Tuesday, May 22, 2007

Microfinance Side Effect: Distribution Channels

From Indiatimes article "Micro-finance firms turn into delivery boys":

"India’s microfinance, which is perhaps the ruling flavour of private equity players, is actually turning out to be a distribution highway for a variety of goods and services given the huge outreach of over one million customers each that large entities like Share, SKS, Basix and Spandana have managed to create.

"Fuelled by private equity investment and expansion, many of these entities are looking at reaching as many as five million people each in the near term. While the creation of reach has been purely for their own businesses of vending micro-loans, it now transpires that their channel could be widely used, and profitably too, for peddling insurance, money transfer, procurement and supply chain financing for agri and allied activities.

"Akin to banks tying with other services providers like insurance and raising their fee-based income, MFI players also stand to benefit from commission fees for routing various goods and services through their channel. In fact, the model not only reduces the transaction costs for the new services, but also would eventually reduce the cost of micro-loans from MFIs.


"The channel could be pushed for productive asset distribution and perhaps not for non-productive items like soaps, toiletries and other consumables as of now. In the future, there could be services like medical, education, para-medical, public health and awareness programmes, and even talent hunting that could be bundled through this channel.

"MFIs and self-help groups (SHGs) are also seen to be very active on the agri and allied activities given the huge rush in procurement activities, retail boom and relaxation of agri marketing norms in many states. For instance, Basix finances small and marginal farmers for the entire supply-chain activity of procurement of nearly 4,000 tonne (target for FY08) potatoes in Jharkhand for the end user, Frito Lay.

"Similarly, it is gathering milk producers, who own one or two cows each, to supply to Reliance as part of its dairy procurement initiative. There have a spate of such tie-ups recently. Most MFIs peddle insurance products helping companies fulfill their rural and social obligation for sale of policies."


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