of their advances for so-called "priority sectors" like agriculture and small

business, where the returns are patchy and banks encounter bad debts.


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"Those reserve requirements are hangovers from the past for India," says Wharton finance

professor Franklin Allen, who closely tracks the Indian financial services industry. "They

have to be dismantled."

"There is a huge amount of pre-emption of funds that goes on in India," says Chakrabarti.

"There is a case to dismantle the SLR. If you take away 40% to 50% of the banks' funds,

they are forced to increase their lending rates on the remainder, and they find their prime

corporate customers prefer to raise their money in the overseas markets (called "external

commercial borrowings," or ECBs, in Indian official parlance).

Chakrabarti says recent studies show that the top 50 Indian companies have raised about

30% of their fund requirements through ECBs; losing that market share adds further

pressure on Indian banks to increase their interest rates on other, second-tier customers.

"That becomes a vicious cycle," he says, adding, "and a high interest rate regime certainly

hurts overall output."

Incumbents vs. Attackers

The McKinsey surveys also revealed fundamental shifts occurring in the composition of

Indian banks, with newly emergent private banks -- McKinsey calls them "attackers" --rapidly stacking up gains over the older, incumbent banks, with improved customer service,

better risk management and leveraging of IT skills to expand their global reach.

Consequently, in the last seven years, these attackers have increased their market share of

Indian banking assets from 12% to 26%, their share of aggregate profits from 21% to 32%

and their share of market capitalization from 37% to 49%, the report says. Investors

rewarded that performance handsomely, lifting the banks' price-earning multiples from an

average of three in 2000 to 27 by 2007; by contrast, the incumbents were able to grow

their stock multiples from one to seven in that period.

McKinsey finds that India's incumbent and attacker banks boasted roughly similar after-tax

returns on equity in the latest financial year (2007), with 14% and 15%, respectively. But acloser look reveals that in retail banking -- the biggest profit driver -- the incumbents

averaged a 33% return on equity, while the attackers achieved only 16%. "Incumbents

continue to profit from large deposit bases, thanks to their legacy distribution networks and

franchises," the report says. On the rest of their businesses, the attackers fared better in

2007 with a 15% return on equity, while the incumbents managed only 9%, McKinsey adds.

"The attacker banks use innovative distribution channels," says Sengupta. "They use non-

branch, feet-on-the-street sales force channels much more aggressively than we have seen

in banking in most parts of the world."

On the measure of "credit and risk best practices," Indian banks fare well against their

global peers, although incumbent banks fall short, the report says. This measure coversbanks' performance on credit underwriting, rating, risk-based pricing, credit portfolio

management and credit monitoring. On a scale of 0 to 4, McKinsey gives Indian attacker

banks the top score of 3.3, while the top global banks average 3.2 and Asian banks average

3.1.

India's incumbent banks manage a score of just 2.8 on that scale of credit and risk best

practices. "On the whole, they lack advanced early warning systems and use only basic
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funds transfer pricing methodologies to conform to regulatory and compliance measures,"

the report says.

McKinsey's surveys also reveal that Indian banks have done better than their global peers in

organizational performance, "given their historic access to superior talent." The report also

puts Indian banks ahead of their Asian counterparts in "distribution efficiency," while both

share equal scores in "marketing and sales." Asian banks and the top 10 global banks do

better than their Indian counterparts in corporate leadership, IT capabilities and credit skills.

However, the Indian attacker banks are ahead of the incumbents on all fronts, including

what McKinsey calls "corporate leadership."

Technology and Performance

In using technology to shore up their performance, the best banks in India (including five

leading private and foreign banks operating in the country) "are among the most efficient in

the world," the McKinsey report says. In one specific measure of IT spending per 1,000

accounts, the "best Indian banks" spent an average $10.2 in 2007, while European banks

averaged $76, the firm notes.

The Indian attacker banks with "best-in-class" IT capabilities "are truly the best in theworld," McKinsey adds, identifying three factors driving this trend: "the ability to avoid using

legacy systems, superior governance practices that often entail direct CEO involvement and

the India advantage [a reference to the country's established IT skill base]."

Sengupta says that while incumbent banks have been relatively slower to embrace IT and

other technology, they will still derive advantages on that front. "In an ironic way, they are

able to leapfrog as they have been later adopters of technology," he says.

