In November, we hosted a trip to Delhi in India. As the second most populous country in the world and with one of the largest microfinance sectors globally, India is a significant market for BlueOrchard. There is a large rural population and relatively low penetration of financial services outside of urban or semi-urban areas. This combined with a government that is keen to prioritise financial inclusion and a growing demand for credit has made it an ideal environment for microfinance investment. We have been active in India for almost 20 years, and it is the country in which we have the most investments, both in terms of number and volume.
Benjamin Trueb, Vice President in the Business Development team at BlueOrchard, shares his impressions and experiences from the trip.
All of the trip participants arrived over the weekend in preparation for an early start on Monday morning. We kicked off the trip with presentations from BlueOrchard Chairman, Peter Fanconi, and a number of other senior investment professionals, who outlined the Indian microfinance market, its importance for BlueOrchard, and how we work with MFIs in the country.
After a quick (and very spicy!) lunch, we met with the MicroFinance Institutions Network – a self-regulatory organisation of non-bank financial companies in India – to learn more about the regulatory environment for MFIs and better understand the sector. There has been considerable growth in recent years, which is exemplified by the increase in stockmarket listings, borrower numbers and average loan sizes. This has come at a time of progressive development and regulation of the sector following the microfinance crisis in 2010, and we were impressed to see the priority that is placed on client protection.
Following this comprehensive introduction, the participants were looking forward to meeting some of those involved more closely in the industry. We began with a meeting with one of the largest MFIs in India – one that focuses almost entirely on group loans and female clients. Most of the loans are granted as group-liability loans, with the groups undertaking compulsory training to ensure they understand the conditions of the loan. It was interesting to hear more about some of the company’s provision processes – in particular the thorough and institutionalised processes undertaken and the recent addition of psychometric tests in order to understand a client’s willingness to repay a loan.
We then moved on to meet with a relatively new MSME lender who aims to bridge the gap between loans offered by MFIs and those available from commercial banks. Typically working with companies in the manufacturing, trading, agriculture or services industries, the company has seen consistent growth across the country as more and more companies have been able to scale their operations and look for more formal funding than is traditionally available from an MFI. Among their success stories was one micro entrepreneur who produces medieval armour as props for film sets and had unknowingly provided armour for the Game of Thrones cast!
Having spent the first day gaining a better understanding of India’s microfinance industry from some of the institutions involved, the second day gave us the opportunity to meet with a number of micro-entrepreneurs. This was something that the trip participants were particularly excited about as it gave us the opportunity to experience first-hand some of the stories that have directly resulted from BlueOrchard’s investment in the market.
Our first appointment of the day was a bi-weekly meeting with nine women who had undertaken a joint-liability loan. The women made their regular payment to the MFI’s credit officers, before going on to discuss their business activities and any challenges that the MFI may be able to support them on. This gave us some insight into the role of the credit officers, who split their days between meeting with existing end clients and researching demand for loans in specific areas.
We then moved on to meet with a series of micro-entrepreneurs who had used micro loans to develop and grow their businesses:
This couple had been in the business of repairing electronic goods for more than 15 years. More recently, they had taken out a loan which allowed them to also begin trading in electronic articles and has increased their income significantly.
A small loan had allowed this woman to buy used electronic items in order to extract and resell the copper components.
Our final meeting of the day was with a company from the BlueOrchard private equity portfolio, which offers weather-based risk assessment solutions. It has developed proprietary technology which offers insights into land value, weather risks, yield prediction and surveillance as well as air quality testing. In a country with a significant proportion of agriculture activity, and which is susceptible to climate change events, this provides access to intelligence which can empower farmers and other micro-entrepreneurs to make informed decisions about their business activities.
Our third day was dedicated to visiting the MSME clients of the lender that we had met on the first day:
This clothes shop specialises in producing wedding dresses. During peak wedding season they see up to 40 customers per day, and are able to fulfil this number of orders with just three sewing machines and four employees. They plan to take out another loan soon so that they can expand their business with additional sewing machines and staff.
This company specialises in embroidery, with a particular focus on stitching logos onto shirts, sheets and other materials for third party companies. It has been in operation for twelve years, using loans to purchase additional machinery and expand the business. It is also through the relationship with the MSME lender that the owner was able to get his business onto platforms like Amazon, which has helped him to further scale the business.
A stove manufacturer that with just seven employees is able to produce up to 500 items per day. Thanks to two small loans, they have been able to increase production and begin exporting products to other countries.
This has been a fascinating experience, which has really helped to set the scene for and provide a deeper understanding of the microfinance sector in India. It has provided the participants with the opportunity to see how BlueOrchard’s investment activities can have a very real impact for the end clients that we are working with. It is amazing to see what a little capital can achieve when combined with some great ideas – I have come away inspired and motivated by my time in India and look forward to continuing to make an impact in my role at BlueOrchard.
By Benjamin Trüb