Building Bridges Between the Poor and the Banking System: A Study of Sanghamitra Rural Financial Services
This paper presents a case study detailing the formation, growth and strategies of Sanghamithra, a financial intermediary company in India. Justifying the formation of Sanghamithra, the author lists the following conditions:
- Encouragement of a default by the banks and the state;
- High transactions costs because of small size of loans;
- Urban orientation of banks;
- Failing linkage between poor and agencies supplying credit.
The paper traces the systemic conflict and dichotomies between the stated objectives of Sanghamithra, its intentions and the existing regulatory framework during the period between its incorporation and beginning of its operations.
The paper analyzes the strong portfolio built by Sanghamithra and lists the reasons for its strengths:
- Systematizing the process of identification of customers;
- Simplifying the procedures for loan allocation, documentation and delivery;
- Simplifying the products and repayments.
Analyzing the impact of the success of Sanghamithra on the banking sector, the paper enumerates the future plans of Sanghamithra:
- Pursuing growth in existing areas, deepening credit and continually linking with banking system;
- Achieving growth in size by ploughing back profits into training and development;
- Leveraging and borrowing more aggressively to deepen its outreach;
- Diversifying geographically by moving to other areas.
The paper concludes by analyzing the regulatory framework for microfinance and highlighting the implications of the Sanghamithra model for scaling up and replication by other organizations.
