HSBC business model

HSBC Brings a Business Modelof Banking to the Doorstepsof the Poor

PRAMOD MARAR ,BALA J I S . I YER ,

AND UNMESH BRAHME

Tiny loans can make a huge difference, especiallywhen coupled with financial literacy and capacitybuilding. With a global commitment to sustainablebusiness through financial inclusion, HSBC part-ners with microfinance institutions and other orga-nizations to empower micro-entrepreneurs amongIndia’s rural poor, who in turn are changing lives,families, and entire communities. The authors pro-vide an overview of HSBC Group’s sustainabilitystrategy, a brief history of microfinance in India,and HSBC in India’s role in serving the microfi-nance industry. They also discuss the bank’s multi-stakeholder initiatives for capacity building, whichinclude two schools where rural women learn essen-tial business and technical skills and financial liter-acy, and an environmental and social village-basedinitiative for water conservation and livelihoodcreation. © 2009 Wiley Periodicals, Inc.

Indirani, a 53-year-old wife and mother of four liv-ing in Chennai, India, is one of microfinance’s suc-cess stories. She and her husband, Chandrabose,used to earn a paltry income of about Rs. 1,500 (U.S.$33) per month as laborers. Moreover, as Chandra-bose began to age, he was unable to find regularwork. A local institution, which grants small loans atprevailing interest rates using funds it borrows fromThe Hongkong and Shanghai Banking CorporationLimited (HSBC in India), lent Indirani Rs. 5,000($109), which she used to purchase a wet grinder tomill grains and rice into flour for customers. Withher husband’s assistance, her new business was soonbringing in Rs. 50–100 ($1–2) a day. As more localsbecame regular customers, Indirani took a secondloan of Rs. 10,000 ($218) to expand her business

by purchasing two more grinders, and eventuallyrenting a shop for the business.

Today, Indirani’s flour business generates aroundRs. 300–400 ($7–9) a day After paying the monthlyrent for the shop and electricity bills, she earns a netincome of Rs. 5,000–6,000 ($109–131) per month.Thanks to microfinance and her hard work, Indiraniis now a successful entrepreneur managing her ownbusiness and supporting her family.

The plight of women in poor communities in India iswell documented. The pressure for survival againstthe backdrop of poor or no education, failing health,low agricultural/labor productivity, and degrada-tion of the environment affects women and chil-dren the most. Whether because of tradition, theireconomic environment, or other factors, millions ofwomen in India today are still unable to break outof the vicious cycle of gender bias, deprivation, andvictimization imposed on them.

HSBC in India and the intermediary microfinanceinstitutions (MFIs) that it funds to extend credit andother financial services to women like Indirani arepart of the growing microfinance industry in Indiaand elsewhere. The microfinance segment seeks fi-nancial inclusion for the world’s poor through sus-tainable means as a way to empower millions tolift themselves out of poverty. Microfinance coupledwith financial literacy is a proven approach to inter-vene in the lives of poor women, their families, andtheir communities to ensure they have the oppor-tunities to invest in their businesses, increase theirincome, build assets, and create economic security.

c© 2009 The Hongkong and Shanghai Banking Corporat ion Limited, repr inted by i ts permission.Publ ished onl ine in Wi ley InterScience (www.interscience.wi ley .com)

Global Business and Organizat ional Excel lence • DOI : 10.1002/ joe .20247 • January/February 2009 15

A Commitment to Corporate Sustainability

HSBC in India’s growing involvement in mi-crofinance and related activities is part of theLondon-based HSBC Group’s global commitmentto inclusive growth. As the world’s largest bank-ing and financial services organization, with assetsof $2.547 trillion and an international network ofabout 9,500 offices in 85 countries and territoriesaround the globe, HSBC provides a comprehen-sive range of financial services to personal, com-mercial, corporate, institutional, investment, andprivate banking clients. HSBC’s overall strategicdirection reflects its position as “the world’s lo-cal bank,” combining the largest global emerging-markets banking business and a uniquely cosmopoli-tan customer base with an extensive internationalnetwork and substantial financial strength. Ourstrategy is aligned with key trends that are shap-ing the global economy—namely, that over the longterm, emerging markets are growing faster than de-veloped economies, world trade is expanding at agreater rate than GDP, and life expectancy is in-creasing virtually everywhere.

In addition, climate change is having an impact oneconomic development, particularly in developingcountries, and HSBC faces the challenges of a shifttoward a low-carbon economy. In response to thesetrends, we are reshaping our business by investingprimarily in the faster-growing emerging markets—including India—and in developed markets byfocusing on businesses that have internationalconnectivity.

