Swadhaar FinServe Pvt. Ltd.

Swadhaar’s mission centers on making financial inclusion a reality for India’s urban poor. Financial inclusion, as defined by the Center for Financial Inclusion at ACCION International, refers to “a state in which all people who can use them have access to a full suite of quality financial services, provided at affordable prices, in a convenient manner, and with dignity for the clients.”1 Swadhaar’s vision of financial inclusion involves making available a diverse array of products to its clients. The expedient delivery of these products comprises an important part of this goal. Swadhaar strives to extend to its clients the same ease of access to financial services enjoyed by higher income members of society. This emphasis on providing both a full suite of products and a high level of service quality informs Swadhaar’s values and lending methodology.

When Swadhaar initiated microfinance activities, the urban poor in western and central India remained largely excluded from the formal financial sector. Most Indian microfinance providers operated in the South and focused on rural areas. In keeping with its vision of financial inclusion, Swadhaar tailored its operations specifically to this under-served urban market, cultivating a client-centric approach with an emphasis on flexibility, choice and convenience.

Market Segments
In conceptualizing its products, Swadhaar focuses on segments of the urban poor that fall between the traditionally bankable and the ultra-poor populations targeted by government and non-profit initiatives. Because many slum-dwellers do not definitively qualify for either segment, they remain excluded from both full financial access and social aid programs.

Swadhaar’s Individual Loan with a Joint Liability (JL Loan) targets one subset of this population: economically active women whose income falls under or just above the international poverty line ($2 a day). These women, who comprise a large portion of urban slum-dwellers, are usually secondary earners in their households. Some do not have a steady income of their own but may contribute to a home-based or family enterprise. Despite their limited income, these women typically manage their households’ finances and invest earnings back into their families. This population is unable to access formal credit, as most families lack the requisite documentation and collateral guarantee requirements. Swadhaar’s focus when serving this segment, in addition to providing financial access for business expansion, is to empower these women to improve their livelihoods, build on their capacities and ultimately become self-reliant.

Swadhaar’s Individual Loan targets the segment of male and female micro-entrepreneurs whose income exceeds the poverty line but whose businesses are smaller than small & medium enterprises (SMEs). This middle group of micro-entrepreneurs does not qualify for the formal capital available to the SME segment, although they tend to run businesses larger than those of JL Loan clients and thus enjoy relatively higher incomes and financial capacities. Most are the primary earner in their household. Due to their lack of collateral and documentation, they face difficulties accessing formal credit.

Swadhaar identified the gap in financial services accessible by this segment and designed the Individual Loan to meet this population’s unique financing needs.

In addition to the two segments described above, Swadhaar is continually exploring opportunities to serve other financially excluded, low-income populations in urban India.

Capacity-based Lending Methodology
Swadhaar’s lending methodology reflects its client-centric approach to microfinance. Swadhaar uses a capacity-based lending methodology to determine whether to and what amount to lend to a prospective client. Capacity-based lending consists of a two-part evaluation that examines both the client’s willingness to repay and his/her financial capacity to service a loan. The underwriting decision is ultimately determined by both the analysis of a client’s willingness to repay and an assessment of his/her household and business cash flows. This methodology yields insight into a given client’s repayment ability, as well as how best to structure his/her loan. Ensuring that a client is both willing and able to service a loan reduces the risk of inadvertently over-indebting him/her.

Product Features
Swadhaar developed both of its products with a view to maximizing their convenience and viability for clients. As a response to the requests and convenience of urban micro-entrepreneurs and workers, Swadhaar conducts collections on a monthly basis. The Company’s policy allowing foreclosure of loans and prepayment of monthly installments gives clients the flexibility to manage their debt according to their cash flows. In an effort to minimize the amount of time clients must spend on repayments, Swadhaar provides doorstep collection service.

Swadhaar understands that the urban poor often need immediate access to credit. As a result, the Company has streamlined its processes to disburse loans as quickly as possible, on average within 5 days from the date of application. By providing a range of loan sizes for both products, Swadhaar tries to ensure that each client borrows an amount well suited to his/her repayment capacity.

Beyond Credit
Swadhaar’s philosophy of financial empowerment extends beyond microcredit. The Company recognizes that to achieve economic security and self-reliance, its clients require a full suite of financial services, including insurance, savings facilities, and financial literacy training. Swadhaar FinAccess (SFA), a non-profit company founded by the promoters of Swadhaar FinServe, conducts a financial education program to enhance participants’ financial management skills. Swadhaar recognises the importance of having an independent organisation conduct financial education, as the Company encourages clients to value this training in and of itself, rather than as a mandatory part of the credit process. SFA’s services also include insurance and savings facilitation through the Business Correspondent model. These programs are available to Swadhaar FinServe clients and other urban low-income women. Please visit www.swadhaar.org for more information on SFA’s activities.