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Live Case Study - Grameen Koota

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“Yunus has changed, not his followers”. This is with this sentence that Grameen Koota’s managers synthetized the model of their microfinance organisation. Indeed, they argued right from the beginning that Grameen Koota was strictly following the Grameen methodology, as it had been conceived in its early days.
Grameen Koota was then born to deliver, in a cost-effective and sustainable manner, affordable credit to the poor in Bangalore, making it possible for them to borrow money without being required any documentation, collaterals and transaction history. The purpose of this report will be to analyse how Grameen Koota institution integrates in the Indian framework of microfinance and financial inclusion. One knows the microfinance context in India has soon been dominated by Self-Help-Groups. Usually formed by 20 members, they work as a micro-bank which collect members’ savings and grant them loans. Many cultural and operational differences can be observed with the Grameen model where groups are ruled quite strictly by a MFO: savings are compulsory, loans are granted according to an inflexible logic and reimbursement are highly scheduled. Even though the Grameen classic model has seen the necessity to adapt itself – with the Grameen II model in 2001 – and in spite of India SHGs tradition, to what extent Grameen Koota strictly replicates the original Bengali Grameen model? Have the organization been inspired by Indian microfinance legacy? Is Grameen Koota model replicable?

Grameen Koota background: a book, a teacher and a village Vithana M. Reddy used to run the Gurukul school in the Avalahalli village, near to Bangalore, when she read through Alex Count’s book, Give Us Credit, in 1996. President and CEO of the Grameen Foundation USA, the author related in the book, through the borrowers’ point of view, the fascinating story of Bangladesh, Mohammad Yunus and his ground-breaking idea of a bank for the poor. This book was really the trigger that convinced Vithana M. Reddy to enter into that road of microfinance. She wrote to the author and directly got a response from Pr. Yunus himself, inviting her to Bangladesh to attend the Dialogue Programme, meant to train potential Grameen replicators from all over the world. She also visited, as advised by Pr. Yunus, the two main replicators of Grameen model in India, Share in Hyderabad and ASA in Trichy. She then came up with a project proposal that she submitted to the Grameen Bank and soon enabled her to raise a funding of US$35,000 in 1999. In that very same year, Vithana M. Reddy hired her two first co-workers and a team of junior staff. She then began to spread the microfinance principles in Bangalore. Grameen Koota’s activity started in Avalahalli village, taking advantage of Vithana M. Reddy’s school reputation, but also at the same time, in another village near Bangalore called Kareyenahalli. At the beginning, according to Arun Kumar, IS/IT manager in Grameen Koota, the main challenges were about educating the villagers: “The challenge was to make them understand why this was important, to understand the concept of loan and interest rate, to explain them why they had to take responsibility for the others.” “Nowadays, when you go to some village, people know about microcredit. At that time, the idea was quite new and not widely spread.” The task was even harder in Kareyenahalli village, where people did not know Grameen Koota’s people. Nevertheless, the advantages over the nationalized banks were far more determining for the population: GK was coming to them while banks were too far away and GK was speaking their local language whereas they should have filled forms in a non-understandable language in the same banks. The creation of a microfinance centre in Kareyenahalli village gave Grameen Koota confidence in his ability to achieve its goals and develop microcredit infrastructures from scratch. By the end of 2000, the first branch opened in Kanakpura and the second one was born in Kaggalipura, only a couple of months later.

Current structure of the organization
Board and management team Grameen Koota’s board is composed by a mix of GK interns (the founder and the co-promoter), three independent directors without any stakes in the company and by four representatives - one for each of the investors. In that manner, the board ensures that the corporate governance is under control and do not deviate from its core and original purpose. Independent directors are more likely able to follow and assess objectively the processes of the company while investors are focusing on the investment policy and expansion issues.
Furthermore, there are 10 persons in the management team, in charge of coordinating GK operations. The managing promoter is GK’s co-promoter, the first co-worker hired by Vithana M. Reddy. As for the support functions, this team is also comprising a Chief Financial Officer, an Internal Audit Officer as well as an IT&IS General Manager. The operations are under the supervision of two Heads of Operations – one for the Karnataka and Tamil Nadu region and the other for Maharashtra - and one Head for Product Operations. This part of the activity – namely, the Operations - is divided in two: sales (acquiring new customers) and collection (of the savings and the outstandings).

