Spandana Microfinance: Surviving the Crisis|Finance|Case Study|Case Studies

Spandana Microfinance: Surviving the Crisis

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Case Details:

Case Code : FINC087
Case Length : 12 pages
Period : 2010-2013
Pub. Date : 2013
Teaching Note : Not Available
Organization :Spandana Microfinance
Industry : Microfinance
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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Background Note

The impetus for setting up Spandana came in the summer of 1997 in Guntur Town in Andhra Pradesh, when a team of employees (later Spandana’s startup team) working for a Non-Government Organization (NGO) called ASSIST saw a rag-picker going from house to house with a pushcart to buy used household items. Despite all her efforts, she was able to provide only one meal per day to her family. Spandana’s startup team noticed that this was mainly because of the exploitative rent she needed to pay every day for the push cart.

Spandana's startup team realized that she could have bought a lot of such carts with the rent she was paying over a period of time. But she couldn't afford to buy even one cart as she did not have access to cheap loans. Banks would not lend her money as she could not prove her credit history and the interest rates charged by moneylenders were too exploitative. Under these circumstances, it was very likely that she would have spent her whole life paying a rent for the push cart. The entrepreneurial vision of Spandana’s startup team made them lend her a small amount of money on the promise that she would repay it spread over a period of time. The rag-picker bought a new cart, saved some money on the rent she had been paying earlier for the cart, and repaid the loan to Spandana’s startup team promptly. She also improved her standard of living and could afford better meals for herself and her children. They evaluated a lot of proven global models in Microfinance and came out with their own model, which they thought would work under the conditions prevailing in the domestic market. The team collected some money from friends and family members and, under the leadership of Padmaja Reddy, started their operations through their NGO called Spandana in 1998. The first capital of Rs 50,000 for the NGO came from the personal savings of Padmaja Reddy. Spandana in Telugu , the language spoken in the state, meant ‘Responsiveness'. In the context of the Microfinance institution, it meant responsiveness to the credit needs of the poor and marginalized sections of society.

Spandana faced a lot of difficulties in raising funds from banks and financial institutions in the initial days of its operations. Hence, it turned its attention to alternative developmental programs focused on the poor like affordable healthcare, nutrition, sanitation, etc. Much to the surprise of the start-up team itself, Spandana achieved break-even in the very first year of the formal start of its operations despite the odds. By the year 2000, Spandana had crossed its first milestone by disbursing Rs 10 million worth of loans to about 2,000 clients. Spandana's startup team had to mostly rely on the support of friends and family members to raise funds for its operations as banks were still wary of lending to Microfinance institutions with an unproven track record...

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