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Tibetan Microfinance

Unlocking the Tibetan entrepreneurial drive through easy access to capital

Business Plan

Prepared July 2015

Contact Information Robert Kauffman: [email protected]

Mikayla Hart: [email protected]

Cesar Quijano: [email protected]

mailto:[email protected]



Himalayan Micro-Finance

CONFIDENTIAL - DO NOT DISSEMINATE. This business plan contains confidential, trade-secret information and is shared only with the understanding that you will not share its contents or ideas with third parties without the express written consent of the plan author.

Table of Contents

Executive Summary .................................................................................................................... 3

Who We Are ......................................................................................................................... 3

Company ....................................................................................................................................... 5

Company Overview ........................................................................................................... 5

Management Team ............................................................................................................. 5

Mission Statement .............................................................................................................. 5

Products and Services................................................................................................................. 6

Products and Services ........................................................................................................ 6

Structure ............................................................................................................................... 6

Competitors.......................................................................................................................... 7

Target Market ............................................................................................................................ 10

Market Overview .............................................................................................................. 10

Market Needs .................................................................................................................... 10

Strategy and Implementation ................................................................................................. 11

SWOT Analysis ................................................................................................................. 11

Financial Plan ............................................................................................................................ 14

Assumptions ...................................................................................................................... 14

Projected P&L .................................................................................................................... 15

Appendix .................................................................................................................................... 15

Diagram - Structure .......................................................................................................... 15

Considerations on FX risk ............................................................................................... 16

Milestones – Timeline ..................................................................................................... 17


Executive Summary

Who We Are

Tibetan Microfinance will unlock the entrepreneurial potential of Tibetans living in India by

bringing them basic financial training and access to capital.

Abstract:

Building off of the success of the Grameen Bank and organizations like Milaap.org, Himalayan

Microfinance is dedicated to igniting the spark of entrepreneurship within the diaspora

community of Tibetans living in India. There are three main components of

Tibetan Microfinance: a web-based platform to connect a world-wide network of potential

donors with Tibetan entrepreneurs, partnerships with microfinance institutions inside India to

facilitate international lending, and an education component to provide training to aspiring

entrepreneurs within the Tibetan community.

Customer Problem:

The Tibetan population living in India faces cultural deterioration as the younger generations

are forced West in search of employment and other opportunities. Frustratingly, there is a vast

network of individuals who support the Dalai Lama and want to help this group, but the

differences in economies and way of life make workable solutions difficult to devise.

The Solution:

Here, we believe that the solution starts with continuing the work of the Dalai Lama by raising

awareness about the issues facing the Tibetan community living in India. The next step is

creating a dedicated lending portal through Milaap.org and partnering with Indian

microfinance institutions, which will allow the global network that supports the cause of the

Tibetan people to lend money and aid in Tibetan economic development. The final step is to

create educational workshops to develop the foundation of business skills necessary to make

this plan successful.

Target Market:

Donors will be initially sourced from the existing network created by the Dalai Lama, and also

from people interested in micro-finance platforms like Milaap.org. Projects will be sourced

from Tibetans living in India.

Marketing and Sales Strategy:

There are currently several websites and foundations, run by the Dalai Lama and his

supporters, that generate considerable web-traffic around the world. In addition, thousands of

websites “link” back to these sites. We plan on utilizing this existing network to roll-out a

“Finance Tibet” campaign, as well as to quickly facilitate fast and secure donations. On the

other side of the platform, we intend to hold educational events to prepare Tibetans for an

influx of donor loans to develop the necessary business skills for success.

Business Model:

Milaap.org will develop and host our lending platform on their website. We will also partner

with Milaap.org's existing network of Indian microfinance institutions to allow for a quick and

safe flow of international capital into India. After the first three years of operation, we will be

eligible under Indian banking regulations to establish our own Tibetan Microfinance lending

institution. Finally, we will partner with TED to develop educational classes and

programming.

Competition:

Currently, at least one microfinance institution has been established within India that

specifically targets the Tibetan population. This institution, unlike ours, targets the most rural

areas of India and is not a direct competitor. Further, traditional banks and other forms of

credit are largely inaccessible to Tibetans living in India because of restrictions based on their

refugee status.

