CHAPTER 2: KEY STRENGTHS AND WEAKNESSES OF INDIAN MFIS
2.4 Matter of concern
2.4.2 Use of Loans
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2.4.1 Mission Drift
In an environment where the measure for success often-times remains the number of loans disbursed or the number of clients acquired, the poor often become casualties rather than beneficiaries. Poor people have always been prey to unscrupulous and recalcitrant moneylenders or other bogus savings institutions. Therefore, there is a very real risk that in the guise of genuine MFIs, swindlers or worse incompetent people may injure them even further
2.4.2 Use of Loans
There is a latent assumption that micro-loans will lead to entrepreneurial and profit-generating activity, thereby perpetuating a virtuous cycle of poverty reduction. However, the reality is that a large portion of loans are taken for non-productive activities, such as weddings, funerals, dowries, roof-repair, subsistence etc. This is not to say that such activities do no merit loans, in fact, one of the primary merits of microfinance is that it makes the poor less vulnerable to destitution by making available these small loans. It may also be argued that by smoothing over the expenditure on food consumption of a farmer for instance, a micro-loan may allow him/her to work better in the fields, and is therefore eventually remunerative.
The clients of microfinance institutions have always used some of their loans for purposes other than micro-enterprise investment. This may still be known as ‗misuse‘ by some agencies but most providers of microfinance services are coming to realize that money is fungible, and that their customers probably know better than they do how to best use their money.
However, a cautionary note must be added that when micro-loans are made available of for non-remunerative purposes, by an over-zealous loan officer to a financially-uneducated client, they may engender a spiral of further poverty. The State of the Sector (SOS) Report 2009 explicitly warns against such loans and recommends that the ability of the client to repay the loan amount must be established prior to the disbursement of the loan.
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Often when a borrower is unable to repay a micro-loan within the stipulated time, she may be forced to take another loan, from a different MFI in order to meet her commitment. The problem of multiple-lending has permeated most regions in southern India, where there is a high concentration of MFIs, and intense competition to woo the maximum number of clients. In such a scenario, it would be appropriate to cite that ‗micro-credit is also micro-debt‘
As MFIs expand and loan officer incentives are tied to client repayment, there may be a clash between profitability and sensitivity to client needs and circumstances. The most heinous consequence of taking a micro-loan and being unable to repay it was evident in the much publicized Krishna district debacle of 2006 where some farmers committed suicide due to the debt-burden. However, to the credit of the microfinance community, there is a concerted effort towards sensitizing field officers and higher management towards the needs of the microfinance clientele. In fact, Indian NBFC MFIs have come together to initiate the formation of a ‗credit-bureau‘ in order to avoid the cataclysmic consequences being repeated elsewhere. Most MFIs have some sort of procedure in place to re-schedule loan repayments in the face of genuine circumstances.
2.4.4 Quality Issues
There have also been allegations against the quality of MFIs in India, many of which suffer from weak governance and management structures, the absence of internal controls and the lack of financial discipline. This is particularly true of the many opportunistic start-up enterprises that are keen on cashing-in on the current microfinance boom. Attracted by the high returns that established MFIs have yielded for their investors, these start-ups are able to break even in a mere 18 months of operation, at the risk of providing poor quality services and charging high rates of interest to clients.
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Chapter 3: Nokia and Microfinance
3.1 Why Nokia initiate microfinance root to sell mobile phone in India?
A major part of the global mobile device market volume and value growth is expected to come from low-income segments. Yet, in many emerging markets of the world, where the mobile phone can have an immense impact on people‘s lives, investing in a mobile phone can be impossible due to the cash barrier. Making products and services affordable is essential for this next generation of mobile technology consumers.
Lower income consumers tend to have a less structured cash flow than their middle income counterparts. They spend as they earn, so they may be willing and able to spend up to the equivalent of US$5 per month in getting connected, but may never have this amount of cash at hand at any point in time. This is why it is so important to have an offer that is within their cash availability. Microfinance options enable people in remote areas with lower income to get connected, using innovative payment options and affordable mobile solutions that aim at removing the cash barrier to ownership.
