micrograam p2 p marketplace an overview
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MicrofinanceMicrofinance is not what you believe
What is microfinance? What is not microfinance?
A working economic model: Social business or “Philanthropy”
A powerful tool of financial inclusion and economic development
A new market, with new clients
One of the fastest growing economic sector in the world
Not charity nor philanthropyNot giving but lending
Not a magical tool to eradicate poverty
Not an exclusive financial investment for rich people
Not as risky as it may appear(average repayment rate of 97%)
New Models For Microfinance
Traditional market model: one central organization (financial, governmental, non-profit institution or corporation) serving many individuals
- Large-scale impersonal markets - Low resolution preference expression
New innovative market models: flexible dynamic capital allocation systems that provide democratic, more immediate, low-cost, affinity-directed capital
- Benefits to individuals: freedom, convenience, preferences articulation
- Benefits to groups: virtual aggregation of group, power to conduct transactions
Goal
Create a system that favors borrowers so that they get the lowest interest rate that a free market will bear
Investors are benefited as the principle is returned with nominal interest as well making it a social cause
Connect people / NGO's / MFI's, who are in need of capital, directly with people who are interested in lending
Participate in a solution that can help alleviate global poverty by helping people help themselves
How MicroGraam addresses the challenges?
Traditional m
onopolies
MF
Is
MicroG
raam
Interest paid by borrowers
100+%
25-50%*
5-15%
•source: Kiva.org(Kiva invests via MFIs)Average MFI interest is 25%
Need: Reduce overheadIn ecosystem to minimizeInterest paid by borrowers
MicroGraam’s success is aligned with the reduction in interest that the borrower pays; MicroGraam has also minimized the overhead in back-office work, payment transaction overhead, etc.
MicroGraam has built a demand-side technology platform for peer-to-peer microfinancing, and a blueprint to franchise this model out to other geographies over time.
MicroGraam has already established a network of partnerships with NGOs and SHGs representing millions of borrowers in India.
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Microfinance Infrastructure
MicroGraam Platform NGOs &
BorrowersLifecycle
ManagementPayment Projects Portfolios
Auction Negotiation
Micro-Loans
Target: Individual investors•1 year investment horizon•Peer2Peer investing•Launched Feb 2010•Auctions & negotiationsto reduce interest rate
Micro-Portfolios
Target: Foundations, HNI, FI•Multi-year investment horizon•MicroGraam created portfoliobased on geography, industryand reputation ranks•Launch scheduled in Q2CY10•Enable foreign investments
Micro-Ventures
Target: All•Short-term investment•Build-to-order model•Pre-fund artisans in NGOs •Investor is returnedinvestment minus good sale price, and any interest•Launch scheduled in summer
MicroGraam Portfolio Overview
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Micro-Loans
Investor invests on borrower(s)based on auction process
Borrower Profiles
Borrower Profiles
Field Partners post borrower profiles and distribute investments
Field Partners collect repayments and
manage delinquency
Borrowers are subject to Field Partner’s due diligence and credit
processes
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Investor invests on Portfolio of Borrowers belonging to one or
more NGO or IndustryPortfolioProfiles
Portfolio Profiles
Field Partners post portfolio of borrowers
and distribute investments
Field Partners collect repayments and
manage delinquency
Borrowers are subject to Field Partner’s due diligence and credit
processes
Micro-Portfolios
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Investor invests / pre-pays artisan group
Investor gets return & goods at end of term (in a few months)
VentureProfiles
VentureProfiles
Field Partners post portfolio of borrowers
and distribute investments
Field Partners collect repayments and manage delinquency
Field Partners also help organizeand execute on deliverables
Micro-Ventures
Artisan Venture Unit -- 3Artisan Venture Unit -- 2Artisan Venture Unit -- !