On customer satisfaction, which McKinsey rates as "the biggest driver of value," the report

says the attacker banks have "revolutionized levels of convenience and provide customers

with superior service." At the same time, the attacker firms also have "more customers with

negative experiences" than the incumbents. "Customer experience and tailored offerings willbe a big driver of bank profitability as young, affluent customers are more demanding and

discerning, and are less credit-averse."

"That is scary for the incumbent banks," says Chakrabarti. He adds that while the

incumbent banks fare as well as the attacker banks on profitability measures, they are

unable to win over the younger, upper middle class group of customers that is commonly

referred to as the "mass affluent." India's mass affluent class is heading towards private

banks and foreign banks, driven mainly by customer service needs, he notes.

"That is where your cheap deposits will come from, and those are the people who will use

your banking services and to whom you can sell your insurance products and other fee-

based services," says Chakrabarti. "That is the customer service [the incumbent banks]want to hold on to, to maintain your profitability."

Allen says that "the big banks across the world seem to have a problem with customer

satisfaction," and he raises some fundamental issues here. "If you make a mistake like

bouncing a check, the bank charges you a high [penalty] price; that may get people upset

with them," he says. "On the other hand, they provide a lot of services for free, such as


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when you use your own bank's ATM or when they process the checks you write. If they

charge you for those services, it may get people even more upset."

It isn't easy to determine what drives customer satisfaction while banks try to stay both

competitive and profitable, says Allen. "They have to make money somehow, and it is

interesting the way they do it. The question is whether the way they do it is actually the

best. Maybe the way they do it -- subsidize a lot of services and make it up somewhere else

-- is the best way."

According to Sengupta, McKinsey's research reveals that the corporate customers of Indian

banks tend to be less forgiving about inferior customer service than individuals. "For the

corporate customer, the ability to access funding overseas at a relatively cheaper rate very

quickly and conveniently is a big dimension, besides access to innovative products and best-

in-class risk management systems," he says. However, the leading Indian banks are able to

meet those requirements for the top-tier corporations, he adds. "The challenge Indian banks

face is in the next tier -- the slightly smaller corporations -- for whom they need to provide

the same level of service and range of products."

Although Indian banks look good in select areas versus their global peers, they arerelatively small, says Sengupta. But India's economic growth and the banking industry's

efforts to meet global standards will change that picture dramatically in a decade, he notes.

"Five years ago, no Indian bank had a market capitalization of more than $5 billion or $6

billion. Today, you have at least two banks (the State Bank of India and ICICI Bank) with

market caps of $30 billion to $40 billion. Roll the clock forward 10 years, and you can easily

see that crossing $100 billion to $150 billion, and at least two or three truly global banks

emerging from India."

Deutsche Bank brings innovative product in the credit card

segment

ByAnkit Sharma

Mar 31, 2010

Deutsche Bank has come out with an innovative product in the credit card segment. The card is

named World Miles credit card.

Suiting its name is the customer segment that the card aims to cater to. It is mainly meant for
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regular domestic and international travelers. The customers holding this card will automatically be

registered in a travel focused loyalty program called World Miles'.

World Miles is an airline independent frequent flyer program a unique innovation for the Indian credit

card segment.

World Miles will enable the customers to earn as well as redeem miles every time they travel

anywhere in the world through any airline.

The card has been launched in association with Loyalty Rewardz and Ezeego.

The card allows customers to earn miles in three ways named Flight miles, Spend Miles, & Partner

Miles. These forms are accrued in a single account of the customer and can be redeemed by him to

get free airline tickets anywhere irrespective of national or cross national barriers. It is also available

for any airline of the choice of the customer.

"At Deutsche Bank we continuously innovate to enhance value for our customers through products

which meet their needs, and seek to surpass expectations," Shameek Bhargava, Managing Director,

Head of Cards - Asia Pacific, Deutsche Bank said.

Indian banks defining the future of banking

IBMs strategic research unit, the Institute for Business Value, recently released a study

called Banking 2015: Defining the Future of Banking. Worldwide, total financial services

revenue is predicted to experience compound annual growth of 7.1 percent between 2000and 2015, from $2 trillion to $5.6 trillion. In the Asia-Pacific region, IBM predicts a growth

rate of about 7.6 percent.

The study forecasts trends in banking for a unique insight into the competitive forces that

bankers will face in the next 10 years. It highlights the emerging business and technologyinnovations and societal trends that will propel and shape the industrys transformation.

According to the survey, the five key trends that will determine market success in 2015 are

customers taking control, niche competitors, a new workforce, regulated transparency and

sharp focus on technology.