Collaborating with local and regional microfinance institutions, Nokia is working diligently to create programs through which owning a mobile phone is within reach for many low-income consumers in emerging markets. Microfinance institutions can also enable access to difficult to reach, un-served markets.
3.2 Roots of SKS Microfinance
SKS Microfinance, the microfinance institution (MFI) partnered with Nokia to launch NLT, was founded in 1997 by Mr. Vikram Akula. SKS‘ mission is to provide financial services for the poor. The MFI has provided upwards of USD 1.1 billion in financing, and has maintained a lending book of up to USD 425 million. SKS finances income-generating jobs in the following sectors: agriculture, trade, production, livestock, and new age business. According to the MIX Market, the microfinance information clearinghouse, SKS currently has 3.5 million active
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borrowers, and a gross loan portfolio of USD 956 million. SKS reports total assets of USD 596 million, a debt-to-equity of 3.6, an ROE of 18.7%, and an ROA of 3.7%.
This year in Aug-2010, SKS Microfinance raised about $358 million in an IPO after pricing the sale at the top end of an indicated price band, signaling strong investor appetite and the likelihood of more such offers coming to market.
3.3 Bringing mobile closer to the next billion
Since 2006, Nokia is involved in a major pilot project in India with SKS Microfinance, one of the fastest growing microfinance institutions (MFI) in the country. The objective of the project is to enable an SKS member to purchase a Nokia handset for an affordable weekly installment.
Once the SKS member completes the identity proof and purchase documents and receives approval, the paperwork is sent to local mobile operator, Airtel, for pre-activation of SIM cards.
The handsets are delivered to SKS branch locations and then directly to the consumer during weekly meetings.
Consumers throughout rural India are beginning to experience the social and economic benefits of mobile technology. A solid business model and partnerships in local markets will ensure the development of the mobile world.
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3.4 Nokia bring new Mobile Phone Features for Rural Poor
Nokia bring new Mobile Phone Features for Rural Poor
Nokia Life
Tools (NLT) Life Tools is a range of services that covers Agriculture, Education and Entertainment. It enables you get up-to-date, locally relevant information delivered straight to your mobile phone.
See market prices, agricultural tips, and the weather forecast with the Agricultureservices.
Learn more and do better with the Educationservices, and get career information and tips, too.
Have some fun with the Entertainment services which include ringtones, news, astrology, and more.
Nokia again expand the microfinance with new phone features launch of Nokia Life Tools (NLT) in 12 states across India. Nokia has teamed up again with Hyderabad-based SKS Microfinance, a non-banking finance company, to deliver these services. NLT is a feature offered on Nokia 2323 and 2330 mobile phones, enabling subscribers to access agriculture-related information, educational resources, and entertainment applications. After the ―great success‖ of a pilot project conducted in Maharashtra testing the rural market for this feature, Nokia vice-president and chief development officer Mary McDowell announced preparations to introduce NLT throughout rural India.
The Grameen Foundation, in partnership with Google Inc. and MTN Uganda, a multinational telecommunications group, launched Application Laboratory (AppLab) in rural Uganda . AppLab includes up-to-date health and agriculture information, as well as a virtual market for the purchase and sale of goods and services. These services can be accessed by individuals in Uganda who own their own mobile phones, as well as local Village Phone Operators (VPOs) and VPO service users.
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Grameen Bank in 1997, with the Village Phone. A ―Village Lady‖ purchases a phone, making payments over several weeks, and sells airtime to locals.According to the Grameen Foundation, services like the Village Phone provide an opportunity for MFIs to introduce ―mobile communication services and new business opportunities to communities that may have been overlooked by traditional telecommunications access.‖ VPOs acquire a source of income, micro-entrepreneurs are enabled to purchase airtime, and MNCs turn over a profit. Furthermore, the status and earning power of rural women is strengthened due to the target of such services towards females.