Centers, areas, branches As a faithful Grameen replicator, GK has organized its operations network into multi-level nested circles: the centres (or Kendras), branches, areas and regions. The logical organization is as follow: around 6 to 8 centers are required to form a branch, 4 to 5 branches form an area and 4 to 5 areas form a region. As for today, there are: * About 17,000 centers which are allocated to 1,000 loan officers or Kendra managers (KM), * 161 branches that are managed each by one Branch Manager, * 25 Areas Managers, * 5 regions divided into 4 region managers. Each region has a regional office.
The typical day of a Kendra Manager is organized as follow: * The morning is dedicated to field visits and collection. Kendra meetings are conducting according to a fixed schedule, in the presence of the Kendra Manager. The latter usually attends 2 or 3 meetings per day. Kendra meetings are the occasion to collect members’ weekly savings and repayments, as well as taking subscription for new loan applications. * The Kendra Manager returns at noon to the branch to hand over the amount collected in the morning to the cashier and aggregates the daily disbursements. All records are to be updated by the same Kendra Manager at this time. * In the evening, the Kendra Manager goes back to the field, this time to focus on new customer addition, group formation and trainings.

Group structure At the opening of a branch or in an already existing one, the formation of groups is under the responsibility of the Branch managers and the Kendra Managers. Indeed, the Kendra Managers receive an incentive of around 200Rs for each first group created and 50Rs for the following groups. The creation of a group is mainly done thanks to field visits in the villages and thanks to the meetings conducted with the villagers. The projection meeting is held at the creation of a new branch, inviting formally all villagers to be part of a group and explaining GK rules and methodology. Once the Kendra Manager finally identifies a group of 4 to 5 people, he organizes a Compulsory Group Training (CGT), which is meant to present to the group the concept of Joint Liability and the notion of Income generation activity. At the end of this training, the customer can decide whether he wants to be part of the GK group. By taking this “oath”, the group members commit themselves to attend all the weekly meetings. Right from the beginning, the group member is invited to realize compulsory weekly savings. The first loan taken has to be an income generation loan. Subsequently, there is no limit on the number of loans one single person can take out, but on the total amount of his or her portfolio. The internal policy of Grameen Koota as for this total outstanding is that it should not be above Rs35,000.

Client’s and poverty profile Inspired by Grameen Bank experience, Grameen Koota is entirely focused on women. Indeed, Grameen Bank used to lend also to men in its early days, but soon realized that they were not always devoting the money to their family needs. According to Vithana M. Reddy, women are at the same time, “more marginalized” and “more trustworthy”. In the one hand, GK help women to achieve socio-economic empowerment. In the other hand, GK, as a faithful Grameen follower, really believes that women are the pillar supporting the family and the villagers’ community. “They tend to use money more productively and for their family sake”, says Vithana M. Reddy. Moreover, they are, most of the time, present in the villages whereas men are working. This is then easier to organize group meetings and establish an attendance discipline. Therefore, as for June 2012, 99.50% borrowers at Grameen Koota were women (see exhibit 4). As in July 2012, the GK portfolio distribution shows that loans are mainly used in productive purposes. The two commonly spread activities among GK borrowers are trading and animal husbandry. It has to be highlighted also that still 2.70% of loans are used for consumption needs.
As for social segment distribution, it has to be highlighted that the majority of loans are granted to the backward classes, accounting for a total of 37.5%. Portfolio distribution as in July 2012, Source: Gsfl.in
Poverty livelihood of Grameen Koota clients as on March 2012, Source: PPI report, micorfinanceindia.org
Poverty livelihood of Grameen Koota clients as on March 2012, Source: PPI report, micorfinanceindia.org Since 2008, Grameen Koota has been the first certified user of the PPI (Progress Out of Poverty Index) tool in India. This tool has been developed by the Grameen Foundation and makes it possible to collect data from the MFI’s clients. The data is collected each time that a client takes out a new loan as well as each time that a client leaves the MFI. By this manner, GK is able to analyse the profile of its clients and the evolution out of the poverty trend, from their entry into the MFI and their departure. A study led in 2012, shows the poverty profile of GK clients and its evolution over the last three years. Another study led thanks to the PPI tool, measuring the level of poverty across three different PPI instances reveals a clear decrease in GK clients’ poverty thanks to microcredit. The average period between the first and the third instance is about 26 months. A similar study, measuring poverty level at the first instance - which is the contraction of the first loan - and the last instance – when client leaves GK – highlights also a poverty slightly decreasing trend through microfinance: 13.5% were Poverty profile of GK clients at different instances, Source: microfinanceindia.org
Poverty profile of GK clients at different instances, Source: microfinanceindia.org below the poverty line at the first instance vs. 11.3% at their leaving GK. The same figures for the US$1.25/day/PPP accounts for 36.8% vs. 32%. As they are part of a more integrated structure, through this poverty measuring tool, MFIs seem better equipped than SHGs to identify the profile of their clients and track their livelihood improvement through microcredit.