HSBC is determined to be one of the world’s leadingcompanies in addressing the challenges of embed-ding sustainability into its business.

We believe companies that manage their businessin a sustainable way are better placed to competein the global economy. HSBC is determined to beone of the world’s leading companies in addressingthe challenges of embedding sustainability into its

business. We believe that doing so will strengthenthe HSBC brand, helping to deliver long-term valueto our stakeholders.

Our sustainability strategy recognizes that thegroup’s continued financial success depends on ourability to manage and address nonfinancial consider-ations in our business. This requires an understand-ing that these nonfinancial issues do not exist inisolation from our core functions and operationsbut are integral to the way we do business. Weuse the term corporate sustainability rather thancorporate responsibility, as it describes more suc-cinctly the management of our direct environmentalfootprint, sustainability risk and business opportu-nities, and our community investment activities.

As a major employer, lender, and investor, we canmake an important contribution to sustainability,providing financial solutions to environmental andsocial challenges while building a healthy businessfor the benefit of all of our stakeholders. Financialinclusion through microfinance and other activitiesis one part of our sustainability strategy.

An Introduction to Microfinance

Microfinance serves as an umbrella term for theprovision of financial access through focused fi-nancial intermediaries—microfinance institutions,or MFIs—to those parts of the population thatare not being served by mainstream financial ser-vices providers. Few fields in development or com-merce other than microfinance emphasize a twinbottom line, effectively combining economic and so-cial performance. Presently the most widely preva-lent service of microfinance in India is microcredit.Typically, these are small loans to the unserved orunderserved, either for consumption or for income-generating activities.

Reducing Poverty in Sustainable Ways

Although the amounts involved may be small, theservices that microfinance offers have proven to bea powerful instrument for reducing poverty.

16 January/February 2009 Global Business and Organizat ional Excel lenceDOI : 10.1002/ joe

Household Income. Financial services can improvepoor people’s lives by providing much-needed fi-nance for business activities, which can increase theirhousehold incomes. By offering a variety of finan-cial products such as savings, insurance, loans, andremittances, microfinance empowers poor people todiversify their income sources, meet basic needs, andcope with shocks to their income.

Building Assets. As a result of increased income andthe ability to save and obtain credit through micro-finance services, poor people can gain the means toacquire land, construct or improve their home, pur-chase animals and consumer durables, and create orexpand their businesses.

As a result of increased income and the ability tosave and obtain credit through microfinance ser-vices, poor people can gain the means to acquireland, construct or improve their home, purchase an-imals and consumer durables, and create or expandtheir businesses.

Reducing Vulnerability. Access to financial serviceshas allowed poor households to make the transi-tion from the daily struggle for survival to a finan-cially secure future. Poor households are now ableto send more children to school for longer periodsand to make greater investments in their children’seducation. Increased earnings and access to micro-insurance have also led to better living conditions,which translates into a lower incidence of illness.This has also enabled clients to seek out and pay forhealth care services when needed.

Empowering Women. Most microfinance programstarget poor women, for whom money management,greater control over resources, and access to knowl-edge leads to more choices and a voice in family andcommunity matters. Economic empowerment is ac-companied by growth in self-esteem, self-confidence,

and new opportunities. Women involved in microfi-nance also own assets, including land and housing,and play a stronger role in decision making. Em-powerment has also translated into declining levelsof violence against women.

Measuring the Benefits

The Consultative Group to Assist the Poor (CGAP)cites the following empirical evidence of the positiveimpact on participants in microfinance programs,including improved well-being at both the individualand household levels as compared with those whodid not have access to such financial services:1

� Bangladesh Rural Advancement Committee(BRAC) clients increased household expendituresby 28 percent and assets by 112 percent.

� After more than eight years of borrowing, 57.5percent of Grameen Bank borrower householdsin Bangladesh were “no longer poor” as com-pared to 18 percent of nonborrower households.

� In Lombok, Indonesia, the average income ofBank Rakyat Indonesia (BRI) borrowers in-creased by 112 percent, and 90 percent of house-holds graduated out of poverty.

� In Vietnam, Save the Children clients reducedfood deficits from three months to one month.

� At Kafo Jiginew in Mali, clients who had beenwith the program for as little as one year weresignificantly less likely to have experienced a pe-riod of acute food insecurity—and those that hadhad experienced a shorter period.

