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existing NGO-MFIs, or new section 25 companies pro-
moted by NBFCs, to undertake lending as BC agents
with wide-ranging responsibilities of loan origination,
monitoring and recovery on commission basis. This
revival of the bank-MFI relationship has substantially
extended the scope of BC roles and relationships. While
the model basically seeks to enhance the pre-existing
role of MFIs in retailing credit, it has in several cases
been used as the foundation to mount savings and other
facilities.
3.4.1 Findings of GIZ-MFIN Survey
GIZ, the German technical and financial support
agency and MFIN, the self-regulatory organization of
NBFC-MFIs
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collaborated to conduct an online sur-
vey (GIZ-MFIN 2014) of MFIs to understand the past
experience of MFIs as BCs and the challenges faced by
them. A survey invitation was sent to 180 NBFC-MFIs
and NGO-MFIs in the MFIN and Sa-dhan databases
and the survey conducted through an online form during
December 2012 and January 2013. During the course
of the study, more than 30 MFIs functioning as BCs of
banks had been documented. However, several MFIs
started BC operations thereafter. Of the 70 responding
MFIs, only 14 had ever been BCs of banks—of which 8
were NBFCs, 5 NGOs and 1 cooperative. 9 out of these
MFIs (6 NBFCs, 2 NGOs and the sole cooperative) sub-
sequently closed down operations. Some of the findings
of the survey were:
•
BC operations were mainly through not-for-profit
group entities, with even eight out of nine responding
NBFC-MFIs running their BC operations through
a not-for profit entity. Of the 14 MFI-BCs, eight
partnered with private banks, four with public sector
banks and two were BCs of both. The NBFC-BCs were
offering a wider range of products than the NGO-BCs.
•
It was found that few BC businesses had been viable,
with only four profit making, one breaking even
and nine loss making. However, ten MFIs expected
to break even in less than two years. Nine MFIs that
closed down did so because of lack of support from the
banks and TSP, incurring losses with no clear route to
profitability, and facing difficulty of managing the BC
activity along with their core activities.
Nevertheless, 58 out of the 70 MFIs reporting stated
that starting BC operations was a strategic fit for them,
bringing with it possibilities of additional revenue, reduc-
tion in risks and costs and diversification of products. On
the other hand, there were concerns about the stability
of the BC model for small MFIs, the low revenues and
higher operational costs and having banks as competi-
tors to the MFI itself. There was a demand for capacity-
building support, financial grants and technology inputs
for starting BC operations.
Despite the poor uptake and performance of MFIs in
carrying out BC operations and the high attrition rate re-
ported in the aforementioned study, several private banks
have during the past few years emerged as new players
in successfully carrying out lending operations through
MFIs acting as BCs. An important feature of such op-
erations is that though they contribute to achieving the
banks’ targets for priority sector lending. The activity is
undertaken on purely commercial lines with interest rates
charged to the SHG members and other clients usually
the maximum permissible under the 2011 RBI regula-
tions for on lending of bank loans to MFIs.
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3.4.2 YES LEAP: BC model involving NGO-MFIs
YES Bank believes that only a commercially viable, scal-
able and sustainable business model can provide effective
products and services to the customers leading to mean-
ingful financial inclusion. It adopts frugal and flexible
innovations to meet cost and outreach requirements
by leveraging technologies and building complemen-
tary business enablers. The bank offers various financial
services to the bottom-of-the-pyramid (BoP) segment
such as direct micro-credit, micro saving, micro insur-
ance and remittance services in urban, semi-urban and
rural settings through the BC model. In rural areas,
through YES Livelihood Enhancement Action Program
(YES LEAP), the bank is providing credit and saving
facility to the Self Help Group (SHG) through partner
NGO-SHPIs acting as BCs.
Technology is leveraged to the maximum extent in
order to bring in efficiency and effectiveness in the whole
program. All transactions at the SHG level are recorded
in the YES Sahaj Micro ATM cum Collection device by
the BC staff in the field. Also dedicated software solution
is being implemented—which is customized for booking