Investor’s Investment Options
Individual– Up to Rs. 1 lakh Person to Person Investing model Auction or Negotiation Model Expected Returns up to 6% for 4-Star and 7.5% for 3-Star Ranked NGOs Period of investment 12-18 months
Individual or Group Investment – Rs 1 to Rs. 10 lakhs Portfolio Investment Auction or Negotiation Model or Portfolio Investment for Investment > Rs. 5 lakhs Expected Returns up to 8% for 4-Star and 9% for 3-Star Ranked NGOs Period of investment 12-24 months
Institution Investment – Rs. 10 lakhs and above Portfolio Investment Expected Returns up to 9% for 4-Star and 10% for 3-Star Ranked NGOs Period of investment >36 months
Why Invest in Micro Credit as an Asset?
Superior quality: <3% credit loss, attributed to concept of social collateral, shorter maturity of products and continuous follow-up
Strong underlying business model: Group liability and social reputation
Diversification: Low correlation with other asset classes and within asset class - very high granularity of loans
High growth rate: Three of the largest MFIs in India – SKS, Share Microfinance and Spandana have shown near 100% YoY growth rates
Good Returns: These are double-bottom line assets—social and commercial returns. Commercial returns to the extent of 6-8% can be expected for individual social investors. Social returns depend on each investors’ preferences.
Risk Comparison
Best In Class Thematic (eg. environmental)
Micro Credit SME
Investment Universe Large capsMulti-sectors
Small & Mid capsSector specific
NGOs or financialinstitutions
Small & MediumEnterprises
Nature of Underlying Asset Listed Listed
Almost entirelynon listed
Non listed (Private Equity)
Categories of InvestorsInstitutional &Retail
Mainly retailHigh net worth individuals, institutional, potentially retail
SophisticatedHigh Net WorthIndividuals
Profitability Similar toBenchmark
Higher thanBenchmark
Small profitability High Profitability
Volatility Limited byconstruction
High Low (<1%) N/A
Social & environmental contributions Medium High Very high High
Risks Low Medium Low by experienceHigh by perception and sector characteristic
Very high
Investment Risk
All investments carry some risk
Micrograam platform is built around a network of local field partners screening the Businesses who would like to obtain a loan . All Businesses interested in obtaining a Loan undergo a thorough investigation process to make sure they provide healthy economic prospects for growth before they are classified as investment Businesses . The due diligence process include a background check to track record, reputation
Historically, 97% of poor people have actually paid back their loans through good and bad economic cycles. This means that the institutions that work with our borrowers can generally pay you back too. And, Micrograam thoroughly vets these institutions to make sure they meet certain business and regulatory requirements
Key Differentiation
Only organization in India that uses an online auction based investment bidding process
First organization in the world to provide negotiation based determination of terms of credit by all parties
Reduce interest rates by working with NGOs and SHGs Social investors help determine the interest rate of the loan, not
financial institutions Reduces the loan origination cost A platform for an open, competitive microfinance marketplace Reputation rankings of NGOs and borrowers for transparency Unique business model of pay-for-performance ensures that
MicroGraam’s interests are aligned with that of a reputable borrower
MicroGraam EcoSystem
Borrowers
Groups (SHGs)
MicroGraam’s Partners – A Snapshot
MicroGraam’s Partners – A Snapshot (contd..)
About The Founding Team
Sekhar Sarukkai, PhD, voted recently as a top 25 CTO by Information Week, is a successful serial entrepreneur based in the silicon valley. The last company he founded (Securent) was acquired by Cisco systems. The previous company that he had co-founded is now part of Oracle. Previously he worked at HP labs and NASA research, and holds a PhD in computer science from Indiana university. He has a passion for application of technologies in ways to better humanity.
Rangan Varadan, PhD, brings in extensive experience in financial services domain. His current focus and interest are in the area financial inclusion in India. He is working towards taking branchless banking services to the villages in the most efficient manner using technology and through partnership with grass-root level organizations. Previously he was heading the Banking and Capital Markets Domain Group at Infosys Technologies Limited. His experience in the financial services domain encompasses the areas of securities trading, investment management, risk management, and economic modeling. Rangan holds a PhD in finance and economics from Lehigh University. He is also a fellow of the Institute of Chartered Accountants of India.