HSBC’s Involvement in Microfinance

With significant operations in the emerging marketsand expertise in transactional solutions, and sup-ported by our office network, services, processes,capital, and customer relationships, we are wellplaced to serve the microfinance sector. Our ap-proach to this sector is based on commercial viabilitywith high social benefit, with the aim to create self-sustaining, stable financial services to help peopleout of poverty. We integrate microfinance activities

Global Business and Organizat ional Excel lence January/February 2009 17DOI : 10.1002/ joe

with our local business capabilities rather than as aseparate business line. Our strategy is to concentrateon our strengths and to work with others ratherthan try to build expertise quickly in the short tomedium term. Following pilot projects in 2005,HSBC has engaged more closely with microfinanceenablers and MFIs on the ground to understand theprincipal issues facing the sector, and the findingshave informed and shaped our priorities.

Our strategy is to concentrate on our strengths andto work with others rather than try to build expertisequickly in the short to medium term.

HSBC is currently working with MFIs in Argentina,India, Mexico, the Philippines, Sri Lanka, andTurkey through our operations in those countries.To provide a closer view of our involvement in themicrofinance sector at a country level, the rest ofthis article will focus on HSBC in India, which, inaddition to other initiatives that promote financialinclusion for the poor, offers customized loan prod-ucts to microfinance institutions across the countryto help them provide microcredit to the underservedsegments of India’s population.

HSBC in India and Microfinance

The Hongkong and Shanghai Banking CorporationLimited is one of India’s leading financial servicesgroups, with more than 3.4 million customers and34,000 employees in our banking, investment bank-ing, and capital markets; asset management; insur-ance broking; software development; and global re-sourcing operations. The bank is at the forefront inarranging foreign investments into the country anddeals for Indian companies investing overseas, and itis custodian of more than 40 percent of the foreigninstitutional investments (FIIs) in India, with totalassets under management in India that exceed $5billion.2

Although HSBC in India has 47 branches and 178ATMs in 26 cities, it lacks a branch network andaccessibility in rural areas, where the majority ofIndia’s empoverished population lives. The ruralpoor need a diverse range of financial services, in-cluding credit and safe and flexible savings services,to run their businesses, build assets, stabilize con-sumption, and shield themselves against poverty.However, access to quality financial services in ruralIndia is still heavily inadequate. Eighty-one percentof villages in India do not have banks within a dis-tance of 2 km (1.2 miles); 41 percent of the popu-lation does not have a bank account; and availablecredit in rural areas meets just 10 percent of theactual need.

Microfinance established a foothold in India duringthe 1990s, but this decade has seen rapid growth,with a distinct shift away from a “welfare” modeltoward a “business model” for delivering these ser-vices. (For a discussion of the evolution of micro-finance in India, see the sidebar “Microfinance inIndia: The Journey.”)

HSBC in India started its microfinance activities as apilot and primarily as an experiment to understandthe microfinance space in 2005, and it has comea long way in expanding its microfinance servicesduring the last year. Since it is quite expensive forHSBC in India to provide services directly to therural poor, it lends funds to microfinance interme-diaries, the MFIs that further on-lend the funds tothe ultimate clients. (For a discussion of the types oforganizations engaged in microfinance activities, seethe sidebar, “Microfinance in India: The Players.”)

HSBC in India established a team for microfinanceunder its Commercial Banking division in December2007 and plans to eventually create regional-levelteams to facilitate initiatives in their respective partsof the country. HSBC in India has put in placea clear strategy for FY 2008–2010 for conductingmicrofinance business in line with the overall HSBCGroup Strategy. The key objective of the strategy is


to develop a host of services around a lending port-folio with MFIs that can facilitate capacity building,improve operational efficiency, and bring the bestpractices of a transactional banking business to themicrofinance domain. The approach is to leverageHSBC in India’s footprint, products, and services,generating financial and nonfinancial returns.

The key objective of the strategy is to develop ahost of services around a lending portfolio with MFIsthat can facilitate capacity building, improve oper-ational efficiency, and bring the best practices of atransactional banking business to the microfinancedomain.

The Clients of MFIs

Microfinance clients are a diverse group of peopleand require diverse products. A typical microfinanceclient is a person with little or no access to formalfinancial services. Clients are often described accord-ing to their poverty level—vulnerable nonpoor, up-per poor, poor, and very poor. These clients operatesmall businesses, work on small farms, or work forthemselves or others in a variety of businesses. Someof these microfinance clients are truly entrepreneurswho enjoy creating and running their own busi-nesses. Others become entrepreneurs by necessitywhen there are few jobs available in the formalsector.

