SBI's Microfinance Initiatives
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Case Details:
Case Code : FINC043
Case Length : 17 Pages
Period : 1995-2005
Pub. Date : 2005
Teaching Note :Not Available Organization : SBI
Industry : Banking
Countries : India
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FINC043) click on the button below, and select the case from the list of available cases:
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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.
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"A lot of directed lending is indeed wastefully and hugely inefficient. But microfinance is a form of directed lending that greatly improves efficiency. This is hard-nosed economics, not the bleeding-heart variety." 1
- Swaminathan S Anklesaria Aiyar, Consulting Editor, Economic Times in 2004.
"SBI in India, with 13,000 branches, is reaching down by acquiring the portfolios of dozens of microfinance institutions." 2
- Elizabeth Littlefield, CEO, CGAP3 and Director, World Bank in 2005.
Introduction
State Bank of India (SBI) is the largest commercial bank4 in India. The Sakoli agricultural development branch of SBI in Bhandara district, Maharashtra was in deep trouble in mid 1990s as the branch could not recover the loans disbursed to the farmers in 15 villages.
The farmers were unable to repay the loans due to the failure of crops. SBI decided to close the branch. The branch manager visited these villages and persuaded a few of the villagers to form Self Help Groups (SHGs)5 by explaining them the benefits of SHGs and the process of saving certain amount of money every month. After a lot of persuasion, the reluctant villagers formed an SHG. After the SHG was formed, the villagers, who in 1995 were finding it difficult to save even Rs 5 a month, were individually saving Rs. 500 per month by 2005. In a span of a decade, the 15 villages, with a predominant farming community, had changed for the better. The SHGs had borrowed Rs 500,000 to buy tractors.
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According to Chandan Jamdage, the manager from SBI who started the microfinance initiative in these villages, "When a SHG comes together, they save small sums on a regular basis.
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The process gradually builds financial discipline. They also learn to handle resources of a size beyond their individual capacities. The SHG members begin to appreciate that resources are limited and have a cost. Once the groups shows mature financial behavior, the bank feels confident about giving them loans."6 Linking banks and SHGs has become one of the largest and fastest growing microfinance7 programs in India. In March 2005, microfinance reached 1.43 million SHGs with 21 million members, making a difference to the lives of over 100 million poor people in the country. SBI was the largest player in the microfinance sector in India and financed more than 300,000 SHGs as of March 2005... |
SBI's Microfinance Initiatives
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