Mohit Sewak

Business Basics at the Base of the Pyramid

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The article “Business Basics at the Base of the Pyramid“, by Vikram Akula, gives beautiful insights about running micro finance businesses successfully from the experience of many successful micro finance firms that he has studied and some Micro Finance Bankers that he has interviewed.

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His studies (narratively in the words of MicroFinance Bankers) have shown that: -

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Women are more likely than men to reinvest profits in the household and to support others in their borrowing group.

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That’s why we lend only to women. Base-of-the pyramid customers – the potentially lucrative market segment that University of Michigan professor C.K. Prahalad has so famously drawn attention to and that many companies have had trouble reaching.

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Adopt a profit oriented approach in order to access commercial capital: -

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I felt that if the industry were going to provide the estimated $300 billion of credit needed by the poor, it would have to tap larger, commercial capital markets, and that meant structuring our businesses so that investors could expect significant returns.

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Standardize products, training, and other processes in order to boost capacity: -

Use technology to reduce costs and limit errors

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Most micro finance organizations record all their transactions on paper. Imagine how many missed zeroes and transposed digits there might be, particularly with a low-skilled workforce?

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Using local knowledge, we designed a set of products and a delivery mechanism specifically for our customers.

Our customer-first philosophy also extends to our processes and systems. The salaries of loan officers, for example, aren’t tied to repayment rates or the size of their loan portfolios.

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Instead of having borrowers visit a branch office, our loan officers journey on mopeds to their villages and schedule loan meetings as early as 7:00 am so that the women don’t miss part of the workday. Our reward for these efforts? Deep customer loyalty that ultimately results in a 99.5% repayment rate.

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How can razor-thin margins and costly customer relationships lead to high returns? The payoff comes with volume. Over the past 10 years, SKS has provided $725 million in unsecured microloans and insurance products to over 2 million people in 30,000 Indian villages and slums.

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The next step is to leverage our brand to expand an already broad distribution network. With our huge base of borrowers, we can say to makers of soap, clothes, consumer electronics, and other packaged goods, “Source high-quality products to us at the lowest cost available, and we can guarantee you a large market share.”

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The bottom line: -

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Our borrowers get high-quality, low-cost goods. Our suppliers also find new market segments, and SKS and its investors see a small profit margin.

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