Funds Needed:

>$80,000 USD

Use of Funds:

Half of the start-up costs, $40,000, will go towards the development and the hosting of our

Milaap.org lending portal. The remaining $40,000 will go towards operational costs and

educational training program development over the first three years of operation.

Financial Snapshot:

See appendices


Company

Company Overview

Tibetan Microfinance was created by three Simon Business School students for the Tibetan

Innovation Challenge. Ownership of the company and the idea is vested in the Tibetan People

directly through the stewardship of His Holiness the Dalai Lama.

Management Team

Cesar Quijano, Simon Business School, MBA Class of 2015

Mikayla Hart, Simon Business School, MBA Class of 2016

Robert Kauffman, Simon Business School, MBA Class of 2016

Mission Statement

It is the express mission of Tibetan Microfinance to unlock the entrepreneurial potential of

Tibetans living in India by bringing them basic financial training and access to capital.

Products and Services

Products and Services

The creation of the well-known microfinance model by Mohammad Yunus and the subsequent

flourishing of microfinance institutions (MFIs) in the developing world have proved that

financial inclusion is one of the best tools we have today to alleviate poverty and contribute to

the achievement of national development goals. Evidence has shown that sustainable access to

microfinance services are an effective way for low income households to meet basic needs such

as housing, healthcare and education. Moreover, the success of several for profit and non for

profit MFIs has changed the paradigm for lending to the poor: high repayment of debt

obligations has ensured sustainable businesses when low income people are the target of

loans, even in the absence of tangible collateral. Further, improved living conditions

incentivize the recipients of loans to utilize other financial products such as savings accounts

and insurance, further increasing the probability of repayment. MFIs have shown that access

to opportunity is stronger than charity in the fight against poverty.

Building off of the success of the Grameen Bank and websites like Milaap.org,

Tibetan Microfinance is dedicated to igniting the spark of entrepreneurship within the diaspora

community of Tibetans living in India through crowdfunding. There are three main

components of Tibetan Microfinance: a web-based platform to connect a world-wide network of

potential donors with Tibetan entrepreneurs, a series of partnerships with microfinance

lending agencies within India, and an education component to provide training to aspiring

entrepreneurs and employees alike.

Structure

The structure is divided in two main components.

Website: Milaap.org/Tibet will be accessed by people interested in lending to entrepreneurial

initiatives run by Tibetans based in India. The lenders will access the website, select the project

they want to fund and the amount they want to lend. They will also have access to periodic

updates on the state of the businesses.

Lending Institutions: Milaap.org/Tibet will partner with existing microfinance organizations in

India for its first three years of operations. These partnering microfinance institutions charge

an industry beating 18% interest to borrowers, half of which is paid to Milaap.org as a

membership fee.


Education: Tibetan Microfinance will partner with TED to create educational programming for

Tibetans interested in pursuing entrepreneurship. For roughly 400,000 INR, a three day

intensive curriculum can be developed and presented to 30-40 students.

Competitors

MFIs in India:

With a population of 1.3 billion people, a GDP per capita of $1,498 USD in 2013, and the

bottom 10% of the population owing roughly 3% of the country’s total wealth, India provides

one of the world’s largest untapped markets for microfinance in the world. As a result, MFIs

are expected to reach a loan balance of INR$35,000 crores (about $5.4 Bn. USD). This is

surprising, considering that most of the funds come from inside the country due to the capital

controls over international investments in India. Having acknowledged the positive potential

impact of well implemented microfinance guidelines over the country’s economic growth, the

Reserve Bank of India (RBI) has taken steps towards transparency, better governance, client

protection, supportive regulatory frameworks and responsible lending. Greater regulatory

clarity, including the recognition of MFIN as a self-regulatory organization, and an

increasingly stable operating environment have resulted in a flow of debt and equity towards

MFIs, with a growth of 43% in MFI’s loan assets between 2013 and 2014.

The attractiveness of the market has driven a boom in the number of MFIs in India. The

market is very fragmented, with about 50 Non-Banking Financial Companies (NBFCs)

controlling 80% of the total loan portfolio balance. Among the main players are:

Village Financial Services: Started in 2006, Village Financial Services focuses on West Bengal

and Bihar and reaches over 200,000 clients. Clients are limited to women, however, with a

maximum monthly income of INR $4000 in rural areas and INR $5000 in urban areas.

