Thirty-year-old Vineet Kumar has been making threads used in fishing nets for as long as he can remember. His father was a teacher but Kumar remained unlettered; he had to join his uncle’s business at the age of 12 when the family faced a financial crisis and a hand-to-mouth existence.
But the tide started turning about a year-and-a-half ago when evaluators from a little-known microfinance firm, Utkarsh, landed up at his door with the promise of change. “They offered me a loan of Rs 60,000 that allowed me to double the number of machines I had and also double my monthly profits to Rs 30,000 in one move,” says Kumar, a Varanasi resident, who runs his ‘factory’ with his two brothers and their spouses. Now, with the extra cash and a new-found confidence to expand his work, Kumar knows what his children will do: Study, just like their grandfather.
Kumar is cagey about sharing his financials but he could easily be brought within the MSME (medium, small and micro enterprises) bracket. In fact, he represents the unfortunate cohort of Indian businesses which, while contributing 45 percent of Indian industrial output and 40 percent of exports, continue to receive just 22 percent of financing from formal banking sources.
Almost 90 percent of the MSME category falls under ‘micro’ enterprises with credit needs between Rs 50,000 and Rs 3 lakh. Ironically, they are not served by microfinance institutions—for whom their requirement is too big—nor by the banks, who would find the need too small.
About 30 million of India’s MSMEs, engaging an estimated 70 million people, thus fall in the blind spot of India’s financial inclusion drive. This is where Utkarsh Micro Finance, headquartered in Varanasi, comes into play. Not only has Utkarsh given the necessary financial push to several micro businesses, it has also achieved a scale unmatched in this sector, bigger than pilot schemes like Bandhan funded by the International Finance Corporation. At present, it disburses around Rs 6 crore in loans.
Utkarsh’s Micro Enterprise Loan (MEL) scheme—secured loans for individuals already running an enterprise—is different from its Joint Liability Group (JLG) scheme, which gives unsecured loans mostly to a group of people collectively.
Since its introduction in March 2012, Utkarsh’s MEL scheme has expanded to four centres apart from Varanasi: Allahabad and Gorakhpur in Uttar Pradesh and Patna and Chhapra in Bihar. Today, it serves over 1,100 clients with over Rs 6.5 crore disbursed till date and an average ticket size of Rs 60,000. The icing on the cake is that Utkarsh has a zero delinquency record on MELs. “As I see it, this industry has a double bottom-line approach and is reaching out to the financially excluded is its central point,” says Govind Singh, former banker and CEO of Utkarsh Micro Finance, who is leading the innovation.
Anup Kumar Agarwal, senior investment officer at the International Finance Cororation (IFC is a member of the World Bank group and the largest global development institution focussed extensively on the private sector), said it has raised its investment in Utkarsh from $0.3 million in 2009 to $2.1 million till date. The clinching factor in the decision: The success of the MEL scheme.
Conceptualising the Breakthrough
Utkarsh CEO Govind Singh says he understands his clients because he himself traversed the path of hardships that they face. The first half of his childhood was spent in Uttarakhand—their village was some 40 km from the Jim Corbett National Park—where he had to travel 7 km to his school every day. Later, in Delhi, with his father working in a clothes shop, Singh taught junior students while he was studying to earn money for his family, which lived in a room not more than “18 ft by 6 ft by 6 ft”.
Singh started his career as a probationary officer in the State Bank of Patiala. Five years later, he joined Surya Fincap Ltd, an NBFC, with the mandate to set up their Mumbai office in 1988. This was followed by stints at Bank Internasional Indonesia, which had just one branch in the country, and UTI Bank (now Axis Bank). He joined ICICI in 2000, where he served in various departments.
“Nobody teaches you processes better than the State Bank and there is no better place to learn decision-making than ICICI,” he says.
At ICICI, he was heading its microfinance and business correspondent sectorals since 2006. He visited Brazil and South Africa in 2007 to see how microfinance institutions are working to achieve financial inclusion. In 2009, he was part of an RBI committee which looked at the business correspondent model in India (business correspondents are bank representatives who enable villagers to carry out financial transactions without going to a bank). In fact, he was the first to set up the model in India when non-profit NGO Grameen Sanchar Society (GRASSO)—led by Nilotpal Basu of the CPI(M)—became a business correspondent for ICICI in 2006.