Client Overview: Business Expenses

Client overview
Our MFI is targeting a group of client base who want to increase their income generation through
starting a new business i.e., vegetable vendoring .
The following are estimated expenses of the vendor both household and business.
His family’s daily expenses include the following (the expenses are portrayed daily keeping in mind
the income of the vendor which is daily)
HOUSEHOLD EXPENSES (A family of 4 with 2 children)
Expenses Amount (in Rs.)

Food 120/-
Travel (to and fro) by bus for the members of 30/-
the family
Electric bill 10/-

Education 30/-
Miscellaneous( movie,drink,clothes,etc) 30/-
Total 220/-
BUSINESS EXPENSES:
Expenses Amount (in Rs.)
Electricity 10
Getting the produce from nearby market 100

Loss due to spoiling of the produce due to bad 60
weather or no sale
Pushcart Repairs (replacing tyres etc) (once in 50

3-4 months)
Total 170
TOTAL EXPENSES = 390

(HOUSEHOLD+BUSINESS)
Refill in Cost (in sales(in
numbers in a rupees) rupees)
day
Tomatoes(20 100 160
)
Onions(25) 250 375
Brinjal(12) 120 180
Potatoes(30) 180 240
Leafy 60 120
vegetables(2
0 bundles)
Lemon(5doz 60 120
ens)
Ginger and 30 60
garlic(1.5
kg)
Seasonal
vegetables
total 800 1255
Profit(per day):455
After meeting his expenses he would save: rs65

Therefore his weekly savings would be : Rs455
His monthly savings would be : Rs 1820
PRODUCT DESIGN AND FEATURES:
Abhilasha stands for “Aspiration”. This loan is designed for

economically active low-income households who have an
aspiration to improve their economic well-being. The loan is
offered in a group mechanism.
This is the most dominant loan product helping in driving financial

inclusion of low-income clients.This loan is mainly identified for
the vegetable vendors,keeping in mind the specific needs of the
vendors which are not being catered by the present products of
the MFI
Abhilasha targets three customer groups,they are:
1.customer base starting their business (with a push raft)

a. The loan amount would be Rs. 10000 to 15000.
b.the loan amount would cater to the needs of buying a raft , and the initial daily operational
expenses till the business stabilizes.
c.The loan term would be for 1 year with installment repayments every month
d.The interest rate charged for the loan would be 27% p.a
e.therefore his monthly installment would be(flate rate basis) would be rupees 1059
2.customer base who are street vendors
a.Target group who are already street vendors and want to upscale their business would be availed
with a loan of Rs.15000 -20000
b.The loan amount would cater to the needs of the vendors to rent a space and operational expenses
to expand their business.
c.The loan term would be for 12 months to 18 months with repayments every month
d.The interest rate charged for the loan would be 24% p.a
3.customer base who are from vegetable mandis
a.Target group who already have their shops in the vegetable mandi but want to expand their
business.
b.The loan amount be 30000 which would cater his needs of business expansion.
c.The loan term would be for 3 years.
d.The interest rate would be 22%p.a
One of the special feature of this product is that the clients can deposit(save) their money weekly
with the local representative of the MFI who would then deposit it with the MFI`s branch.
• The MFI is adopting a joint liability model to overcome the problem of default in repayment by any
of the members in the affinity group. The loans in the group can be given on individual basis whereas
the group can share the liability of default. This will prevent the problem of burdening a single
person due to his neighbor’s inability to repay. However, while creating the affinity groups, the MFI
will ensure that all the individuals in the group require a similar amount of loan such that the burden
created due to any member’s default is the same.
INTEREST RATE DETERMINATION
Three types of costs are associated with the lending process: the cost of funds for on-
lending, the cost of risk (loan loss), and administrative costs (identifying and screening
clients, . The costs of capital and loan loss risk vary proportionally with loan
size.Administrative costs are not proportional to loan size.
Interest rate: cost of funds +cost of risk +overhead cost +profit

Assumption:
cost of fund is at the rate of 12% p.a
Cost of risk would be higher for the new business starters and then decreases with the street
vendors and further decrease for the mandi shopkeepers.
So the assumed cost of risk is 8% for new starters,5 % for street vendors and 3 %for mandis
Overhead costs are 4%
Profit is 3%
So the interest rate goes as follows:
For new business starters: 12+8+4+3=27%
For street vendors to upgrade their business: 12+5+4+3=24%
For vegetable mandis shopkeepers: 12+3+4+3=22%
LOAN APPRAISAL:
Loan appraisal for micro lending has a number of complexities. Complexities arise due to lack of
data validation, high risk lending, financial constraints of the MFI, high transaction costs, etc. for
assessing the credit worthiness of clients, MFIs have two options: individual case by case basis of
evaluation by a loan officer or use of a standardized credit scoring model.
In the individual case-by-case method, a loan officer collects all relevant information for each client
and then decides on the credit worthiness of the client. This method offers the advantages of greater
accuracy of information and better decisions about the disbursement of loans. However, it involves
very high transaction cost, higher loan processing time and very highly skilled staff. Also, the loan
appraisal decision is completely dependent on the judgment of the loan officer.
Using a standardized credit-scoring model is simpler and less time-consuming. With a credit-scoring
model, a less qualified person can also assess the client’s credit worthiness and take a suitable
decision. The transaction costs and operating costs are reduced significantly. However, it suffers
from the problem of absence of on-site data validation giving rise to greater risk of default by the
clients.

Client Overview: Business Expenses

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Client overview

HOUSEHOLD EXPENSES (A family of 4 with 2 children)

Expenses Amount (in Rs.)

Electric bill 10/-

Getting the produce from nearby market 100

Pushcart Repairs (replacing tyres etc) (once in 50

TOTAL EXPENSES = 390

After meeting his expenses he would save: rs65

PRODUCT DESIGN AND FEATURES:

Abhilasha stands for “Aspiration”. This loan is designed for

This is the most dominant loan product helping in driving financial

Abhilasha targets three customer groups,they are:

1.customer base starting their business (with a push raft)

2.customer base who are street vendors

3.customer base who are from vegetable mandis

INTEREST RATE DETERMINATION

Interest rate: cost of funds +cost of risk +overhead cost +profit

cost of fund is at the rate of 12% p.a

Overhead costs are 4%

So the interest rate goes as follows:

For new business starters: 12+8+4+3=27%

For street vendors to upgrade their business: 12+5+4+3=24%

For vegetable mandis shopkeepers: 12+3+4+3=22%

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