Financing services
Loans products
As for now, Grameen Koota only proposes three different sets of loans. These are only group lending loans. Indeed, Grameen Koota Financial Services Private Limited do not make individual loans. This activity is handled by a different division called Maarg. The following classification and organization has been recently updated: * The Income Generation loans are the original ones. For a long time they have been the only kind of proposed loans. Each customer has to take one of these to be entitled to any another kind of loan. It has been created to support the client’s business and enable him to raise his income by enhancing his or her activities. The interest rate accounts for a 26% and the amount borrowed range is set between Rs5,000 and Rs25,000. * The Livelihood Improvement loans are meant to help clients investing in any assets likely to improve their quality of life (for instance, cook stoves or water filters). This set of loans also include Emergency Loans to enable families to cope with emergency needs or for consumption. The interest rates are of 24% and the size of the loan has been set between Rs500 and Rs5, 000. The repayment period is much shorter than for the income generation loans and of about 12 to 52 weeks. * Finally, the Social Welfare Loans, the last kind of loans are the more recent ones. They have been created with the increase in clients’ livelihood and in order to keep those who now can cope with their basic needs. Indeed, this new set of loans is composed by a wide range of products meant at availing a water connection, children education, constructing a home of one’s own or toilets. It also comprises loans granted to organize festivals or address medical emergencies. The interest rates of these products are of 22%. The size of the loan ranges between Rs500 and Rs150, 000, with a repayment period of 12 to 260 weeks.
It can thus be seen that the products proposed by Grameen Koota are really simple and clearly regrouped in 3 categories. As Grameen Bank, the organization offers products which terms and conditions are precisely defined.
The processing fees are about 1% for all types of loans.
According to the last annual report available on Grameen Koota’s website, the income Generation Loans accounts for 95% of the total portfolio.

Saving products Grameen Koota also offers to its clients, saving and insurance products. All members have to participate in the Kendra’s and in their group’s funds. For these two kinds of savings, they must contribute on a weekly basis: * Rs. 1 per week for the Kendra fund, * Rs. 5 per week for the group fund, in addition to the Rs. 1 required per each Rs. 1000 of Income Generation Loan taken out.
In these two cases, members can withdraw their savings only if they drop out of Grameen Koota. While group savings benefit from an interest rate of 6%, the Kendra savings are not. On top of that, members are also encouraged to save on a voluntary basis. The interest paid on these last type of savings accounts for 4%.
Finally, Grameen Koota has also an insurance fund, called Emergency Fund. All the members need to contribute 2% of the amount of their loans along with their weekly repayments. This fund is specifically aimed at helping and writing off the loan outstanding of any died group members. Usually, a compensation of around Rs.500 to Rs.1000 can be granted to the family to help with funeral expenses.