NLT entails a three-fold approach to bridging the information gap between rural and urban life. First, is the distribution of agriculture-related information to rural farmers, such as local crop prices and weather conditions, guidance on efficient farming techniques, and costs of pesticides, seeds and fertilizers. Two additional features offered with NLT are educational resources and entertainment applications. Education includes English lessons, exam preparation, advice on starting a career, and general knowledge . Entertainment includes sports updates, world news, politics, jokes, and ringtones. Nokia is partnering with Pearson, EnableM and OnMobile to provide these services.
Vice-President of Marketing at agri-business company Syngenta India Ltd., Kuldeep Kaul, explains what he believes to be the benefits of NLT. ―Agriculture is a local business where timely and relevant information dissemination to farmers can help them make better decisions, helping to boost their productivity and raise farm incomes. Nokia Life Tools is designed to offer location-specific personalized information to individual farmers.‖ Amit Mehra of Reuters Market Light, a subdivision of information and consulting company Reuters, supported this statement with figures of 100,000+ farmers across 10,000 villages who have purchased RML services. ―Most farmers have made thousands of rupees in additional profit and reduced losses using the most accurate, comprehensive, timely and personalized information service.‖
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Nokia‘s launch of these new services operates on the assumption that the rural poor want to improve their access to information, and are rising to a position where they have the resources to do so. The role of microfinance is a key determinant in the decision of such MNCs to market their products and services to ‗untapped‘ rural markets. By involving MFIs in this process, some profits are invested in the communications system within rural economies. ―The microfinance institution, or other organization providing loans for the Village Phone business kit, gains revenue from loan interest and potentially from airtime sales and helps set into place a network of phones that can be used as a platform for future innovation.‖
While the use of mobile phones for voice communication has proven successful thus far, sceptics of NLT question its utility because of the underlying assumption that users are literate.
The literacy rate amongst rural males in India is 58 percent, and 30 percent amongst females . While NLT may aim to fill a palpable information gap, the number of illiterate individuals in these ―emerging markets‖ may make it difficult for useful consumption of this feature. A plausible alternative may be a voice-driven information system, such as IBM‘s Hyperspeech Transfer Protocol (HSTP). This system uses voice-activated transactions that allow even illiterate people to surf the web and access relevant information in real time.
Despite Nokia‘s lack of any voice-activated information source, plans are still being made to offer a micro financing scheme for NLT across India. The launch is begin in rural Indian markets, particularly targeted at the female population, and will then expand into other parts of Asia as well as Africa. The success of this plan will depend on several factors, one being the continued growth of microfinance on an international level. As the rural poor learn to earn for themselves, consumption of products and services will become more and more of a possibility, which in turn will help local economic growth.
3.5 Success and challenge for Nokia micro finance
For the past three years, Yellakandula Urmila of Bhongir village, near Hyderabad, has been banking with SKS Microfinance (MFI), India's largest lender. She first bought a loom to weave silk saris with a US$150 loan from MFI in 2007, which helped triple her family's monthly income to US$100. Then three months ago she took out another loan for US$26 to buy a Nokia
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1200 mobile phone with a prepaid Bharti Airtel connection, which she will have paid off in next month. "It's been a life-changing and time-saving experience," says Urmila, affectionately patting her gleaming silver handset and recalling how she used to have to walk a mile to a wire-line public phone booth to call clients about orders. "Deals are now wrapped up in minutes," she says.
AFP/Getty Images
(This photo shows an Indian farmer talking on his mobile phone as he discusses pricing of oranges at the Kothapeta fruit market on the outskirts of Hyderabad, India. )
Wooing rural consumers like Urmila while teaming up with local organizations have been a key part of the global strategy of the US$55 billion Finnish handset multinational since 2006. "Partnering with local stakeholders is a cool thing," "It is a neat innovation, which creates buzz and brand equity for Nokia."
That is one of the reasons why India is the company's second-largest market with 2009 net sales of US$3.7 million, putting it behind China (with US$8 million), but well ahead of the UK in third place (with US$2.5 million). In the decade since it first set foot in India, Nokia has captured nearly 60% of the country's US$5.6 billion handset market and has a 62% share of GSM-based phones, according to research firm IDC. India -- and in particular, rural India -- has been good for Nokia.
