Imagine building a business plan by combining a love for travel, desire to see development in villages, financial acumen and college friendships. That’s what three students at the Institute of Rural Management, Anand (IRMA) did in 2001. Deepak Alok, B Atul and Rajeev Kumar used to discuss how market forces could aid development. One compelling area to look at was the fledgling industry of microfinance, banking for the marginal sections of the society. It was not yet mature, but had all the ingredients of any mainstream industry, they believed.
A college project on rural finance and insurance convinced them that there was a need for professional intervention to take banking to the excluded masses. Next year, Mr Alok and Mr Kumar joined a microcredit ratings agency after graduation. One of their colleagues, Rahul Bist, another MBA from the Indian Institute of Forest Management (IIFM), shared their belief on the potential for microfinance. After years of preparation, the three friends and Mr Bist quit their jobs and joined hands to pursue their financial dream.
When lending and providing insurance to villagers and low-income groups was a marginal activity, the team went one step beyond and started a microfinance advisory firm. Initially, they worked out of home. “We started with our own savings and reinvested almost all our revenues. Our start-up capital was extremely small,” says Mr Alok. Microfinance Management and Investment (M2i) Consulting came into being in March 2006 and quickly landed a client in ESAF, Thrissur. The start-up advised ESAF on capital structure and conducted training. The success of the first assignment was noted and ICICI Bank soon signed up as a customer.
Travelling to villages and interacting with local people is a perk in the job, the four seem to believe. For instance, the ICICI Bank contract involves going to a remote district in Orissa to assess the bank’s local partner. This perspective of grassroots Indian economy may not be available from most business ventures. “We have to travel a lot and that makes the job more exciting,” says Mr Bist. “It is very important for us to understand their livelihood, their income stream and their mindset to develop products or to consult MFIs.”
The company got its first international assignment from Microfinance Investment and Support Facility for Afghanistan (MISFA). M2i assessed the financials of an MFI called Parwaz, which later became its client. More projects came from southeast Asian countries and the team had to travel to places like Indonesia, Philippines and Cambodia.
Today, M2i’s client list includes Rashtriya Grameen Vikas Nidhi (RGVN), Sadhan, Development Alternatives, ESAF, Cashpor, BISWA, Nirmaan Bharati and Appropriate Technology India (ATI). M2i trains and provides support and management consultancy to MFIs. It also helps these institutions in designing products for their clients — the villagers who borrow money from these MFIs.
Microfinance institutions often find raising capital a difficult proposition, given that the rural banking mechanism is unfamiliar to most investors, including private equity and venture capital firms. Making money in microfinance is itself a challenge and providing corporate advisory services could have been even more so, but M2i navigated through the early difficulty of winning clients by leveraging the prior contacts the partners had. “Initially, we were apprehensive, we weren’t sure how it will work. But, we had the confidence that it was all that we wanted to do,” Mr Bist says.
The company, which now employs 11, has made profits from the first year of operation in 2006-07. It had a revenue of about Rs 15 lakh in the first year and Rs 40 lakh in the nine months of the current fiscal. It has a profit margin of 10%.
Entrepreneurship makes you an all-rounder, feels Mr Alok. Initially, he had to do everything from writing the books of accounts to ensuring numerous regulatory compliances and most of his time was spent on them. “But, it’s only when you go through this experience that you realise how very discouraging complex regulatory requirements can be for a start-up. Thankfully we now have fairly standardised and streamlined systems.”
The team has never regretted leaving their jobs to start on their own. “It feels great to be a decision-maker. Believe me, it’s quite exciting,” says Mr Bist.