Microfinance at BNP Paribas : where Ujjivan proves highly effective!

15.06.2016

Can a microloan of a few hundred euros, granted to a beneficiary in an emerging country, have a life-changing impact on a person and their family? The answer is a resounding yes according to an independent study conducted by the (IM)PROVE association, made up of a group of HEC business school students, which focused on customers of Ujjivan, an Indian microfinance institution (MFI) financed by BNP Paribas.

Ujjivan: financial services dedicated to women from disadvantaged backgrounds

Ujjivan is one of BNP Paribas’s partners in India and looks to help poor women living in urban or semi-urban areas. Its mission is to deliver accessible financial services to women from disadvantaged backgrounds and who face a significant lack of resources despite being part of the workforce. The institution chose this group because women still face systematic discrimination in India: many are exploited and few manage to secure paid work.

Created in 2005 in Bangalore, the structure is now based in 24 Indian states, with 423 branches, and supports small projects likely to have a strong impact on communities. Ujjivan also leads a financial education program called Diksha alongside its microfinance activity.

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Detailed and independent impact analysis

Over the course of a year, students traveled to three continents to evaluate the social impact of various projects, actions and organizations. Throughout their trip around the world, they assessed Ujjivan’s efficiency across three key areas:

Financial autonomy offered to its beneficiaries (rise in income, improvement in standard of living, empowerment)
Social reinforcement (their place within the community or home)
Skills development (setting a budget, managing debt and savings, taking responsibility for a group, etc.)

To do this, the authors of the study met with 163 customers from Ujjivan’s eight agencies in Bangalore. The study helped measure the Indian MFI’s strong and positive impact!

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Daily life improves noticeably

The study demonstrated that customers use their loans for two main reasons: boosting working capital for their small business (41%) or their home (30%). Next came education, investing in their business, unplanned expenses, etc.

Most impressive were the positive results, with 82% of homes seeing their incomes rise since receiving their first loan from Ujjivan and 73% now able to save money every month. The money also helps improve schooling (with a higher average dropout age for their children). Microcredit has delivered on its promise: enhanced quality of life for the entire household, better integration, and more.

Developing non-financial services

Ujjivan’s financial education program has also proved just as effective with 77% of beneficiaries stating that they put the lessons they learned in practice in the context of their own business. These new skills also benefit the entire neighborhood: 86% of customers say they share their knowledge with friends and family, especially when it comes to budgets and monthly savings. Unfortunately, only 37% of customers have benefited from this program, which offers a significant edge in terms of integration and also benefits the community at large.

MFI financing: a highly structured process at BNP Paribas

At BNP Paribas, microfinance involves an especially rigorous financing process, from selecting an MFI to monitoring its actions. The goal of this meticulous approach is to guarantee the impact of the MFI and its operation in a transparent manner, while eliminating risks (including financial risks, as well as those of improper use, money laundering, etc.) and providing long-term support.

Financing is originated after a detailed study phase, based on eligibility criteria, combined with a country risk analysis and an on-site visit.
A local BNP Paribas correspondent is appointed and the characteristics of the credit line are negotiated.

A comprehensive analysis of risks associated with the MFI is performed: organizational, financial, social performance, etc.
Once the financing is accepted, a compliance procedure is put in place, which requires approval from the country manager. A credit committee is also formed to analyze each request.
Continuous follow-up is then set up, including quarterly reports and permanent contact with the local BNP Paribas entity.