It has won an award for successfully combining the best of Grameen Bank’s self-help group model with the efficiencies of retail banking.
November has been a good month for Bangalore-headquartered microfinance organisation Ujjivan, a pioneer in the field in urban India. It has won a process excellence award from the Royal Bank of Scotland (RBS) for successfully combining the best of Grameen Bank’s self-help group model with the efficiencies of modern retail banking.
The microfinance institution has also successfully raised Rs 94 crore through the fourth round of private equity funding, taking its capital to Rs 106 crore. Ujjivan is hungry for cash as it is expanding exponentially. In the three-month period ended October, it added 50,000 customers when in the entire previous fiscal, it had added 68,000. With an end-October total of 164,000 customers, it sees itself in line to reach a customer base of 2 million by 2012.
The fresh cash is needed not just for expansion but also because the three-year-old organisation is still losing cash (Rs 2.63 crore from operations in 2007-08) but intends to break even in the current financial year and offer a return on equity of 15 per cent in three years. In the last six quarters (till June this year) its operating cost ratio (cost to loan outstanding) has come down by nearly half to 34 per cent.
While Ujjivan, registered as a non-banking financial institution, seeks to run on commercially viable lines, Samit Ghosh, managing director and founder, is clear on what microfinance can and cannot do. With a recovery rate of over 98 per cent, commercial viability is not in question. But he has no illusions that microfinance alone will end poverty.
It will not and so Ujjivan has started a non-profit organisation, Parinaam Foundation, to bring a holistic approach to fighting poverty. It will offer healthcare, education, vocational and entrepreneurial guidance and support community development initiatives.
This is because microfinance can at best get you out of the clutches of moneylenders and help generate additional income. But the educational and health needs are such that without addressing them simultaneously, adverse episodes can drag an individual or family back into poverty.
Ghosh says a full one-fifth of the loans Ujjivan gives are to meet health emergencies. What he finds almost mystifying is that a maid will go to the extent of taking a Rs 10,000 loan to put a child in what she thinks is an ‘English medium’ school.
Ujjivan winning the RBS award is not surprising considering where Ghosh comes from. He quit banking after 30 years (half of it spent overseas) and the rest in India in retail banking with Citibank, Standard Chartered and HDFC.
He offers fascinating insights into the differences between urban and rural microfinance. In urban microfinance, a lot of loans are taking out by the working poor for needs like children’s education. In rural areas, a lot of loans are taken out by the self-employed to finance micro businesses.
The conditions in which the urban poor live are “hellish” — poverty apart, rural life is far more bearable in environmental terms — and it is difficult for organisations like Ujjivan to find a room to hold a borrowers’ meeting for a group exceeding a dozen.
