Financial Inclusion of

MSMEs

Institute Name: St Francis Institute of Management and Research

Company Name: Barclays
Faculty Name: Dr Smita Jesudasan
Student Name: Movil Mathias
 ECONOMIC PYRAMID
AFFLUENT
200 million people
Earning over $20000 a year
(3% of world population)

MIDDLE INCOME
1.4 billion people
Earning from $2000-$20000 a year
(25% of world population)
LOW INCOME
1.4 billion people
Earnings from $3 to $5 a day
(25%of world population)

Base of SUBSISTENCE
Pyramid 1.6 billion people. Earning from $1-$3 a day
(29% of world population)

EXTREME POVERTY
1 billion people. Earning less than $1 a day
(18% of world population)
THE MISSING MIDDLE

Number of Companies

Finance Availability
 Our Research

Capital First Ltd Capri Global Capital Karvy Financial India Factoring and Reliance Capital
Ltd Services Ltd Finance Solutions Ltd

Loan against Loans available

property Working Capital against
2 wheeler loan Term Loans residential and Business
PRODUCT Term loans commercial Expansion Loans
Business loan property
against property Factoring of Loans against
Consumer / property (Could include receivables and property
durable loans rentals loans for asset payables (import Commercial
Debt Term loans for acquisition, as well as export) property loans
consolidator working capital,
purchase of banking transfer, Commercial
Balance property/ capital composite loans) vehicle loans
transfer assets
programs Gold loans

The asset or The asset or

Collateral is Mortgage on
property which Residential or property which
Collateral usually the real estate, FD
is being commercial is being
charge on asset in the name of
purchased will property/ gold purchased will
for what the IFFS, Bank
be held as as collateral. be held as
loan was taken Guarantees
collateral. collateral
 Conceptual Framework for Banks to Select the MSMEs for Funding
Business Plan

Bureau No
Checks
Yes
Credit Rating
Reject
Scorecard
Model

No
Rating

Yes
Without Revenue Sharing
With Collaterals
Collaterals Model

Accept No

Yes
Prepare Funding
Credit Rating Scorecard Model
• Market Analysis
• Technical Analysis
• Financial Analysis
• Economical Analysis
• Quantitative Analysis
• Qualitative Analysis
Credit Rating
Scorecard
Model
 Basis of Model Selection
Credit Rating
Model

Rating

Rating – 1, 2, 3 Rating – 4, 5, 6, 7, 8 Rating – 9, 10

Revenue Sharing Without

With Collateral Reject
Model Collateral
(collateral/no
collateral)
 Revenue Sharing Finance Model

A) Small A1) Register A2) Prepare A6) Pay A7) Repay

A3) Submit A4) Sign A5) Receive
Entreprene with the project revenue full amount
B-plan legal contract funds
urial client bank B-Plan sharing fees of
investment

B1) Help
B) B2) Post
clients with
Relationship clients B-Plan
preparation of
Manager on platform
B-plan

C5) C8) Receive

C1) C6) C7) Receive
C2) C3) C4) Credit full
Providing Prepare revenue
C) Bank Browse Bureau- scoring Disburse repayment
online legal sharing of invst.
project checks model funds payment
platform contract funds
 Amount asked for funding

With Collateral Without collateral

Maximum loan size and duration progression

Ladder Loan Amount Duration Allowed
Amount asked for funding will be (months)
equal to 1 1L - 4.99L 3-12
Collateral value – Haircut 2 5L - 9.99L 6-24
(depending upon the value
collateral presented) 3 10L - 14.99L 12-36
4 15L - 19.99L 24-48
5 20L - 29.99L 36-60
6 30L - 39.99 48-78
7 40L - 50L 60-84
 Revenue Sharing Rate
F=The entrepreneur’s requested funding Interest Revenue Sharing Rate
Rate
amount = ₹ 20 L
Per annum Per month
M= The entrepreneur’s total projected revenue
10% 2.3% 0.2083
during the investment duration = ₹ 80 L
12% 3.0% 0.25%
r=the equivalent annual interest rate on the
funding amount = 10% p.a 14% 3.5% 0.29%
16% 4.0% 0.33%
S = revenue sharing rate
18% 4.5% 0.37%
S=F/M*r (p.a)
20% 5.0% 0.41%
S=F/M*r/12 (p.m) 22% 5.5% 0.45%
S=20L/80L*10% = 2.5% (p.a) 24% 6.0% 0.50%
S=20L/80L*10%/12 =0.2083% (p.m) 25% 6.25% 0.52%
 Terms of Repayment

Measures taken when

Repayment schedule & Consequences of client default on
Financial Reporting Rules delayed repayment payment

Actual Start-up – 1 year

Revenue>=Projected Grace Period
Revenue

Other Purposes –
Actual 6 months
Revenue<Projected Early Repayment
Revenue
Revenue Structure Analysis
On the Revenue Side, assume that:
N = Number of successful funding transactions per year
A = Average amount per funding transaction= Rs. 20,00,000
fa = annualized rate of Funding Fee (FA fee above) = 10 % per year on funding amount
fd = rate of Funding Fee per funding duration = 30% per funding amount (per funding duration)
Rs=Revenue sharing rate
Pr= Projected returns on funding amount
Fr = Registration fee = Rs 2400
Fc = Legal fee (contract) = Rs 3200
Ft = Translation fee = Rs 1600
Fo = Other fees = Rs 1000
Total Annual Revenues = A*fd*N + [Fr+ Fc + Ft+ Fo+(Pr*Rs)]*N
= Rs 6,00,000 * N + Rs 2,08,200* N
= Rs 8,08,200* N
Cost Structure Analysis

On the Cost Side, assume that:

Ca = annualized amortization of start-up cost = Rs 7,30,000
Cr = annual office rental expenses = Rs 18,00,000
Cs = annual salary expenses = Rs 30,00,000
Cw = annual website maintenance costs = Rs 7,84,000
Co = other costs = Rs 10,00,000
Crm = annual relationship managers fees = Rs 30,00,000
Annual fixed Operating costs= (Ca + Cr +Cs + Cw +Co+Crm)
= (Rs 103,14,000)
Break Even Analysis

At Break-even Point:
R=C
Rs 8,08,200*N = Rs 103,14,000
N = 13
S = The Break-even Sales, or the total amount of successful funding
S= A*N = Rs 20,00,000 * 13 = Rs 2,60,00,000
 Auditing Rule & Reward – Punishment Function
Cases Incentivised report decision Pay out by entrepreneur Reward
ya> ye Ya (incentivised by reward) Sye + S/2(ya-ye) Honesty recognition ,
faster move to next
investment size.
Ye (still acceptable by Sye
investors)

ya=ye Yr=ya=ye Sye

yr=ya<ye (honest Report ya and audit Sya+3/4A Platform takes care of

intension) 1/4A

yr<ye(fraudulent With significant prospective Sye

intention) punishment if continue to
ya<ye or ye<ya audit:Sya + A + β(ya-yr)
eventually report ye or ya
(most likely which is lower); so
no audit
Thank You!