"We saw the rural opportunities ahead of competition," states D. Shivakumar, Nokia India's vice president and managing director. Though Samsung, LG, Sony Ericsson and Motorola have also been selling handsets in India, telecom observers say Nokia has stood out from the rest
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by having formally forged a company-wide "social inclusion" policy in 2006 to encompass low-income consumers in its growth strategy, essentially using India as a laboratory for that strategy.
Today, rural consumers account for 25% of Nokia phone sales in India, and the target next year is 30%. With mobile phone penetration in the rural market almost doubling to 20%
over the past year -- to approximately 150 million, according to the Cellular Operator Association of India (COAI), a trade association -- Nokia has been aggressively pursuing an even more targeted expansion strategy in smaller towns and villages. "There's an insatiable hunger for mobile phones permeating all layers of society," says president of the COAI. "And Nokia has been developing the rural market with appropriate products for a long time, unlike other players."
But now, Nokia's first mover advantage in rural India is being chipped away. Both home-grown and foreign rivals are muscling in on Nokia's rural territory, beating it down on price. All eyes now are on Nokia, as it rolls out innovative services that can be sold alongside its handsets through a range of partnerships.
3.6 New Frontiers
It was a matter of time before the handset market, especially at the lower end, was beginning to commoditize just as service providers were developing the infrastructure to reach consumers in the heartland. "It was a given that the fast-growing telecom market in urban India would reach a saturation point after a decade," as per consulting firm KPMG. "Some companies had the foresight to look at new frontiers."
On the heels of India's rapid economic boom, the mobile revolution had an impact on facility in Sriperumbudur, near Chennai, in 2006, Nokia rolled out seven phones in India. Its goal
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manufactured 300 million devices between then and October 2009, half of which were exported to 60 countries. "Nokia has been proactive as the market leader,".Nokia was the first mobile phone maker to set up a satellite R&D center in India as it began tailoring products for the rural terrain. The phones look as sleek as high-end models, but are also sturdy to withstand rough usage. They have seamless keypads to protect them from dust and special grips to make them easier to hold in India's humidity. Some phones -- Nokia 1200 and Nokia 1208 -- also double up as flashlights because of rural India's frequent power outages.
Nokia has also embraced the country's plethora of languages, with interfaces in Hindi, Marathi, Kannada, Telugu and Tamil.
Along the way, Nokia has learned important lessons that are crucial to any MNC's survival in the hinterland. One of them relates to customer service. It‘s after-sales service includes some 700 care centers in urban India. But it's a different matter in rural India. Nokia has more than 300 vans staffed with sales representatives who regularly criss-cross the countryside.
It also set up low-cost collection points like chemist shops, where distributors and micro-distributors collect the phones and take them to the nearest care center.
But according to Nokia, customer service in rural markets such as India's can be just as -- if not more -- important before rather than after a sale. "Consumers always worry about anything going wrong with digital products and must always be assured that care or service is just a call away," says Shivakumar. "We needed to build care ahead of sales to provide a sense of trust and peace of mind." Now the vans are divided into two groups -- one to provide support and repairs and others to travel around with Nokia partners, ranging from Idea Cellular to SKS Microfinance, to promote their products and services while catering to novice mobile customers. "The rural market is still an area for a first-time user," says Shivakumar.
3.7 Getting Crowded
As all this happens, service providers have been slashing call rates and expanding their networks. That has had a cascading effect on the overall affordability of mobile telephony. Rates
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have plummeted from 32 cents a minute in 1998 to less than a cent today, cutting the average revenue per user from US$60 to US$4, one of the lowest in the world.
Nokia is now facing competition across all its product segments. The big confrontation is at the low end, where a number of players are wooing entry-level users. Chinese phones costing
Nokia is now facing competition across all its product segments. The big confrontation is at the low end, where a number of players are wooing entry-level users. Chinese phones costing