In India, as in Bangladesh and other Asian countries,women make up a majority, and sometimes all, ofan MFI’s clientele. Ninety percent of those who bor-row from the MFIs that HSBC in India finances arewomen between 18 and 60 years of age. They wouldtypically be involved in small businesses, includinggrocery, tailoring, embroidery, tea/food stall, trad-ing, and in dairy and poultry farming activities. Theloans are generally used for income-generation ac-

tivities, although there are no restrictions on the enduse—the loans can be used for consumption as wellas income generation.

How MFIs Work with Their Clients

The operating methodology that forms the crux ofan MFI’s service delivery typically involves the stepsdescribed below for setting up new branches andmaking loans.3

Village Selection

A branch manager conducts a survey and selects cer-tain villages with high potential for promoting localclient “groups.” Although loans are made to indi-viduals, a client group is the focal unit in an MFI’sservice delivery model. Peer pressure and collectiveaccountability are strong factors in ensuring a highrate of loan payback. The branch manager then con-ducts a series of meetings in each village to lay thegroundwork for moving ahead.

Group Formation and Training

The branch’s loan officer steps in to help form oneor more groups. Each MFI has its own norm forthe size of a group, with five members being thenorm for a number of MFIs, and each group usuallyselects a leader. The loan officer trains the groupmembers and leaders on the processes and modusoperandi of the MFI, and the responsibilities of thegroup and its members. The training ends with aGroup Recognition Test (GRT), in which the loanofficer and/or a supervisor visits the residences of themembers to test them on the MFI principles taughtduring training.

Appraisal, Documentation, and Disbursement

After successful completion of the GRT, the loanofficer brings the prepared loan documents to thegroup’s next meeting for members to sign. At thefollowing meeting, loans are disbursed. Some MFIswill disburse the loan amounts to all the borrowers


Microfinance in India: The Journey

The microfinance industry as it exists in India today is about a decade old, though one can trace its roots to the mid-1970s, whensome prominent Indian nongovernmental organizations (NGOs) such as Myrada and Pradan started using the Self-Help Group(SHG) model, a platform for social mobilization in which finance is one of the various services provided to the grassrootscommunity. In this community-driven and -managed microfinance model, the NGO plays the role of a facilitator, providingcapacity-building services to the self-help groups and establishing relationships with banks. This approach was widely replicatedacross other developmental NGOs working in India.

Earlier models of lending to the poor were characterized by state-sponsored programs, such as the Integrated Rural DevelopmentProgramme (IRDP), which were in line with the “directed credit” agenda of the welfare state. The emphasis was on keeping thecost of credit to the poor artificially low through interest-rate ceilings, but it resulted in low levels of institutional lending to thissegment. However, the early 1990s saw a definite shift as new players emerged, microfinance institutions and NGOs, whoseapproach has been characterized by an emphasis on access to credit rather than the cost of credit, as was the case earlier.

During the late 1990s, the Grameen model, promoted by Nobel Prize winner Muhammad Yunus of Grameen Bank, and the ASAmodel, promoted by the Association for Social Advancement, both from Bangladesh, found rapid acceptance among the newerbreed of microfinance institutions in India. Known as on-lending models, they have the capability for rapid scaling in terms ofclient outreach, and they are less dependent on grants and donor funds by enabling the microfinance institution itself to borrowlending capital from larger credit institutions and then pass the actual service charge on to its individual borrowers while retaininga margin for its own growth. These models have proven to be robust revenue models and, as such, have spurred the emergence offor-profit institutions (nonbanking financial companies) in the Indian microfinance sector and a slow but distinct trend away fromnonprofit, grant-supported organizations.

In recognition of the importance of providing the poor and near poor with access to needed capital, the Reserve Bank of India(RBI) removed most interest-rate ceilings on microfinance in February 2000. The RBI issued guidelines that deregulated interestrates on loans to microcredit organizations and by microcredit organizations to self-help groups and their member borrowers,which, in combination with the emergence of credible intermediaries such as NGOs and MFIs, made commercial models inmicrofinance possible.