Sanjay Sharma, Corporate Head, Technology, IDBI Bank believes that business, whetherbanking or otherwise, has to be customer-centric.

Agrees Sharad Bishnoi, Assistant Vice-president, Head, Business Process Re-engineering

Group, HDFC Bank, Banking services require a high level of customer engagement and

understanding of the requirements for a quality value proposition. These factors can besustained long-term by adopting a customer-centric business strategy.

Similarly, transparency and accountability from regulation and compliance are also growing.

Sharma points out that banks dealing with the US customers need to comply with

international regulations such as Sarbanes-Oxley, and the Indian ones from RBI and Clause49.

The survey goes on to predict that market changes will pose growing challenges forconventional banks. Sunny Banerjea, Global Banking Leader for the IBM Institute for

Business Value says, By 2015, we will live in an intensely customer-centric marketdominated by global mega banks and densely populated by specialist financial services

providers. Technology will also drive fundamental changes in workforce disposition, which

will have substantial follow-on effects for productivity, efficiency and profitability. Thesetrends are already evident but as they become entrenched, there will be profound changes

in the competitive drivers of global banking.


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Sharma feels that over time banks will focus on specialising in key segments. The surveysuggests that banks must identify target business areas. It will be essential to maximise

operational efficiency and counter nimble new market entrants by partnering with specialistproviders.

Keeping with the future trends, the study identifies a number of value-added options forproducts and market innovation. These are mortgages, RFID, service packaging and

customer integration.

Says Bishnoi, Service packaging and customer integration have started already and I

believe will only increase in future. Basic products in banking being limited in number,added flavours and value additions are gradually coming to the forefront. Two of the most

critical aspects will be: packaging more customised products to suit a customer need andcustomer integration leading to better portfolio managementat a more granular level.

However, Sharma feels that it is the mortgage and RFID segments which are morepromising. Though mortgages have operational complexities they are innovative products

for customers. For instance, customers can avail of different cash-back offers. Similarly,RFID also has great potential to leverage business. Banks can utilise this technology to

understand customers needs and for issues such as customer authentication.

According to Swarup Choudhury, Director, FSS, IBM, each bank must decide on a strategythat fits its customers needs. Banks will need special strategies to cater to a far morediscerning and controlling customer, he says.

He predicts, Banking customers will demand more advocacy, personal security and controlin their banking relationships. Banks will source products and services from many

specialised and best-in-class service providers, including independents and other banksproviding white-label products and services. They will partner actively with providers to

improve their capabilities without locking up their own capital and their ability to addresschanging demand cycles.

NEWS WIRE: India: Banks Building Innovative Distribution Channels ThroughMicrofinance Institutions to Reach the Bottom of the Pyramid

Posted by MicroCapital Team in Category: Asia at 8:45 am

Source:Outlook Business(India).Original articleavailable online.Suvarna, a frail, 49-year-old, grocery vendor in the village of Junnar in Maharashtras Pune district is spoilt for choicein borrowing money, and the local moneylender is at the bottom of the pile in options. She is being offered Rs 15,000at a seemingly still steep, but less usurious, interest rate of 24% by the likes of SKS Microfinance and Share Microfin.Now Indian banks also want a share of the fortune that exists at the bottom of the pyramid. But they are grapplingwith a question: How to reach consumers at the bottom of the pyramid?So far, seven banks (See Reaching Out) have managed to tap over 50 lakh customers across the country in thissegment, disbursing about Rs 3,000 crore. But thats only a tiny percentage of the addressable market size of 6-7
http://www.microcapital.org/news-wire-india-banks-building-innovative-distribution-channels-through-microfinance-institutions-to-reach-the-bottom-of-the-pyramid/http://www.microcapital.org/news-wire-india-banks-building-innovative-distribution-channels-through-microfinance-institutions-to-reach-the-bottom-of-the-pyramid/http://www.microcapital.org/author/microcap/http://www.microcapital.org/category/asia/http://business.outlookindia.com/http://business.outlookindia.com/http://business.outlookindia.com/http://business.outlookindia.com/inner.aspx?articleid=252&subcatgid=161&editionid=17&catgid=7http://business.outlookindia.com/inner.aspx?articleid=252&subcatgid=161&editionid=17&catgid=7http://www.microcapital.org/news-wire-india-banks-building-innovative-distribution-channels-through-microfinance-institutions-to-reach-the-bottom-of-the-pyramid/http://www.microcapital.org/news-wire-india-banks-building-innovative-distribution-channels-through-microfinance-institutions-to-reach-the-bottom-of-the-pyramid/http://www.microcapital.org/author/microcap/http://www.microcapital.org/category/asia/http://business.outlookindia.com/http://business.outlookindia.com/inner.aspx?articleid=252&subcatgid=161&editionid=17&catgid=7