Arohan Financial Services Pvt. Ltd. Operates in 23 districts across West Bengal, Assam, and

Bihar. It started operations in 2006 and serves over 200,000 clients.

Suryoday Micro Finance Pvt Ltd: Mumbai based NBFC-MFI with gross loan portfolio of US$21

million on March 2014. The company operates in 6 states (Gujarat, Karnataka, Maharashtra,

Odisha, Rajasthan and Tamil Nadu), with 70 branches and over 250,000 clients.

Swadhaar Finserve Private Limited: Mumbai based NBFC-MFI with gross loan portfolio of

US$32 million on March 2014. It operates in 4 states (Maharashtra, Gujarat, Madhya Pradesh

and Rajasthan) with 42 branches and over 150,000 clients.

Share Microfin Ltd: a Hyderabad based NBFC with loan portfolio of US$287 million on March

2014. The organization’s operation spreads over 17 states (Andhra Pradesh, Assam, Bihar,

Chhattisgarh, Delhi, Gujarat, Haryana, Jharkhand, Karnataka, Kerala, Maharashtra, Madhya

Pradesh, Rajasthan, Tamil Nadu, Uttarakhand, Uttar Pradesh and West Bengal) with 798

branches and 2,035,671 clients.

The largest MFIs are located in the south of the country. The following are the most relevant

players in the north, were we will start HFI:

Utkarsh Micro Finance Pvt Ltd: Varanasi based NBFC-MFI with gross loan portfolio of

US$51.5 million as of March 2014. The organization’s operation spreads over 8 states (Uttar

Pradesh, Bihar, Madhya Pradesh, Uttarakhand, Delhi, Himachal Pradesh, Haryana and

Maharashtra) with 151 branches and 320,315 clients.

Sonata Finance Pvt Ltd is headquartered in Lucknow and has a gross loan portfolio of US$54.4

million as of March 2014. It operates in 6 states (Uttar Pradesh, Madhya Pradesh, Uttarakhand,

Haryana, Rajasthan and Bihar) and reaches 280,494 clients.

It is important to note that while MFIs are expanding their reach within India, there is still

room within this market due to the size of the population and the projected demand. Further,

there are no MFIs that currently target specifically the Tibetan population within India.

Other potential competitors:

Kiva has an established business model that offers loans to several businesses in the

developing world. However, its operations in India are limited due to the regulatory

constraints on the flow of foreign capital in the form of loans into the country. According to

Kiva's employees, their company doesn't have a current interest in expanding further into the

country, since the dealing with the regulatory environment is not within the scope of its

strategy. Moreover, The business model is not targeted towards a specific ethnicity or religious

group, which is why it is not likely that it will become a competitor for HFI in the future.

Services for Tibetans:

The Central Tibetan Administration (CTA) Department runs several programs to promote self-

employment through skill development and better access to capital. Examples include:

• Youth Empowerment Support (YES) – provides job skill training and career services

through several career centers

• Institute for Small Trade Learning (ISTL) – a vocational training initiative run by YES in

Bangalore, India


• Vocational training centers

• Cooperative societies – organized into the Federation of Tibetan Cooperatives in India

Ltd

We don't consider this programs to be a competitor rather than a compliment of our ideas. HFI

will partner with these programs and with CTA in order to find the ways to maximize the

impact on the initiatives, towards a common good.

Target Market

Market Overview

Tibetan Microfinance will serve the credit needs of Tibetans living in India. Currently, most

Tibetan businesses are small-scale with a rudimentary nature and focus, and are limited to

their owners’ immediate geographical areas. The most common occupations among Tibetan

refugees in India are: traditional agriculture (46% of Tibetan families practice farming or

herding) and seasonal sweater selling (49% of families). Additionally, 10% of households

engage in jobs outside the settlements and in individual businesses, but most businesses are

seasonal, unorganized, or unregistered entities. The average annual income per Tibetan

refugee household is approximately 80,000 INR (Indian rupees) per year (about $1,300 USD)

with moderate variation across regions.

Tibetans have very little or limited access to loans or investments for start-up capital or

expansion, with a lack of connections to resources for financing and advisement. Tibetans in

India also lack a supportive ecosystem for cultivating business ideas, including creative

mitigation strategies addressing their refugee status and legal environment.

