Expanding Financial Services Access for the Poor: The Transformation of SPANDANA

The paper traces the evolution of Spandana group of institutions. At the outset we explore the background of Spandana, the motivation for the promoters to set up the organisation and how it has aggressively grown from the time it was set up. The organisation reached a stage where transformation became inevitable and this change happened in a very quick time. As a part of the study, we examine the unique issues arising out of fund movement (in the form of debt or equity) between an organisation incorporated for public purposes and a for-profit entity that would generate profits to the shareholders. The paper examines how these two seemingly contradictory aspects could be reconciled. The structural options available and how they jell with the orientation of the promoters are examined. We examine how the organisation has experimented with various options in carrying out its financial services and trading activities. We conclude that while the current legal environment did place some constraints on how the organisation’s design got determined, there were issues about the quality of governance available to the organisation during its initial years. Spandana demonstrates that there is a huge potential for many MFIs to operate both in the urban and rural space. The fact that it could garner a portfolio of Rs. 2.4 billion in a fairly limited area and time demonstrates the size of the potential market that could be served by microfinance. In undertaking activities at such scale, any organisation would face hurdles. This paper looks at the hurdles caused by the regulatory regime that forces organisations to take fairly circuitous routes to achieve obvious results in the organisational form. It also deals with the other services that were being offered by Spandana and how these had to be dropped due to regulatory requirements. The study concludes by drawing important lessons, raising further issues for regulation by bringing out the peculiar circumstances in which Spandana and similar organisations are working.