Tag Archives: HDFC

Launch of operations

28 May

I am pleased to announce the launch of operations with Ajiwika, a microfinance institution (MFI), and HDFC Bank as our partners in India.


 It took us a year to sign the partnership agreement with HDFC Bank, but it is well worth it as HDFC lends to both large and small MFIs unlike most of the other banks that lend to only a few large MFIs.  Many of the MFIs United Prosperity will work with in India will be working in the less developed states of India and our partnership with HDFC will be crucial in making sure that microcredit reaches the people who need it the most.


We also signed our partnership agreement with Ajiwika, an MFI working in the state of Jharkhand.  Ajiwika is the first MFI in Jharkhand State in India. Ajiwika is operating in one of India’s poorest regions where over 80% of potential clients are un-served and where only a few MFIs operate. From my interactions with Ajiwika over the last one year I have been impressed by their commitment to social goals and their willingness to put the needs of the poor entrepreneurs first.


Looking back at the last 20 months in setting up United Prosperity, I am proud of our various achievements. Building a complex website in a very short time, putting together the legal documents for partnerships with banks and MFIs, analyzing the regulatory aspects in the US and website terms, setting up the partnership with HDFC bank, working with Ajiwika to upload and create entrepreneur profiles on our website, setting up the basic accounting processes – each of these tasks came with their own challenges.


I would like to thank each of our supporters – Cognizant, UC Berkeley Law School, O’Melveney & Myers, Hanson Bridgett, Tempus Law, NetSuite and Books2Taxes for their early and sustained support.


We are extremely fortunate to have a great team of nearly 50 people with experience, expertise and dedication to work with us and advise us. We would not have been at this point without their timely and invaluable contributions.  


I greatly appreciate the initiative of our first partners, HDFC Bank and Ajiwika, in adopting the unique guarantee model of United Prosperity.


I would like to thank our numerous well wishers who have used their personal and professional connections to help us in this endeavor and my wife Shubha, who has been a constant source of support and encouragement.


Thank you very much once again.



Poverty, collaboration and patience

11 Feb

Ever since I started working on United Prosperity, I have learned that progress in a startup happens in spurts. One is often faced with what seems like an insurmountable problem. You keep trying various things – nothing seems to work. Nobody seems interested in what you are doing or if they are slightly interested they have other priorities. And then one day suddenly someone decides to help and lo and behold, things start moving. The seemingly insurmountable problem now transforms into a doable task which then gets done with relative ease. This has been the consistent pattern with all the big milestones we have had like Cognizant helping us with the software development; UC Berkeley, Hanson Bridgett and OMM helping us with the legal work or HDFC Bank in India agreeing to partner with us.


I met Jonathan Lewis, CEO of Microcredit Enterprises a few days back at Davis and it was a great opportunity to bounce ideas and take advice on solving the seemingly insurmountable problems.  ‘It took us 3.5 years to get a bank to start working with us’, he said.  That gave me a perspective of the level of patience needed to overcome these startup obstacles. In our case, we approached a few banks in India and gave an overview of our guarantee in November 2007. However things picked up a little momentum only in May 2008 when we contacted HDFC Bank, India. Since then we have been closely working with them and are at the final stages of finalizing the legal agreement.


Another aspect which has struck me since I started working on United Prosperity has been that many of today’s complex problems like poverty or cures to tropical diseases tend to be outside or on the periphery of market forces and players. However, getting the necessary resources to solve complex problems like poverty requires the immense support and collaboration of mainstream market forces and institutions. They have the resources and expertise to solve different parts of the problem. E.g. we would not have come to where we are today without the support of Cognizant in building the software or the various legal teams who have helped us.


I got to discuss this with Jonathan Lewis. He was quick to highlight the importance of collaboration. ‘The current financial crisis is going to require an unprecedented level of collaboration’ he said. He is even putting together a forum called the Opportunity Collaboration where people working on poverty alleviation in various capacities can forge new alliances. Check it out.


Overall it has made me realize that combating poverty requires immense collaboration, which further requires patience. And for startups dealing with the seemingly insurmountable problems which come up from time to time, the value of collaboration and patience can never be underestimated.


And yes, we are all eagerly looking forward to sign the agreement with HDFC Bank in the next few weeks, so that we can launch soon.

Microfinance in India and the Global Financial Crisis

30 Jan


My visit to India last month gave me a great opportunity to talk to people and get a first hand assessment of the impact of the global financial crisis on microcredit programs. Yesterday I also happened to read a recent Fitch ratings report on microfinance and it gave me an opportunity to compare its findings with my own observations.


 Fitch ratings believes that there is growing evidence that the larger, more integrated players in this sector are experiencing increased pressures. Given the concentrated nature of the industry, with the 100 largest microfinance institutions (MFIs) estimated to account for 80% of sector assets and 70% of sector borrowers, Fitch’s view is that it will be difficult for the microfinance sector to be immune to the global financial crisis.


Talking to banks and some of the MFIs, I did not get an impression that the ability of the larger for-profit MFIs to raise debt (loans) in the short term from local commercial banks was severely affected. Perhaps this may be because banks in India are required to allocate a certain portion of their lending to priority sectors like microfinance. Since most commercials banks do not lend to smaller MFIs, I think the larger for-profit MFIs have multiple banks to shop around for their debt and thus are able to raise commercial debt to a reasonable extent despite the global financial crisis.


I also met with people at AccessDev, an MFI network in India. Through its AmFa initiative, Access supports 110 MFIs, most of which are smaller MFIs working in remote and under-served regions.  As per Access and some of the MFIs I spoke to, smaller MFIs are finding it increasingly difficult to get fresh loan approvals.  This problem is compounded because only a few banks and development institutions such as SIDBI, FWWB, HDFC Bank and Axis Bank lend to smaller MFIs. 


Thus my assessment of the impact of the financial crisis at least in the Indian context is that Microfinance as a whole is likely to see lower growth and smaller MFIs will get impacted more severely than the larger MFIs.


On a separate note while in India, I also attended a Panel discussion where Vijay Mahajan the founder of Basix, India was a panelist. One of the points he mentioned was that MFIs are increasingly finding it difficult to raise equity. Discussions with the team at IFMR trust also gave me the same impression. MFIs need to raise equity because most banks typically lend to MFIs only if their capital adequacy ratio exceeds a certain threshold. Greater equity leads to a greater capital adequacy ratio. (Check http://www.themanagementor.com/enlightenmentorareas/finance/FIFS/CapiAdeq.htm  for a more detailed discussion on capital adequacy).


Typical investors in equity include microfinance focused funds like Unitus, foundations like the Michael and Susan Dell foundation, private equity and venture capital firms. I think equity investors are increasingly finding it difficult to raise funds from their investors because of the global financial crisis. If MFIs are unable to raise equity then in due course they will find it increasingly difficult to raise debt from commercial banks and serve their clients.


Given these trying times, I think it is all the more reason that the community at large should increase the support for microfinance and help MFIs and poor entrepreneurs tide over this crisis.