Market Needs

Tibetans need access to capital in order to propel themselves out of poverty. The model

developed by Mohammed Yunus, and proved by institutions like Chicago's Shore Bank, show

that access to capital is the number one way to address systemic poverty. Additionally,

Tibetans in India have been living the unsettled life of a refugee. Many Tibetans could benefit

from educational programs that will help develop the entrepreneurial drive and

skillset. Finally, Tibetans who are not entrepreneurs need jobs. Not only will

Tibetan Microfinance help entrepreneurs, but the businesses the microfinance loans help

establish will source employees from within the Tibetan diaspora population.


Strategy and Implementation

SWOT Analysis

Strengths

Microfinance has proven to be a successful industry with rapid growth and impact globally.

Tibetan Microfinance will pair this success with a crowd-lending platform, Milaap.org. Further

proof of the microfinance industry’s success lies in the global repayment rate of 97%. While

this rate is already significant, Tibetan Microfinance will likely experience a larger repayment

rate due to the demographics of its target market and its underlying principles. First, the target

market of Tibetan refugees in India is comprised of 79% women, which may lead to increased

repayment given a study proving women are less likely to default on their microfinance loans

than men. This study of 704 MFIs reaching 52 million borrowers concluded that MFIs

specifically targeting women experienced a delinquency rate of 0.9%, while those targeting an

equal mix experienced 3.1% delinquency. Secondly, Himalayan Micro-Finance may encourage

higher-than-average repayment due to its underlying Buddhist principles. Support of this

argument comes from the success of an MFI in Thailand called Sajja Sasom Sab, which focuses

on repayment being in line with the Buddhist principles of karma, resulting in 98% repayment

rates.

An important consideration in determining success is the ability to connect to a broad lender

base. Tibetan Microfinance will already have access to an immense network upon creation due

to the Dalai Lama’s strong web presence. These websites generate enormous web-traffic

globally and tie into thousands of other website through direct links. Offering a platform for

lending through these websites gives Tibetan Microfinance a clear competitive advantage.

The prior strengths support success of the organization from a financial and sustainable

perspective, however another strength to note is the ability to meet the needs of the target

market. As previously mentioned, Tibetan refugees in India suffer from a lack of access to

financial services, particularly in regards to small business loans. Tibetan Microfinance will have

a first-mover advantage in this market, which will result in growth and positive social impacts.

Weaknesses

Indian regulations on international lending presented an initial hurdle for Tibetan

Microfinance to consider. In order for an Indian institution to receive international loans, they

must have “a satisfactory borrowing relationship of at least three years with a scheduled

commercial bank authorized to deal in foreign exchange in India”. To overcome this hurdle,

Tibetan Microfinance can leverage its relationship with Milaap.org and use their MFI network

for the first three years of operation. Tibetan Microfinance can then explore creating its own

MFI as early as year four of operations.

A second Indian lending regulation states that international loans must have a minimum

tenure of three years and no prepayments are allowed before maturity. HMF’s solution will be

to communicate this regulation to lenders and give them the option to select three alternatives:

1) upon initial repayment of their loan the balance be placed in a risk-free bank account for the

remainder of the three years, or allow them to maximize their impact by either selecting

recurring loans to 2) projects in a specific category or 3) projects that are nearest completion of

their funding request.

A third regulatory constraint on this model is the fact that MFIs in India are limited to a total

loan balance of 10 million USD from foreign lenders. This will not be a problem initially, but

could present itself as the institution scales. A solution to this constraint is to open additional

institutions once this limit is reached, which will ultimately allow for a broader impact

through India.

Another factor to considering in the creation of Tibetan Microfinance is the current state of the

Tibetan refugees living in India. First, initial education will be needed to train members of the

existing population to run an MFI, which will have strong positive impact on these

individuals, but will also create a lag in initiating loans. Onboarding of the Tibetan

entrepreneurs will also require an investment of time as the concept of microfinance may be

new to them. A final consideration regarding the target population is their widespread

residence through India. The 92 thousand Tibetan refugees in India are spread among many

cities. While Tibetan Microfinance will initially target Karnataka and Dharamsala, the two

largest centers of Tibetan refugees, it will still need to consider the time and costs associated

with further outreach to broaden its impact.