Sustainability
Portfolio quality monitoring The organization holds separate bank accounts for each branch. It is thus possible to track all the transactions happening on a daily basis. Grameen Koota has also automatized his process of loan monitoring by the Credit Bureau, in order to track multiple borrowings, over-indebtedness and defaulting borrowings. The number of branches has been reduced through the last years, from 215 in 2011 to 168 in 2012, in a bid to close down the non-operational ones.
As for the last annual report, year ended March 2012, the total revenue of Rs.62.19 Crores has been dropping compared to the 2011 level of Rs.81.93 Crores. This is mainly due to the average portfolio outstanding that has been falling from Rs.298 Crores to Rs.225 Crores. Another factor explaining this drop in total revenue is the decrease in the income due to fees, charged 2% of loan disbursements in 2011 versus 1% in 2012, accordingly with the new regulation. According to the last CRISIL report, both the one-time repayment (98.59% vs.96.61%) and portfolio at risk (1.20 vs. 2.59) indicators have improved from March 2011 and March 2012. However, Grameen Koota’s borrower to member ratio is remaining high (85% in June 2012) and this could impact in the short term its portfolio quality.
Funding and financial sustainability Grameen Koota highly resorts to external sources of funding. As on June 2012, its total outstanding debt, accounting for loans granted by 25 different lenders, was of Rs.3, 376 million. Borrowings are mainly contracted from financial institution (around 50%) and banks (49%). The last 1% is due to various social development agencies.
Grameen Koota also raises fund through portfolio sales and securitization. As for March 2012, the MFI had executed eleven securitization transactions accounting for a total amount of Rs. 170 Crores.
According to Grameen Koota’s IT manager met in the Bangalore office, financial sustainability is achieved by three particular means: * At the branch scale: branches are opened only in areas where enough potential customers have been identified, * At the product level: each product is designed in such a way that it will be financial sustainable in itself. Indeed, each new product has to meet its break-even point into a very fixed period of time, * At the project level: constant updates and tracking are given and analysed by the management team and the board in order to scrutinize every project from a financial sustainability perspective. Any project that would appear not viable is either discontinued or modified so as to make it more sustainable.

Future challenges As it has already began to do so, Grameen Koota wants to get more and more involved in non-credit focused activities. Thanks to partnerships signed with other organizations, the MFI participates in promoting programs dedicated to sanitation, clean energy and water, health, education, financial literacy.
Moreover, Grameen Koota has recently created an insurance plan enabling its customers to benefit from life insurance. As for 2012, 530, 000 borrowers have been insured in partnership with Bajaj Allianz and Shriram lifeinsurancecompanies. Thus, Rs.15, 882, 639 have been paid in this same period to the families of deceased members.
According to Grameen Koota managers, main challenges are now about understanding the new geography and people culture, as well as getting the right set of employees to execute the plans and embody the core philosophy. The MFI wants above all to keep consolidating its operational in a bid to remain a strong regional actor. Another challenge was to get adequate source of funding to achieve growth. This is not an issue anymore. Still, the underlying challenge relies on the diversification of funding sources.

CONCLUSION
Grameen Koota, Grameen I & II, SHGs All in all, Grameen Koota replicated the same organizational model as Grameen Bank. The model of this local MFO is highly standardized and to be compared with Grameen model in its early days. There are three main aspects on which I would like to conclude and draw comparisons between the three distinct methodologies. The number of members constituting a group is roughly the same. Groups are depending on centers which are themselves depending on branches and areas. Staff is operating following the same Grameen model. Members borrow from the MFO and do not have any linkage with banks, unlike SHG’s members. The group discipline is at the heart of the model. Such as in Grameen I and Grameen II models, members are expected to attend weekly meetings. The concept of Joint Liability Responsibility introduced by Grameen remains very strong at Grameen Koota and taught during group trainings. Yet, the Grameen II system has been reconsidering the strength of such a binding concept: “there is no form of joint liability, group members are not responsible to pay on behalf of defaulting members”. Indeed, in the Grameen model, members are more and more encouraged to bear their own risk, by making voluntary and regular savings. Grameen Koota also took the same shift as Grameen II by rationalizing its offer. While Grameen II was calling on converting all proposed loans (except housing and education loans) into basic loans, Grameen Koota has been creating three main loan categories. This was done in a bid to simplify the processes and to make it easier to understand for the customer. Moreover, Grameen Koota has been following the same logic as Grameen II: to keep on retaining their clients, in particular the ones becoming more and more well-off, they designed new products, namely the Social Welfare Loans, as explained before. However, Grameen Koota has not been applying the rescheduling principle introduced by the Grameen II methodology. Indeed, the new model makes it possible to personalize one’s repayment schedule, introducing more flexibility. More broadly, variable and customized terms for loans remain rare at Grameen Koota. Finally, unlike SHGs and the Grameen II methodology, Grameen Koota has not been emphasizing its range of savings products. The focus is still on granting loans to the customers and there are not really encouraged to make regular and personal savings. They principally have to participate in the compulsory and joint saving programmes. With the Grameen II model, for instance, two different kinds of accounts have been created in order to manage a member’s personal and special savings. As opposed to it, Grameen Koota’s saving policy is not detailed and not even mentioned on the website.