The SHG model, in the form of the SHG-Bank Linkage Programme (SBLP) initiated in the early 1990s by the National Bank forAgriculture and Rural Development (NABARD), and the rapidly growing MFI on-lending model both dominate the microfinanceindustry in India today. Exhibit 1 compares recent microcredit activity under both models. As of March 31, 2008, the outstandingmicrocredit portfolio of the India microfinance industry was about Rs. 220 billion ($4.8 billion), three-quarters of it with theSHG-Bank Linkage Programme (SBLP) and one-quarter with MFIs. Together, both delivery models have reached about 50 millionhouseholds. For 2006–2007, the SBLP increased its number of borrowers by slightly more than 30 percent, extending credit to anadditional 9.6 million individuals, more than 90 percent of them women, and about half of them poor. During the same period,the number of MFI microcredit customers grew even more rapidly, by about 40 percent, as MFIs added an estimated 3 million newborrowers.

As banks and other MFIs gain market share, there is widespread evidence that the stronger competition has led NGOs, publicagencies, and other members of the informal sector of the microfinance industry to significantly improve the terms of credit theyoffer to their borrowers.

Indian microfinance continues to grow rapidly toward its main objective of financial inclusion, extending outreach to a growingshare of poor households and to the approximately 80 percent of the population yet to be reached directly by mainstream banks.

in the group simultaneously, while others will stag-ger disbursements among borrowers over a periodof a couple of weeks.

Depending on the area and the MFI, in the firstyear of a group’s existence, individual members maysecure income-generating loans of Rs. 2,000–12,000


Microfinance in India: The Players

A number of formal financial institutions provide microfinance services in addition to their general banking activities, includingapex development financial institutions, commercial banks, regional rural banks, and cooperative banks. MFIs, however, areseparately regulated according to their status as either for profit, not for profit, or a mutual benefit society (see Exhibit 2), and allare prohibited from taking savings deposits unless expressly licensed by the regulator.

MFIs are mainly found in the private sector. However, in India, the emergence of the NGO sector and its endeavors to providemicrocredit and support to microentrepreneurs has attracted financial support from the public sector—institutions, agencies,ministries, and government departments of the central and state governments that wish to help NGOs extend credit and otherwelfare services to the rural and urban poor, particularly women.a

aThe most prominent of these public-sector partners are Rashtriya Mahila Kosh (National Women’s Fund), the Small IndustriesDevelopment Bank of India, the Housing and Urban Development Corporation, the Housing Development Finance Corporation, theNational Housing Bank, and the Ministries of Agriculture and Human Resources Development (the Rural Development Departmentand the Department of Women and Child Development, respectively).

Exhibit 1. Distribution of Microfinance Activity Among the Primary Providers in India

Number of BorrowersPercent of the Outstanding Microcredit

Portfolio as of March 31, 2008 2006–2007 All Years

SHG-Bank Linkage Programme 75% 9.6 million 41 millionMFIs Large 20% 3 million 10.5 million

Medium and small 5%

Exhibit 2. Types and Numbers of Microfinance Institutions in India

Category Types of MFIs Legal Status Estimated Numbersa

Not-for-Profit MFIs NGO MFIs Societies Registration Act, 1860 or similarProvincial Acts; Indian Trust Act, 1882

400–500

Nonprofit companies Section 25 of the Companies Act, 1956 20–50Mutual Benefit MFIs Mutually Aided Cooperative

Societies (MACS) and similarinstitutions

Mutually Aided Cooperative Societies Actenacted by State Government

200–250

For-Profit MFIs Non-Banking FinancialCompanies (NBFCs)

Indian Companies Act, 1956;Reserve Bank of India Act, 1934

20–25b

Total 650–825c

aThe estimated number includes only those MFIs that are actually undertaking lending activity.bSources: National Bank for Agriculture and Rural Development, 2007, at http://www.nabard.org; and Reserve Bank of India, Report on Trend and Progress of Banking in India,June 2006, which is modified based on current trends.cModified based on analysis of current trends.

($44–262). Loan eligibility increases by an addi-tional Rs. 2,000–6,000 ($44–131) in each subse-quent lending cycle, provided neither the membernor the group has defaulted on any loan. Borrowersrepay the principal at a 12.5–15 percent flat interestrate in equal weekly installments over a period that

usually ranges from 50 to 55 weeks, depending onthe MFI.

Monitoring and Collection

The group has weekly meetings in which an MFIfield worker collects members’ loan payments and


hears members’ reports of how they are using themoney and to what effect. Peer pressure is the ba-sic principle behind group-level monitoring. In caseof any repayment problem or misutilization of anymember’s loan, the other members of the grouptake responsibility for repayment. The loan officervisits the group to make one or more loan utiliza-tion checks during the loan cycle and continues toprovide group training to ensure that the borrow-ers fully understand the processes and report anyaberration to the MFI’s branch office or head of-fice. These checks and balances coupled with thecertainty of a continuous credit line from the MFIensure that the members’ loans are repaid on time.