Opportunities

Tibetan Microfinance has many opportunities to leave a positive impact on the community it

serves. First, metrics will be created to measure the impact of each project, ultimately creating

means of driving loans toward projects with the highest impact potential. Once Tibetan

Microfinance has proven success, it has the opportunity to scale its impact to broader

communities within India. While the main focus of the institution will remain Tibetan

refugees, it has the potential to grow to a scale that allows for the inclusion of other lending

opportunities as well. This positive impact will not only be observed on an individual level,

but will lead to regional transformative growth.


Threats

One threat to be considered is the risk of foreign exchange fluctuations. Since Tibetan

Microfinance will receive loans from individuals around the world and then lend to Tibetan

refugees in India, exchange rate fluctuations must be considered. This risk will be clearly noted

for lenders’ approval prior to agreeing to the terms and conditions of a loan. This approach

places the risk on the lenders rather than Tibetan Microfinance, however refer to the appendix

for an alternative solution.

Another threat to note is the risk of competitors entering the market. Tibetan

Microfinance would be the only MFI in India specifically targeting Tibetan refugees, however

barriers to entry for this market are low, which may lead to competition. This, however, does

not seem to be a substantial threat because Tibetan Microfinance will operate as a nonprofit

with lower interest rates than for-profit MFIs, which will likely create a barrier for competition.

Given the Tibetan Microfinance's joint model of MFI and lending platform, another

consideration is the possibility of limited demand from the entrepreneurs’ side or limited

funds received from the lenders’ side. This threat does not seem likely as research points to the

strong entrepreneurial spirit of Tibetan refugees in India and the fact that their limitation is

funding. Also given the proven success of the crowdfunding model and the strong following

of the Tibetan cause, limited funds from online lenders does not appear to be a likely threat.

A final threat is potential changes to regulations around capital flows to or within India or

restrictions around Tibetan refugees.

Financial Plan

Assumptions

Average loan size (USD) $200

Interest rate 19%

Repayment rate 98%

Average loan tenure (years) 1

Main assumptions

Revenue assumptions 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

E [INR/USD] 0.016 0.016 0.016 0.016 0.016 0.016 0.016 0.016 0.016 0.016

Loans disbursed 50.00 200.00 400.00 750.00 1,000.00 1,050.00 1,102.50 1,157.63 1,215.51 1,276.28

Average loan size (USD) 200.00 212.80 226.42 240.91 256.33 272.73 290.19 308.76 328.52 349.55

Average loan size (INR) 12,680.00 13,491.52 14,354.98 15,273.70 16,251.21 17,291.29 18,397.93 19,575.40 20,828.23 22,161.23

Percentage of contribution that is donation 2.00%

Repayment rate 98%

Average loan tenure (years) 1

2016 2017 2018 2019 2020 2021 2022 2023 2024

Inflation Factor (INR) 100% 106% 113% 120% 128% 136% 145% 154% 164%

E [INR/USD] 0.016 0.016 0.016 0.016 0.016 0.016 0.016 0.016 0.016

Loans disbursed 50 200 400 750 1,000 1,050 1,103 1,158 1,216

Average loan size (USD) 200.00 212.80 226.42 240.91 256.33 272.73 290.19 308.76 328.52

Disbursements (USD) 10,000.00 42,560.00 90,567.68 180,682.52 256,328.27 286,369.94 319,932.50 357,428.59 399,319.22

Repayments (USD) 0.00 9,800.00 41,708.80 88,756.33 177,068.87 251,201.71 280,642.55 313,533.85 350,280.02

Loan outstanding balance (USD) 10,000.00 42,760.00 91,618.88 183,545.08 262,804.47 297,972.71 337,262.67 381,157.41 430,196.61


Projected P&L

Appendix

Diagram - Structure

In USD 2016 2017 2018 2019 2020 2021 2022 2023 2024

Revenues

Interest payments 0.00 0.00 0.00 17,987.42 25,754.84 29,201.33 33,051.74 37,353.43 42,159.27

Donations 200.00 851.20 1,811.35 3,613.65 5,126.57 5,727.40 6,398.65 7,148.57 7,986.38