Scalability between standardization and scalability Grameen Koota accounts for almost 400 000 active borrowers in India. To reach it 2 million-people objective in 2020, the MFO has to grow and scale-up its model. According to me, the branch creation methodology followed by Grameen Koota is strong. It guarantees to grow new activities in a progressive and safe manner. The Kendra manager time-table also contributes to a great focus on scalability, as he has to find new customers on a daily basis. The rationalization of the range of loan products is also a good point in achieving scalability as it is a step towards more standardization. However, according to the CRISIL report (see exhibit 7), the total number of borrowers has been decreasing these last years (from 352, 648 in March 2010 to 297,532 in June 2012).
In front of such an inflexible system, Grameen Koota could find itself confronted to the same issues Grameen Bank had to face several years ago. Strict discipline and binding frameworks have been doing some harm to the Grameen microfinance world. The key to attract more clients today relies perhaps on some SHGs particularities, which have been implemented in the Grameen II model. In order to introduce more flexibility in the system, Grameen Koota should focus on loans which terms can be adjusted on a personal basis. This will not necessarily bring about repayment difficulties. Grameen Koota could also create personal bank accounts in order to make it more convenient for its members to enter in a savings dynamic.

BIBLIOGRAPHY * WEBSITES * http://gfspl.in/, Grameen Koota’s website * www.mixmarket.org/mfi/gfspl‎, MFI report on Grameen Koota from MIX Market * http://freedomstruggles.in/?p=440, an interview of Vithana M. Reddy

* ARTICLES, PAPERS & REPORTS * Savings, Loans…and Toilets: Grameen Koota’s Quest to Respond to Customer Demand http://www.microfinancegateway.org/p/site/m/template.rc/1.26.22447/?utm_source=LinkedIn&utm_medium=referral&utm_campaign=Microfinance%2BVoices%2BFebruary%2B19&goback=%2Egde_1909026_member_215649889#%21 * PPI Mini Case Study on Grameen Koota, from Progress Out of Poverty, http://www.progressoutofpoverty.org/ * CRISIL MFI grading of Grameen Koota report, September 2012, www.crisil.com * 2012 report on the Microfinance sector, by Microfinanceindia.org * The maturing of Grameen Bank, by MS Sriram * Self-Help Groups and Grameen Bank groups : what are the differences ?, by Malcolm Harper * Grameen II at the end of 2003, a grounded view of how Grameen’s new initiative is progressing in the villages, by Stuart Rutherford, Md Maniruzzaman, SK Sinha and Acnabin & Co.

* ANNUAL REPORT * Grameen Koota’s Annual report, 2011-2012, available on the MFI’s website

EXHIBIT * Exhibit 1 : Grameen Koota key figures as on September 2013

* Exhibit 2 : Portfolio distribution according to the different products as on March 2012

* Exhibit 3 : Portfolio distribution according to the loan activity as on March 2012

* Exhibit 4 : Portfolio distribution according to the client’s gender as on March 2012

* Exhibit 5 : Portfolio distribution according to client’s social segment as on September 2013

* Exhibit 6 : Grameen Koota’s borrowing profile as on June 2012 (from CRISIL)

* Exhibit 7 : Business growth according to CRISIL

* Exhibit 8 : Last income statement available (2011-2012 annual report)

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