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crore potential customers capable of absorbing about Rs 40,000 crore, shows estimates by Gurgaon-based Micro-Credit Ratings International (M-CRIL). It believes the 60 million low-income households in India can consume creditworth Rs 8,000 crore every year.The financially excluded are a big opportunity, says Nachiket Mor, Deputy Managing Director of ICICI Bank. AgreesNeeraj Swaroop, Chief Executive Officer (CEO) India of Standard Chartered Bank: The demand for micro-finance isenormous in India, provided the intermediaries have the ability to absorb the credit in a cost-effective manner. Banksare putting in place strategiesboth plain vanilla and innovativein order to achieve some aggressive targets. (SeeBig Schemes On The Small)The Plain Vanilla RouteWholesale lending through micro-finance institutions (MFIs) is the largest pipe for directing banking funds into themicro-finance segment. While the channel offers a good distribution network, it takes on the risk of defaults, evenwhile assuring banks a 2-3% spread.Not surprisingly, while HDFC Bank had 10 MFI partners in 2003, it now works with 75 and an equal number of non-government organisations (NGOs). ICICI Bank works with 210 MFIs, while Standard Chartered has tie-ups with 15and ABN Amro, 29.More such partnerships are likely to emerge. We will have to go even further down (the pyramid)not all on our ownbut through alliance partners, local area banks and large corporates entering big retailing and contract farming, saysSanjay Nayar, CEO of Citibank India.Banks are also testing out several innovations in their relationship with MFIs. For instance, ICICI Bank has decidednot to set up any more micro-finance branches but to rely entirely on partnerships. With that was born the concept ofmicrofinance factory.Set up in collaboration with the Centre for Micro Finance at Chennais Institute of Fundamental Management andResearch (IFMR), this factory is mandated to incubate and support newer MFI models and provide support to

entrepreneurs. The micro-finance factory aims to provide all the building blocks critical to MFIs, such as seed capital,operation models, product development, technology support and human resource training, explains BrahmanandHegde, Joint General Manager and Head of Microloan at ICICI Bank.A franchisee model is also in the works. Dubbed IntelleCash, this model is being developed by ICICI Bank incollaboration with Intellecap, an MFI development company, and Cashpor, an MFI. IntelleCash will provide supportsystems and mentoring for start-ups for a fee. It seeks to reach out to one crore clients and add over Rs 4,000 crore($1 billion) in outstanding loans through 60 IntelleCash franchisees across India by 2010.Other banks are also into the innovation game. ABN Amro Bank is using the ABN Amro India Foundation (AAIF) tocreate capacities among start-up MFIs in the underserved regions. It is working with six such MFIsthree in Assam,two in Bihar and one in Uttar Pradesh. We target to scale up to over 50 in the next three years, says MoumitaSensarma, Head of Microfinance and Sustainable Development at ABN Amro Bank.Citibanks approach, though, is slightly different. It recently signed up a financing deal for about Rs 160 crore ($40million) with SKS Microfinance. Under the terms of the agreement, loans originating in the latters books wouldautomatically be transferred to Citibank after the assets are seasoned for a month. Here, the risk is also passed on toCitibank. It has also entered into agreement with another MFI, Basix, for Rs 29 crore ($7 million). This would cover

about 50,000 urban micro-finance borrowers spread out in Hyderabad in Andhra Pradesh and Indore in MadhyaPradesh.We will go even further down (the pyramid), not all on our own but through alliance partners, local area banks andcorporates Sanjay Nayar CEO, Citibank IndiaWe are continually looking at different ways of reaching out to the unbanked and underserved segments, says AlokPrasad, Head of Strategy and Business Development and Business Manager for the Microfinance Group at CitibankIndia. We are doing this in various ways, including partnering with larger and relatively mature MFIs on a multi-product basis, he adds.Direct InterventionHowever, Yes Banks strategy is in sharp contrast to ICICI Banks policy of not setting up its own branches ordistribution network. During its first year of operations, Yes Bank disbursed Rs 75 crore in wholesale funding to MFIs.It is targetting to double this figure in the second year, through this direct intervention method.There are some examples of MFI success stories, says Somak Ghosh, President-Corporate Finance andDevelopment Banking at Yes Bank. But there are not enough organisations (in the country) that have achieved thescale that would enable us to grow. Hence, we decided to get into this business all by ourselves.

