Despite the phenomenal increase in the physical outreach of formal credit institutions in the past several decades, the rural poor continue to face difficulty in availing credit according to their needs. Institutions have also faced difficulties in dealing effectively with a large number of small borrowers, whose credit needs are small and frequent and their ability to offer collaterals is limited. This led to explore and develop alternative credit delivery model that would fulfill the requirements of the poor. It is in this context that Microfinance Institutions has emerged as the most suitable due to its easy to adapt and understand rules and regulations. Number of Microfinance Institutions is in the fray to provide credit and other financial services for improving income and living standards of the economically underprivileged.
Spandana Sphoorty was started as an NGO in 1998 in Guntur. Spandana was promoted with an intention of offering small loans to poor women who did not have access to loans from banks and formal financial institutions. It is a public limited company registered with Reserve Bank of India as a Non-Banking Financial Company MFI. Started in 1998, it grew to the largest Micro finance Institution in India and 6th largest across globe by 2003. In its peak, Spandana had 1,856 branches with presence in 12 states and work force of over 13,500 employees.
A Strong Individual and Determined Entrepreneur
Padmaja Reddy is the Founder and Managing Director of Spandana Sphoorty Financial Ltd. She was born to a family of farmers in a small town Guntur in Andhra Pradesh. Her upbringing and education has made her a strong individual who challenged conventional thinking. Her determination, insights into the livelihoods of the poor and an insatiable appetite for sustainable market linked solutions have gone a long way in establishing her as a first generation entrepreneur. She comes with a strong subject expertise and experience of more than 18 years in the Micro Finance Industry. She started her career with an NGO and now the proud Managing Director of a more than 4,000 employee base organization. Padmaja continues to put her priority in the order of customer first then the organization and last herself.
Padmaja pursued various trainings on Microfinance – all CGAP modules on Microfinance, a course on Microfinance at Naropa University, U.S.A, Credit and Micro Enterprise Development Training from Durham University Business School, U.K Market Research for Micro Finance at Uganda and Strategic Planning of Microfinance from Harvard University, USA. She continues to steer Spandana in setting new benchmarks for the financial services industry.
Realizing that there is a Huge Demand for Small Loans
Padmaja, while working with an NGO prior to starting Spandanahappened to meet a rag picker and ended up giving her a loan of Rs.2,000 from that organization. This small loan helped her to improve her daily income from Rs.20 to Rs.50 per day and several other women in Guntur started approaching for the similar help. The rag picker paid an interest of Rs.120,000 over a period of 14 years on a loan of Rs.270- which was paid back every day. Several other women who had similar story approached for a loan and having realized that there is a huge demand for small loans, she promoted Spandana.
After five years of its inception, by 2003, Spandana grew to the largest Micro Finance Institution in India and sixth largest across globe and was the most profitable across South Asia. In 2001, it was rated by M-cril and the first Alpha rating was given to Spandana. It helped to raise loans from banks and that helped to grow at a CAGR of over 100% for 10 consecutive years. Spandana expanded its operations beyond Andhra Pradesh and in its peak in 2010 October, it was present across 12 States in India.
Impact of Enforced Ordinance of the State
In 2010 Oct, while Spandana was heading for an Initial Public Offer, the AP Government passed an ordinance, which had impacted the business very badly. Micro Finance Business in AP came to standstill with the ordinance enforcing several restrictions on loan disbursement and collections. Spandana has 50% of its portfolio in AP. The net worth of the company turned negative with huge provisions made against AP portfolio. RBI allowed AP MFIS to get into Corporate Debt Restructuring and Spandana was admitted in CDR with effect from 1st April 2011. After six and half years, the company exited from CDR and raised Rs.789 Cr equity from Kedaara Capital and OTTP.
Focus on Providingfinancial services at Lowest Operational Cost
India has a huge potential for Microfinance in rural market and Spandana is a rural focused MFI. The micro entrepreneur thrives to develop the business to improve one’s economic standards. Over time it has built a strong systems & processes to maintain best quality of portfolio, best client screening practices, End to End Information Technology with seamless connectivity, paperless branch network, incentives to focus on client satisfaction etc. Spandana has lowest operational cost in the industry and the core strategy is to have customer centric products and processes to deliver quality services at lowest TAT and best in quality service. It maintains client stickiness by providing fast and quality service before any MFI. It is against the inorganic growth strategies like acquisition of smaller MFIs to grow multifold.
Empowering Women through Abhilasha
Abhilasha, an unique loan is designed especially for low-income households who aspire to improve their financial well-being. Services offered by Spandana Sphoortyare as per the convenience of the clients. All the terms and conditions of the loans are made known to the clients to maintain the core value of transparency. The organization has no hidden charges in the name of value added services. Spandana Sphoorty started Abhilasha, catering it to all rural women who are in need of Micro loan. It offers loan for small and petty businesses ranging from Rs.15,000 to Rs.60,000 in Joint Liability Group model. The clients can repay easily in 24 to 72 fortnightly installments with interest. All borrowers and their spouses are insured and in case of any unfortunate event, he organization does not collect the loan balance and further refunds the amount collected till then. It also offers an interim loan to customers to support the working capital requirements for their business. This is smaller amount compared to Abhilasha but comes handy to meet their interim requirements.
Improving the Living Standards of Clients
Spandana Sphoorty thrives to improve the living standards of the clients, and also offer small home appliances such as Pressure cooker, Iron box, Solar Lanterns and more in easy fortnightly installments. Rural women aspire to have them at their home but due to their irregular cash flows they cannot afford to purchase them by paying full amount. The consumer finance NBFC companies do not offer consumer loans to this section of the society. Spandana Sphoorty decides to be with their clients to make their wishes come true. Apart from this Spandana Sphoorty also offers loan against property to clients who have established a SME unit and are in need of loan between Rs.1 Lakh to 10 Lakh and Loan against gold in a small way.
Envisioning the Future through Financial Services
Spandana Sphoorty plans to expand into many more states serving larger clientele. It will further penetrate into the existing states as well and is predominantly present in southern and central part of India as of now. Spandana will extend the foot prints to other regions and will be most preferred financial services client for the bottom of the pyramid segment.