Microfinancing structures are an area of interest for me. With Selco, Harish has had to tap into various microfinancing structures. He describes these in a bit more detail, as well as how he leverages outside help to promote his cause.
SM: Let’s talk about financing a bit more; microcredit, microequity, microfranchise – the microfinance structures you are putting together to deliver these solutions. HH: We use microfinancing particularly well when you have a case where a lot of customers, 200 houses or so, and all are willing to pay 175 rupees a month for a system which cost 11,500 rupees.
A bank will want a 10-15% down payment, which is approximately 1,100 to 1,500 rupees of margin money. The people cannot afford the margin money, and the bank insists on the margin money, so we step in and place a guarantee on behalf of the end users. They get the loan on our guarantee, and after a year or so we can get our guarantee money back.
SM: How many installations can you do with that process? HH: I can only do as many as I am comfortable with because it takes away my working capital. I also get partners onboard who think in similar terms. I have a partnership with a non-profit which sometimes places these guarantees.
SM: You can then use some foundations to place the guarantees? HH: Yes, and we do that. However, it is important that these firms think in the same manner that I do, that it is not charity.
SM: A guarantee is not charity, it is just like margin money enabling them to take the loan out being subjected to conditions. HH: True, but very few foundations think that way. They don’t realize that by placing a guarantee that money can be leveraged and the people can be benefited by it. There are some foundations that think their purpose in life is just to get the money out.
SM: What other things in the microfinance area do you get involved with? HH: Working with microfinance, there is almost an infinite number of solutions. I am not exaggerating. You can find a need of a segment of the client: a home based worker, a midwife, whatever, you can design a product for that segment. You must be very patient, and listen to their needs – talk with them, and see what solutions they come up with.
Then you think of appropriate products which meet their expectations. Part of the solution is matching the right microfinance structure to the product, and it then becomes part of the product. Not many institutions think this way, but that is the beauty of getting involved with a global bank.
People hesitate to think beyond quarterly results, and they do not like the risk of the unknown. Getting a partner who does microfinance is the ideal solution. The partnership then influences other microfinance institutions.