How HSBC in India Works With MFIs

Success in reaching the poor with microfinance isdetermined by the mission of an MFI and its abil-ity to translate that mission into effective productsand services. Given the renewed focus on social per-formance in designing and delivering microfinanceservices, the expectation is that MFIs will servetheir clients with increasingly appropriate and var-ied products and services.

Given the renewed focus on social performance indesigning and delivering microfinance services, theexpectation is that MFIs will serve their clients withincreasingly appropriate and varied products andservices.

All MFIs financed by HSBC in India are assessed bythe bank’s microfinance (MF) team on principles ofgovernance and operations as well as financial pa-rameters. The MF team not only meets the MFI’smanagement officials and other relevant personnelbut also visits its field operations and branch offi-cials to evaluate their operating methodology, in-cluding group formation techniques, delivery mech-anism, number of clients handled per field staff, and

the like. The team also meets with borrowers to un-derstand their requirements.

As a financial intermediary, an MFI’s ability to man-age a high-quality loan portfolio that HSBC in Indiawill fund is an understandably important concern.Asset quality categorized by delinquency buckets isthus part of the criteria for qualifying an MFI. Forinstance, one of the most common measures of as-set quality is portfolio at risk (PAR), defined as theprincipal balance of all loans in arrear as a percent-age of the overall portfolio. In India, PAR is usuallymeasured for loans more than 60 days overdue, withan industry norm of 10 percent.

Furthermore, the MF team remains in touch withHSBC Group microfinance enablers, lending insti-tutions, private equity players, industry influencers,and thought leaders to keep its members updated onmarket dynamics and trends.

As of July 2008, HSBC in India has partnered withsome of the best-managed MFIs in India. Collec-tively, our MFI partners serve more than 110,000borrowers in 11 states, thus indirectly touching thelives of half a million people. One thing we havelearned from our exposure to these MFIs is thatTier 2 MFIs—midsized and next-generation MFIs—require much more support, both in terms of debtand capital, than large MFIs do. This year we areworking on a special lending program for this groupto support them at an early stage, with the goal of fa-cilitating their growth and thereby enabling them toreach out to even more people who are marginalizedand underbanked.

Capacity Building for Rural Women

Despite the surge in microfinance growth in In-dia in recent years, its rural poor are still under-served and far from “financially included,” with themost poverty-stricken communities outside the am-bit of today’s microfinance charge. HSBC’s visionis to enable the most disenfranchised rural poor


women to rise up the learning curve from “consump-tion borrowers” to “micro-entrepreneurs.” There isalso an imminent need to bolster microlending withcapacity-building activities and investment, with aview toward making the utilization of borrowedmoney more efficient and sustainable in order tocreate visible, high-impact livelihood strategies forthese women.

Toward this end, HSBC in India has engaged in sev-eral partnerships with other organizations to pro-vide financial education and build the capacities ofpoor youth and women so that they can become sus-tained and successful entrepreneurs and participatein the formal economy. These HSBC partnershipsoperate in 18 districts in the two large Indian statesof Maharashtra and Gujarat, and cover more than10,000 rural poor women.

HSBC in India has engaged in several partnershipswith other organizations to provide financial edu-cation and build the capacities of poor youth andwomen so that they can become sustained and suc-cessful entrepreneurs and participate in the formaleconomy.

HSBC Manndeshi Business School for Rural Women

HSBC Manndeshi Business School for RuralWomen, in the Satara district of the western Indianstate of Maharashtra, is a unique multistakeholdercollaboration among communities, the local bank,the local NGO, and a mainstream corporate bank,HSBC in India. Its mission is to equip young girlswho have dropped out of school and women withno or limited formal education with the training andknowledge to run their own businesses.

The school’s extensive curriculum, which is basedon a needs assessment of the local economy andthe market potential therein, focuses on finan-cial literacy, marketing, technical skills, negotia-tion skills, and confidence-building measures. It of-

fers skill-building courses in screen printing; howto make floral bouquets, cotton bags, blankets,leather bags, and blouses; basic sewing and dressmaking; household equipment repair; photo lami-nation; fast-food preparation; basic computer skills;the English language; and career guidance. The busi-ness school creates an inclusive platform through itslocally and culturally sensitive policies: no restric-tions on age, affordable courses, timelines adaptedto women’s needs, confidence-building incorporatedinto all courses, practical knowledge, low start-upcosts for new businesses, and support for productmarketing and sales.

