Reliances 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 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

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 value- conscious consumers, a whole new world of opportunity will open up." Mr. C.J. Prahalad – Fortune at the bottom of the economic pyramid