SBI's Microfinance Initiatives

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Case Details:

Case Code : FINC043
Case Length : 17 Pages
Period : 1995-2005
Pub. Date : 2005
Teaching Note :Not Available
Organization : SBI
Industry : Banking
Countries : India

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"A lot of directed lending is indeed wastefully and hugely inefficient. But microfinance is a form of directed lending that greatly improves efficiency. This is hard-nosed economics, not the bleeding-heart variety." 1

- Swaminathan S Anklesaria Aiyar, Consulting Editor, Economic Times in 2004.

"SBI in India, with 13,000 branches, is reaching down by acquiring the portfolios of dozens of microfinance institutions." 2

- Elizabeth Littlefield, CEO, CGAP3 and Director, World Bank in 2005.


State Bank of India (SBI) is the largest commercial bank4 in India. The Sakoli agricultural development branch of SBI in Bhandara district, Maharashtra was in deep trouble in mid 1990s as the branch could not recover the loans disbursed to the farmers in 15 villages.

The farmers were unable to repay the loans due to the failure of crops. SBI decided to close the branch. The branch manager visited these villages and persuaded a few of the villagers to form Self Help Groups (SHGs)5 by explaining them the benefits of SHGs and the process of saving certain amount of money every month. After a lot of persuasion, the reluctant villagers formed an SHG. After the SHG was formed, the villagers, who in 1995 were finding it difficult to save even Rs 5 a month, were individually saving Rs. 500 per month by 2005. In a span of a decade, the 15 villages, with a predominant farming community, had changed for the better. The SHGs had borrowed Rs 500,000 to buy tractors.

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According to Chandan Jamdage, the manager from SBI who started the microfinance initiative in these villages, "When a SHG comes together, they save small sums on a regular basis.

The process gradually builds financial discipline. They also learn to handle resources of a size beyond their individual capacities. The SHG members begin to appreciate that resources are limited and have a cost. Once the groups shows mature financial behavior, the bank feels confident about giving them loans."6 Linking banks and SHGs has become one of the largest and fastest growing microfinance7 programs in India. In March 2005, microfinance reached 1.43 million SHGs with 21 million members, making a difference to the lives of over 100 million poor people in the country. SBI was the largest player in the microfinance sector in India and financed more than 300,000 SHGs as of March 2005...

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1] Aiyar, Swaminathan and Anklesaria, S., "Put Some Loose Change on the Table," The Economic Times, September 01, 2004.

2] "Microfinance - Where We Are Now: And Where We Are Headed," Based on Remarks Made at the International Year of Microcredit and Georgetown University Conference on Microfinance, Washington DC, April 19, 2005.

3] CGAP is a consortium of 28 public and private development agencies working together to expand access to financial services for the poor in developing countries.

4] SBI is the largest bank in India in terms of assets, net earnings and market share. As of March 2005, SBI operated through 9102 branches in India. Internationally, SBI has presence in 28 countries, where it operates through 54 branches. SBI along with 4665 branches of associated banks held 25% share in the Indian banking sector. As of March 2005, SBI commanded 18% share in total deposits and advances, 35.63% share in foreign exchange business, and 60% share in government transactions which include receipts and payments on behalf of the Government of India.

5] An SHG usually consists of 10-20 people belonging to a homogeneous class. These people come together to address their common problems. They voluntarily save on a regular basis and use the pooled money for lending to the members of the group at nominal interest. After the group builds up credible financial discipline and credit history, banks provide them bigger loans without any collateral security at market interest rates.

6] Sulekha, Nair, "Every Drop Counts," Financial Express, August 07, 2005.

7] Microfinance is provision of thrift, credit and other financial services and products of very small amounts to the poor in rural, semi-urban or urban areas for enabling them to raise their income levels and improve living standards (


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