Since its opening in December 2006, the HSBC Man-ndeshi Business School for Rural Women has deliv-ered 17 different courses and trained 5,987 ruralpoor women, with more than 60 percent of themstarting their own businesses. The emphasis on liveli-hood and self-confidence has also had other directsocial benefits for the women, including an increasein daily average income, improved daily meal con-stitution with more nutrition, and enhanced statusand respect within the family and community.

To further the cause of institutional inclusion, HSBChas also established a correspondent banking rela-tionship with the Manndeshi Bank, thus bringingthe rural bank into the mainstream-banking fold.

The combination of microfinancing and capacitybuilding through this multistakeholder partnershiphas enabled many women in the community, suchas Aruna Gaikwad, to become independent en-trepreneurs. Aruna began to invest in her businessas a vegetable vendor, starting with a small loanof Rs. 5,000 ($109) in 2004. With continued in-vestment, including a loan of Rs. 100,000 ($2,200)in 2006, she expanded her business to fruits andbought a mobile phone, which made it easier tocontact and develop customers in nearby towns andvillages. She was soon supplying fruits and vegeta-bles to other market merchants, which increased hertotal weekly sales to 6,000 pieces.


The mother of three and just 30 years old, Aruna isalso now a collection agent for Manndeshi Bank,and she upgrades her business skills by attend-ing financial literacy classes at HSBC ManndeshiBusiness School for Rural Women. Aruna says thatthe marketing module has greatly helped her to pro-mote her business because it taught her about cus-tomer relations and how to sell and negotiate. Herweekly income has increased from an average ofRs. 200 ($4.37) in 2004 to Rs. 1,200 ($26). As fur-ther demonstration of a strong instinct for business,Aruna used her loans to also buy a piece of land,which she later sold for a large profit. For the fu-ture, she plans to build a house and invest in herchildren’s education.

HSBC RUDI Manager’s School

Our work with the HSBC RUDI Manager’s School ishelping create a new economic paradigm of linkingpoor rural producers with local markets, thus en-suring local economic growth and helping catalyzepeople’s purchasing power and a better quality oflife. The promotion of buying/selling of local goodsin local markets to be consumed by local citizensreduces migration of rural people to cities. With ac-cess to sustainable livelihood and hope of enhancedsocial and economical conditions, families can staytogether.

Our work with the HSBC RUDI Manager’s School ishelping create a new economic paradigm of linkingpoor rural producers with local markets, thus en-suring local economic growth and helping catalyzepeople’s purchasing power and a better quality oflife.

HSBC in India partnered with SEWA (Self-Employed Women’s Association),4 to establish theHSBC RUDI Manager’s School, which is operatedby SEWA Gram Mahila Haat in nine districts inGujarat. The school’s objective is to help SEWA

members improve the marketability of their prod-ucts by teaching them managerial and leadershipskills and advanced production techniques, and bydisseminating information on projected supply anddemand.

The school has created many women entrepreneurs,who in turn have benefited their local communi-ties in numerous ways. Among them is ManjulabenBabulal Shah, who lives in Degam village of Patadiblock of Surendranagar district. Manjulaben’s hus-band did some stitching and casual labor as the onlyearning member in the family until he suddenly col-lapsed due to a heart attack, leaving Manjulabenwith five children to look after, the youngest justsix months old. Manjulaben had never worked out-side of the home, and now the entire responsibilityfor supporting the family fell to her. She started do-ing household work in other people’s homes, whichearned her only Rs. 100 ($2) each month, not nearlyenough to feed her children, who would go dayswithout a square meal. Things had become very dif-ficult for her.

Once Manjulaben connected with SEWA, she be-gan to sell to other villagers the products madeby women attending the HSBC RUDI Manager’sSchool. After using her house as a base of oper-ations for a year, her monthly sales now averageRs. 30,000–40,000 ($656–875), which earns hera monthly income of Rs. 2,000–2,500 ($22–55).Manjulaben is able to deposit Rs. 20 ($0.44) amonth in an account as a member of the SEWAsavings group; has purchased insurance, a sign ofher growing financial knowledge; and is now ableto send one of her sons to study at a nearbyschool.

With growing confidence in her business acumen,Manjulaben recently took out a microloan from thedistrict association to purchase and resell cattle feedto other members of her village—feed that helps toimprove the quality and the quantity of milk thecattle produce.


