SMLS GROWTH PLANS

b. What are the challenges, regulatory and otherwise, to SMLs growth plans? Suggest solutions to overcome these challenges.

Suggested answer SHARE had started its microcredit operations as a non-profit organization and registered as a charitable society. The legal status of SHARE at that time did not permit it as for profit entries. Also raising funds became a difficult task as a society. Therefore the activities of SHARE needed to be transformed in order to achieve financial sustainability. SHARE transformed to a micro-fin limited company, registered as a NBFC with the RBI and managed for-profit regulated financial institution.

Challenges and its solutions

SHAREs sources of capital were critical to its ability to grow and reach more clients as an MFI. A steady and growing flow of capital was required to its business of lending. Major part of the start-up capital in SHARE had been contributed by its clients. However, more caution should be needed in microfinance when leveraging assets than compared to commercial banking due to the lack of empirical data on defaults risk in order to assess the safe level of performance. Although SHARE had accessed capital for growth through the securitization deal with the ICICI bank, other banks, in general, perceived this sector as high risk due to its weak governance and inadequate delinquency control. Hence SML required setting up better systems for staff training, internal controls and risk managements in order to attract investments from banks and other financial institution and to reduce multiple borrowing as well as default rates.

The most of the management staffs of SML were female. Clients were sprawled over large geographical areas, often in remote places. So the employees might be unwilling to frequently travel or travel long distances alone, uncomfortable in dealing with male/delinquent clients. So SML should give more attention on flexible timings to accommodate for house-keeping responsibilities, anti-harassment, appropriate nature of work considering social norms, maternity leave, etc.

Conclusion

SML staffs and volunteers need to talk a differently and build good relationships with individual members, understand the unique needs of the poor, evaluate the borrowers sustainability and grasp the cultural nuances of the borrowers communities. Therefore the staffs needed special training to ensure that they avoided problems such as intimidating or under-serving clients.