Interview with Vijay Mahajan: Developing Business Models for Microfinance Plus Services

Vijay Mahajan, Managing Director of BASIX in India in an interview mentions that microfinance needs to innovate and develop inclusive business models to stay relevant.

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“Right from the beginning we’ve believed that credit, or more broadly microfinance, is a necessary, but not sufficient condition” to alleviate poverty in India, he says.

 A whole range of “add-ons”–livelihood promotion, technical assistance, training, productivity enhancement, market linkages, creating producer organizations that help poor producers get better terms for their goods–in addition to financial services are needed to really have an impact. At the same time, Mahajan admits that these services don’t yet have clear revenue models. BASIX has spent the last six years first pilot testing, then building revenue models for these services. Today BASIX has a quarter of a million clients who pay for agricultural extension and livestock development services, and more than a million customers paying fees for microinsurance. 

Asked about the group lending methodology, Mahajan says that for very small loans - below USD 100 - group lending is a good way of reducing transaction costs. But he criticizes MFIs for their lack of flexibility in meeting the changing needs of poor clients as clients move to bigger loans, and for being wedded to one methodology: “They need to innovate”, he says.

“Unfortunately our whole sector globally, not just in India, is much more focused on microcredit, rather than microsavings,” says Mahajan. What poor households are looking for, he says, is composite financial services–savings, insurance, remittances, and credit services all from the same outlet. “Right now the regulatory frameworks mean that these are all silos, and it’s hard to do it from the same distribution outlet.”

Posted on Nov12, 2009 at http://www.cgap.org (To read, please click here)