HSBC Water-Based Livelihoods Model

Many development projects tend to separate finan-cial inclusion from environmental sustainability tothe detriment of both goals and the long-term wel-fare of the community. HSBC’s work with SHAREIndia in the state of Maharashtra involves an initia-tive that successfully integrates both goals by em-phasizing water resources conservation and creatinglivelihoods at the bottom of the economic pyramid.The HSBC Water-Based Livelihoods Model seeks torevive the economic livelihood of villages throughrainwater harvesting systems, the formation of self-help groups of women and men, and the creation ofentrepreneurship and agricultural livelihood oppor-tunities.

The HSBC Water-Based Livelihoods Model seeks torevive the economic livelihood of villages throughrainwater harvesting systems, the formation of self-help groups of women and men, and the cre-ation of entrepreneurship and agricultural livelihoodopportunities.

Other Financial Inclusion Initiatives

HSBC in India is also exploring partnerships withvarious government and related agencies to bringabout solutions for financial inclusion to the coun-try’s poor and underserved. In addition, it facil-itates forums and platforms to influence decisionmakers, disseminate sector information, and createa dialogue between policymakers, academia, andindustry representatives. This year, HSBC in In-dia has been instrumental in launching two signa-ture forums in financial inclusion, The EconomicTimes Financial Inclusion Summit and the FICCI5

Conference on Financial Inclusion for SustainableDevelopment.

The Future Focus

In addition to capacity building, HSBC will be look-ing for opportunities to improve operational effi-

ciency in India’s microfinance industry, which is stillin the emerging stage, and bring to it the best prac-tices of a transactional banking business in order tofurther extend its reach to more households withoutaccess to financial services.

Technology will undoubtedly play a huge role inhelping microfinance providers reach new customersand deliver their services electronically for improvedefficiency, accuracy, and increased transparency. Forexample, the explosive growth of mobile phones of-fers an opportunity to profitably bank large numbersof the unbanked. According to estimates, more thantwo billion mobile users live in developing countries,and many of them do not currently have adequateaccess to financial services. Conducting transactionswith a mobile phone can dramatically reduce trans-action costs.

With the objective of greater financial transparencyand transaction efficiency through a technology so-lution, HSBC in India launched an E-dairy cardearlier in 2008 to enhance banking and pay-ment/collection efficiency for milk producers in ruralHaryana (Northern India). HSBC manages the pay-ments between milk producers and the milk federa-tions to whom they sell their products. The digitalE-dairy card makes it possible to automate time-consuming manual payments processing, in turn al-lowing milk producers to receive their payments ina much shorter time. HSBC in India plans to takesimilar initiatives all across the nation.

Conclusion

For any bank or financial services institution, long-term growth is dependent on the manner in whichit creatively accesses untapped markets. HSBC is noexception, and its firm belief in inclusion and sus-tainability, translated into direct support of bothmicrofinance and financial literacy, has helped ruralwomen in India and elsewhere acquire credit andequip themselves with the financial skills and en-trepreneurial know-how to build successful business


platforms that make dignified economic opportuni-ties and self-sufficiency a possibility.

An intervention of this nature at the grassroots levelis an innovative mechanism to propel capital assimi-lation, local entrepreneurship, and economic growthfor entire communities. Such capacity building andintense personal empowerment, as demonstrated bythe case studies of the women in this article, are be-ginning to change sustainable banking at the bottomof the pyramid from dream to reality.

Notes

1. Consultative Group to Assist the Poor, What do we knowabout the impact of microfinance? Accessed on Septem-ber 26, 2008, from http://www.cgap.org/p/site/c/template.rc/1.26.1306.

2. HSBC in India also has a fully enabled and establishedinsurance advisory of international standards. It is one of the

leading players in domestic and export factoring, and one ofthe leading banks for an increasing number of SMEs. Morethan 5 percent of India’s exports and imports pass throughHSBC in India’s banking channels.

3. Shankar, S. (2006). Transaction costs in group microcredit in India: Case studies of three micro finance institutions.Institute for Financial Management and Research, Centre forMicro Finance, Working Paper Series.

4. SEWA is India’s largest movement of more than 700,000self-employed women working in the informal economy in theurban and rural areas of the western India state of Gujarat.

5. Federation of Indian Chambers of Commerce and Indus-tries, India’s premier industry federation.

Pramod Marar is senior vice president and head of microfi-nance and Balaji S. Iyer is assistant vice president of microfi-nance for The Hongkong and Shanghai Banking CorporationLimited in Mumbai, India, and Unmesh Brahme is senior vicepresident of corporate sustainability for The Hongkong andShanghai Banking Corporation Limited in Mumbai, India.


HSBC business model

Documents

Transcript of HSBC business model