Total Revenues 200.00 851.20 1,811.35 21,601.07 30,881.40 34,928.72 39,450.39 44,502.00 50,145.65

Loan officers salaries 0.00 0.00 0.00 5,420.48 7,689.85 8,182.00 8,705.65 9,262.81 12,319.53

Gross profit 200.00 851.20 1,811.35 16,180.59 23,191.56 26,746.73 30,744.75 35,239.19 37,826.12

Operating expenses

Total Salaries 4,000.00 4,256.00 4,528.38 10,238.68 12,816.41 13,636.66 14,509.41 15,438.01 18,889.95

Education series 5,520.50 5,873.82 6,249.74 6,649.72 7,075.31 7,528.13 8,009.93 8,522.56 9,068.01

Miscelaneous 1,271.83 1,385.15 1,519.08 2,599.99 3,161.28 3,467.15 3,803.36 4,173.11 4,579.97

Total Operating Costs 10,792.33 11,514.96 12,297.21 19,488.39 23,053.00 24,631.94 26,322.70 28,133.69 32,537.93

Net profit -10,592.33 -10,663.76 -10,485.85 -3,307.80 138.55 2,114.78 4,422.05 7,105.50 5,288.19

Milaap.org/

Tibet

MFI

Partner

Lenders around

the world

1. Micro-fund

selected

projects

Education and

Business

Development

2. Transfer

loans to MFI

3.

Distribute

individual

loans

4. Pay back

capital +

interest

5. Return

collections

6. Pay back

loans

Tibetan

entrepreneurs

Considerations on FX risk

The operations we will be engaged in will have exposure to foreign exchange risk from the

different currencies between the companies receiving the loans and the lenders. This business

plan assumes that it will be the lenders who will willingly bear this risk, although we have

explored other possibilities. Here are the main conclusions:

Hedge the risk using capital markets: Educating Tibetans on this matter will be

timely and costly. Derivatives on foreign exchange are risky instruments and require

a particularized knowledge. We don’t want 50% of our budget to go to the salary of

a banker. Plus, the volume we will be handling will impose very negative pricing

conditions on us if we were to trade on futures markets.

Have HMF bear the risk, having the lenders not being exposed to this risk: This will

imply our operations would be exposed to FX risk, which is very dangerous.

Transfer it to lenders: Our model is currently based on this option.

Transfer it to borrowers: If we want to make an impact and help the Tibetans, the

last thing we want is to expose borrowers to risks they don’t understand in the first

place. FX markets are so volatile that a $100 INR loan could turn into $200 INR in a

few months, just if the currency depreciates (which is likely in any time horizon, in

particular in a country like India, with a currency managed by the central bank).

Creative solution: have a bank account in USD denominated in USD. The inflows

will be the following:

o A percentage of the donation to the organization done by the lenders

o A percentage of this interest payment and transfer it to the fund. This will be a

small overhead that could potentially save us a lot of money.

o When a lender doesn’t rollover his/her loan, a portion of that amount can be

transferred to the bank account. Funds that are not rolled over will go mainly to

other projects, but will help secure sustainability of HMF, by securing us against

a risk we cannot afford.

o If the INR appreciates, we will collect more than we lent in USD. The excess can

be destined to the fund.

The outflows of the fund will be to close the gap between a loan amount and cash

collected, only if this difference came from changes in the exchange rate. There will

always be a chance, under extreme devaluation scenarios, that the balance in the fund is

not sufficient to cover the losses due to movements in foreign exchange and, perhaps,

during the early stages of the project. In this case, the risk should be transferred to the

lenders, provided that we will disclose this risk and what we’re doing to manage it up

front, before the disbursement of the loans. We don’t want the Tibetans or our company

to be exposed to a risk that can take us or them to bankruptcy.


Milestones – Timeline

20192018201720162015

Secure funding

Milaap develops webpage

Set up ads to direct traffic

Trouble shooting

Local MFI partner network

Platform Development

Partnerships

Opportunities for Expansion

Create Tibetan run MFI

Education & employment

Expand to other regions

Key milestones Crowdfunding platform

launches with MFI

partnerships

Potential MFI

launch

Milaap for platform hosting

TED to engage Tibetan refugees

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