Caselet Solution 3

New Channels
GM Financial service model has been following the group lending model. The rationale
for opting for such a model is to facilitate transactions in the absence of transaction trail using
embedded knowledge. The model also makes use of social collateral to prevent defaults. The
CEO should explore the possibility of using these existing capabilities to conceive a new
model that comes with cost benefits and operational effectiveness. Improvements in the
current model can strengthen the organization's current position and make room for portfolio
expansion.
Meeting fatigue is a common phenomenon observed in most group models. During the initial
period, they may keep up a high attendance rate, but it eventually falls because it is a tedious
routine activity. The Sothern states of India face a similar problem. Group members hand
over the cash to the leader at their convenience, and books are updated without a meeting.
Often the group-decision process is replaced by leader making the decisions. Despite such
practices, self-help groups in South India have been successful. Leaders are often able to
anticipate loan requirements based on past transactions. Thus, in the wake of COVID-19, the
CEO can be assured that reducing the meeting frequency will not significantly affect
operations. The group leader can assume responsibility for collections while minimizing
contact. Another policy can be allowing the borrower to choose the frequency of meetings;
however, it is possible that even after agreeing on meeting terms, the borrower might not be
regular. Meeting fatigue is likely to result in negligence in book-keeping. To bring discipline
in book-keeping practices, the CEO should implement a penalty scheme for the group and
surprise-checks.
Existing capabilities complement the following two schemes:
1. Agriculture Loans: The farmers get the price for their produce after the harvest. They
need credit for buying seeds and fertilizer before seeding. Regular monthly or weekly
payments cannot address this need. Within the same group loan umbrella scheme, if
the agricultural loan comes with different payment frequencies that involve credit
before seeding and payment after harvest, it will encourage more borrowers. In the
long run, the CEO can explore tripartite contracts with the suppliers of agricultural
equipment and seeds, and the harvest buyers can facilitate a closed-loop card scheme
to prevent misuse.
2. Housing loans: They can be either for the purchase of a new house or reparations.
Home is a cherished possession with high social value, and borrowers would not
readily want to lose it. Incremental building and reparation is a common practice.
Hence, housing remains the most popular type of loan product giving higher returns
than all the other products. Housing loans must be backed by collateral if the required
amount exceeds the loan amount available to the group.
The CEO can even start a micro-venture capital fund to guide the borrower through the
start-up process, and the company can profit from the business as it grows. Small-size
investments can help the entrepreneur and the organization as both will have the skin in the
game to develop the business. The organization can decide a royalty model or an equity
model depending upon the type of business. The Venture-Capital model will use the
discretion of the staff who will check the official records of the shop owners and the
unofficial chopdi books to evaluate the sustainability and growth of the business. Staff will
meet all the stakeholders, including suppliers, buyers, and neighbours, to determine the
business's worthiness. Alternatively, the CEO can give business loans at the seed stage
because funding at the seed stage will be a risky investment compared to already developed
business. Dukaan or small shops are the primary uses of loans allocated for income-
generating activities in developing countries. These types of income-generating loans or
investment create a win-win kind of model for all the stakeholders.
In the high-touch model, technology cannot substitute but it can complement. A small niche
that might be comfortable with online-only solutions. Online services can be a temporary fix
and might facilitate back-end operations but cannot substitute the current model. There can be
a system to mine book-keeping data of the groups through an app. It will make the job easier
for credit officers, and the company can learn from organized real-time data. The CEO should
be open to implementing digital solutions when there is adequate evidence for financial and
digital literacy in the customer-base. Digital transactions decrease the ticket-size, so in the
future, they might play a role.

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New Channels

Existing capabilities complement the following two schemes:

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