Spandana Microfinance: Surviving the Crisis

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Spandana's startup team realized that she could have bought a lot of such carts with the rent she was paying over a period of time. But she couldn't afford to buy even one cart as she did not have access to cheap loans. Banks would not lend her money as she could not prove her credit history and the interest rates charged by moneylenders were too exploitative. Under these circumstances, it was very likely that she would have spent her whole life paying a rent for the push cart. The entrepreneurial vision of Spandana’s startup team made them lend her a small amount of money on the promise that she would repay it spread over a period of time. The rag-picker bought a new cart, saved some money on the rent she had been paying earlier for the cart, and repaid the loan to Spandana’s startup team promptly. She also improved her standard of living and could afford better meals for herself and her children. They evaluated a lot of proven global models in Microfinance and came out with their own model, which they thought would work under the conditions prevailing in the domestic market. The team collected some money from friends and family members and, under the leadership of Padmaja Reddy, started their operations through their NGO called Spandana in 1998. The first capital of Rs 50,000 for the NGO came from the personal savings of Padmaja Reddy. Spandana in Telugu , the language spoken in the state, meant ‘Responsiveness'. In the context of the Microfinance institution, it meant responsiveness to the credit needs of the poor and marginalized sections of society.

Spandana faced a lot of difficulties in raising funds from banks and financial institutions in the initial days of its operations. Hence, it turned its attention to alternative developmental programs focused on the poor like affordable healthcare, nutrition, sanitation, etc. Much to the surprise of the start-up team itself, Spandana achieved break-even in the very first year of the formal start of its operations despite the odds. By the year 2000, Spandana had crossed its first milestone by disbursing Rs 10 million worth of loans to about 2,000 clients. Spandana's startup team had to mostly rely on the support of friends and family members to raise funds for its operations as banks were still wary of lending to Microfinance institutions with an unproven track record...

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