In December 2006, Yes Bank inked a strategic partnership with Accion Internationalknown for devising sustainablebusiness models catering mainly to urban populationsto launch the Yes Microfinance India. This is a specialiseddivision focused on developing tailor-made micro-finance products.Yes Bank flagged off the business in July 2007, approving about four loans a weekto be raised to 15 soonthrough individual loans to the urban slum dwellers of Worli, Lalbaug and Parel in Mumbai. From one office now, thebank plans to expand to three in the metropolis. And its scope of operations is expected to expand to other slum beltstoo, within Mumbai. Yes Microfinance India also plans to set up two offices in Delhi over the next 18 months.But for others such as Jammu & Kashmir Bank (J&K Bank), a single geography is the nicheit plans to limit itsactivities within the state. The bank has devised niches among various customer segmentsfrom apple growers tocarpet makers, craft artisans, vegetable vendors to local dealers of the Sunday flea market in the state capitalSrinagar.


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This business requires tremendous domain knowledge and we understand the local systems here better than anyother player, says Haseeb Drabu, Chairman of J&K Bank. Micro-finance must be very localised and regional.However, we would gradually replicate our success stories here in related niche markets outside, he adds.Dedicated Micro-finance BranchesDevelopment Credit Banks (DCB) plans in Gujarat are akin to carpet-bombingit envisages to get into 1,000 villagesin the state by leveraging the Aga Khan Rural Support Program, established by DCBs founder, the Aga KhanFoundation.The foundation is working in Bharuch, Surat, Junagadh and Surendranagar districts of Gujarat. More interestingly, thebank plans to set up a full-fledged branch dedicated to micro-finance in Dediyapada of Bharuch district. This branchis slated to begin operations in September this year and will serve as a hub to anchor the foundations operations inthese 1,000 villages. DCBs Managing Director and CEO Gautam Vir is looking to build a strong micro-financeportfolio of at least Rs 500 crore over the next 18-24 months.HDFC Bank is not far behind in this effort. It has set up a dedicated self-help group (SHG) branch in Tamil Nadu. Itnow plans to set up a dozen more such outlets soon. This calibrated effort would help the SHGs absorb, utilise andmonitor credit in an optimal manner and grow the scope of business for all, says Kishore Kumar, Executive VicePresident and Head of Microfinance at HDFC Bank.Alternate Distribution ChannelsIn a one-time initiative aimed at furthering its reach, J&K Bank recently paired up with the J&K state administration toissue about 21 lakh ration cards. The benefits of the exercise were two-fold for the bank. First, it was a medium ofadvertisement and direct marketing for it, where the product brochures and requisite forms were sent along with theration card to the households. Second, the exercise provided critical household information to the bank.The data is very important and is helping us reach prospective micro-finance customers, says Drabu. Of the 21 lakhcards distributed, around six lakh were to households falling in the below poverty line (BPL) category, which

constitute the soft targets for hard micro-finance lenders.Global ScenarioAmong the international banks that take micro-finance seriously, there are three distinct types.There are not enough organisations in India that have the scale. So, we got into the micro-finance business alone-Somak Ghosh, President, Corporate Finance & Development banking, Yes BankThere are the specialised banks, which focus on micro-finance, such as Mibanco of Peru and K-REP Bank of Kenya,many of them with NGO origins and strong social missions; the mainstream banks such as Banco Caja Social ofColombia and Banco de Pichincha of Ecuador; and the state-owned development banks for which micro-finance is apublic mandate, such as Bank Rakyat Indonesia and Banco do Nordeste of Brazil.Multinational banks are also trying to drive synergies in their micro-finance operations in various parts of the world.For instance, Standard Chartered Bank recently pooled its MFI assets spread across 10-12 markets, including Africaand South Asia, and securitised them into one medium term note (MTN) programme, worth $125 million.The bank also plans to offer its services as a conduit for multilateral institutions that are looking to enter the Indianmicro-finance space, says Ranjan Ghosh, Regional Head-Financial Institutions, South Asia of Standard CharteredBank.

Adds Sanjay Sinha, Managing Director of M-CRIL:Indian banks would certainly continue to play a strong role in theirpartnerships with MFIs, besides developing their own direct micro-finance offerings.Indian and international banks seem to be operating on the same wavelengths in the micro-finance segment, butwhen it comes to innovations, there is little doubt that Indian banks are clearly leading the way.

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