Sa-Dhan Newsletter Volume 5 Issue 2

Operational Costs of Delivering Microfinance : Banker's Perspectives

nominate one centre leader. The centre leader maintains

is the regulated interest rate for small loans prescribed by

the central bank of the country. So there was pricing

inter-group dynamics. Groups in a village form a centre.

If the number of groups is large, they are divided into more

limitation, otherwise, profit size could be fatter and realised

sooner.

than one centre.

Bank gets 100% refinance from NABARD @ 6.50% for

The group members meet regularly, once a week, on a fixed

advances under micro-credit, and, if the benefit of this cross

day and fixed time, for transacting the business of collecting

subsidisation is taken into account, the branch would show

savings and recovery, purveying credit and exchange of

profit from its second year of operation. The following

views. A branch official attends the weekly meeting and

graph shows its profitability of the branch since its

carries out all the functions in the village itself. This is done

inception.

to inculcate the habit of discipline among the members. No

group or individual is required to visit the branch for any

It is pertinent to mention that the bank never had profit

kind of banking transaction, either for depositing savings

motive from the mF venture. Its motive was to test the

or raising loan or repayment of instalments.

hypothesis that poor are bankable in terms of their credit

absorption, utilisation and repayment and prove to the

Specialised micro-finance branch

banking fraternity at large that banks could undertake mF

profitably.

During November 1997, the bank opened a rural branch

at Rudrapur in Dehradun district of Uttaranchal state. This

Profitability of Rudrapur Branch

branch for all practical purposes is an exclusive micro-credit

branch. Nevertheless, the branch had started generating

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profits during its third year of operations, very unlikely for

2004

a rural branch. Since all the members of the project are

0.8

2003

women belonging to the poorer section of the society, this

2002

0.6

branch, therefore, is truly a poor women's bank. This is

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the only branch of its kind in commercial banking sector

2001

of the country.

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0

Financial viability of the project

1998

2000

-0.2

1999

There are two sets of branches that are involved in mF in

-0.4

Financial Year End (March)

the bank. All branches, except one, are common branches

where only a small portion of the business pertains to mF.

Conclusion

The books of account in these branches are common for

commercial and micro-business, as such; it is not feasible

The experience has clearly shown that commercial banks

to apportion profitability on account of mF in these

can downscale for a suitable mF programme. The OBGP

branches. However, Rudrapur branch is exclusively dedicated

has provided to the bank an effective platform to augment

to mF. The profitability trend of this branch is an indicator

and extend its services to the rural poor efficiently. It was

of the viability and sustainability of the micro banking even

learnt that inclination of the poor to save - of course after

in a commercial bank.

initial resistance, owing to misconceptions, is strong. In

comparison to credit their demand for banking services is

more for the savings. This dispels the myth that the poor

Financial analysis of the exclusive mF branch reveals loses

are interested only in subsidised credit. A study conducted

for the first two and-a-half years that could be attributed

by NIBM, Pune has clearly brought out that besides

to high initial per unit operational cost. The losses declined

economic benefits the project has been able to foster social

and got wiped out in subsequent years with growth in

transformation as well among the beneficiaries. The

business. Once it reached the break-even level of business

experiment has also demonstrated how a commercial bank,

volume, the branch starting earning profits and has been

even under regulated regime, can viably opt for amelioration

consistently doing so for the last four years. Apart from

of the economically disadvantaged lot through saving

services and micro-enterprises

low business volume, another reason for the initial loses

(Ravinder Yadav is presently Head, Rural & Micro-Credit, Oriental Bank of Commerce.)

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