About the project :
Around two years back I was at the Borivali market (a densely populated locality in the western suburbs of Mumbai) doing my customary Sunday grocery duties. While at the market I happened to strike up a conversation with one of the vegetable vendors who had been vending in the region for around 5 years, the topic of discussion funnily was the rising prices and the difficulty faced by street hawkers like him due to rising inflation. Over the course of the conversation, he explained to me how it is almost impossible for them to get credit for their business from a bank and how they have to almost completely rely on the moneylenders for their daily working capital. He would usually take monthly credit of Rs 20,000/-, of which he actually received Rs 18,000/- (Rs 2000/- deducted upfront as interest and service charge). The remaining credit was repaid on a daily basis at Rs 750/- per day in 24 days (6 working days a week was mutually understood), this translates to an interest rate of approximately 10% per month or 313% per annum(compounded monthly).This conversation was my first real exposure to the plight of the street vendors in Mumbai.
This is when the idea of finding a means of providing a cheaper source of credit for the street vendors first occurred to me.
Fast forward two years, in the second year of management studies (finance) I met a couple of likeminded people who believe in the same cause and had the required skills to find a solution to this problem.
Ekta Sharma (CS, BSL LLB), Paresh Shrivastava (B.Tech, CFA- Level1) and I, Pratik Shetty (BE, FRM) brainstormed for a few nights at the library to come up with the business model of Samriddhi Microfinance.
Most urban street vendors buy products from the wholesale market in the morning and make money by selling it to the end users all throughout the day at some margin,thus freeing their capital at the end of the day. But most of this capital is eaten up by the daily repayment that’s to be done to the moneylenders who charge an exorbitant rate for the credit.
Samriddhi will provide them daily credit at 0.05% per day which can be repaid at the end of the day. The loan ticket size will not be more than Rs 5000/- and will preferably have a tenure of one day (can be extended to a few days at max). Based on the credit history of the borrower with Samriddhi, the ticket size and repayment duration may be increased.
Repayment period of one day will make credit defaults considerably low and the aggregation of small ticket loans will diversify the risk.
We intend to begin the first phase of operations in Mumbai which has a hawker population of 2,50,000. We expect to capture 10% of this market and project a gross profit of Rs 43.04 million rupees (refer executive summary for calculation) after two years of operations.
Due to non-availability of required permissions, the hawkers don’t have access to formal sources of finance and the informal sources are too expensive and extortionist thus making their life miserable. Samriddhi will provide them the required finance to fulfil their humble business needs thus letting them prosper in the true sense of the word.
The Risks and Challenges
The major risk in credit lending is the risk of default i.e. non-repayment of credit. As explained earlier this risk will be mitigated by our risk diversification based business model.
Another risk is that the product can be easily duplicated by some other bank or NBFC. This risk can be mitigated by being the first mover and capturing the market. India’s informal sector is highly credit deficit, thus there is always room for more players (as with multiple banks and NBFCs in the country)
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