Airtel Marketing Strategy

.MARKETING STRATEGY ADOPTED BY BHARTI Bharti has spent a considerable amount on advertising its mobile phone service, Airtel. Besides print advertising, the company had put up large no of hoardings and kiosks in and around Delhi. The objective behind designing a promotion campaign for the ‘Airtel’ services is to promote the brand awareness and to build brand preferences. It is trying to set up a thematic campaign to build a stronger brand equity for Airtel. Since the cellular phone category itself is too restricted, also the fact that a Cellular phone is a high involvement product, price doesn't qualify as an effective differentiator. The image of the service provider counts a great deal. Given the Cell phone category, it is the network efficiency and the quality of service that becomes important. What now the buyer is looking at is to get the optimum price-performance package. This also serves as an effective differentiator Brand awareness

Commercialization of Microfinance in Bangladesh Perspective

S M RahmanDirector, CDFDhaka, Bangladesh

Introduction

The emergence of the microfinance industry in Bangladesh presents a tremendous opportunity to extend financial services to the vast majority of the poor people. Indeed, about 50% of a 128 million population are reckoned to live below the poverty line. Ironically, commercial banks in the country typically serve no more than sixteen percent of the population. The remaining populace historically does not have access to formal financial services, yet this non-traditional market is enormous. In the last twenty years or so, the NGO-MFIs have greatly modified the Grameen Bank's methodology and devised appropriate financial service technologies to serve the poor people. Among them, a few organizations demonstrated splendid success and have become known worldwide.

Market, Products and Prices

The microfinance industry in Bangladesh consists of NGOs, cooperatives, public sector programs and the Grameen Bank. The country is now teeming with more than 1000 microfinance NGOs. Each and every NGO has taken up microfinance as a core activity. The NGO led market consists of segmented markets and is seemingly characterized with monopolistic competition with a few large actors having preponderance. In essence, these are captive markets as the buyers of services remain in the domain of a particular NGO and find it difficult to exercise their free choices due to methodological reasons. Many

people maintain that there is a need to review whether microfinance programs should be separated from other development programs and conducted independently. Again, if we critically look at the supply side, we see that the donors' grant money is on the wane. Banks are moving at snail's pace though a little bit faster than in the past. PKSF being a major funding agency does not also find it easy sailing with the small NGO-MFIs. In fact, the savers deposit is playing a considerable role in augmenting the volume of credit. It is proven that the poor people are willing to save more and are indeed saving in a number of ways. But what has been lacking as of now, is the opportunity to allow the microclients to save in a way that will help them to meet their current needs and at the same time to save for tomorrow. Savings is growing over time and clearly there is a huge savings potential. But the clients need quality saving services and dependable organizations to save with. On the other hand, demand for money to provide as credit is also increasing. Against this backdrop, many NGO-MFIs having been mature, will eventually feel the need to enter the formal financial system to fund their growth and provide diversified financial services as demanded by their target markets. The NGOs are now in a state of uncertainty in the absence of a regulation and fear to take any new risk of providing the needed services. A microfinance friendly regulation is, therefore, required to facilitate these services.

Available statistical data up to December 1999 posit that, currently all microfinance programs cover 100% poor households, representing about 13 million in the country. The NGOs have saved Tk. 6,922 million and have loans outstanding of Tk 18,692 million. The Bangladesh Rural Development Board (BRDB) and the Ministry of Youth sponsored programs have outstanding loans of Tk 2,337 million. The Grameen Bank clients have accumulated savings of Tk 9,676 million and have outstanding loans of Tk 13,724 million. While the aggregate picture shows that microsavings constitutes 3% of the total sectoral savings and microcredit contributes to 6% of total sectoral advances made in the financial sector. It is gathered that huge overlapping is occurring, particularly among the big microfinance NGOs as well as the Grameen Bank. Overlapping is said to occur, when an NGO client receives loan from more than one source. No one really knows its extent. There are a number of factors why it occurs. Inadequacy of loans is learnt to be a significant factor that compels a client to go beyond the periphery of an institution for hunting larger loans. Who is to blame? Have we ever seriously thought over this issue? In fact, none should be blamed. One of the reasons may mean that the financial needs of the clients and the capacity of the creditors is a mismatch and is, therefore, resulting in a gap. Overlapping, therefore, may have inflated the outreach figure so high. In reality, the coverage of poor households will be much less.

Albeit, there are no remarkable promotional measures for boosting microfinance, efforts are seen ever stronger than in the past in mobilizing local resources by bringing in various savings and credit products. The savings products of NGOs now include daily savings, mandatory savings, voluntary savings, forced savings, contractual savings, and time deposits. The NGOs are also trying to become more responsive to the demand for credit facilities. Over time, the credit products have been diversified. Today there exists more than 15 credit products including daily credit, leasing loans, housing loans etc. Normally, the loan ranges from Tk 1000 -15,000 for one year. The average loan size is Tk 3500 ($70). Organizations providing loans above Tk 3000 is very few. Only a handful of organizations can adequately support the real needs of their clients. The clients opine that the money that is given as credit falls far short of the actual need. This means that the market can absorb more. Microfinance is supposed to play an upbeat role by undertaking various income generating activities. Field experience, however, suggests that 30-40% of loans given for income generating activities are not used for actual purposes rather these were used for consumption needs. It transpires that microfinance tends to play the role of traditional financial service instead of being an effective tool of poverty alleviation. This may be substantiated by the findings of a recent study (a sample of 1798 households) that 1% of the population can lift itself from poverty each year through microfinance programs. Insurance product is also available in the market that appears in various names and has different mode of applications. Technicalities in designing the product are not taken into account. Mere rule of thumb is being used in premium setting. It covers mostly the risk factor due to death of a client. In some cases, livestock is insured and claims are partly met for the death of animals. According to a sample of 524 NGOs surveyed shows that 15% NGOs have some kind of insurance practices.

Again, the NGO-MFIs practically do not determine product costing judiciously be it savings, credit or insurance. They just set the prices on the basis of on-going prices and practices without looking at its cost of operations, cost of fund and other germane factors. Statistical data shows that about 52% NGOs provide interest on savings @ 6-7%, which is a little less than the commercial banks do. There are, however, a few who provide more. There are also some, who promise to provide interest on normal savings, if the clients do not withdraw money before a specified period of time. But if they do, they are denied any interest. The loans carry interest @ 11-15% in flat method. About 81% NGOs apply this method. Some experts uphold the view that loans to the informal sector require interest rates at least 7-10% higher than the standard commercial rates, as they think the cost of operations to be higher due to inherent nature of microfinance program.

Clients of many NGO-MFIs are heard to grumble that they seize poor people's savings in the name of insurance, risk fund, levy, group fund etc, which are scarcely refunded. According to the clients, this practice is not wholesome as it goes contrary to their interest. As a matter of fact, there seems to have a strong necessity for reversing the practice and making it customer-oriented to cater to their needs. A general feeling, among many, is also that these tiny clients' innocence and indigence should not be taken as advantage in raising fund. This circumstance suggests that customer service indeed should be the motto of all NGO-MFIs and therefore underscores the necessity to maintain the probity of this service in the industry. Given the present circumstances, what is imperative is that the market has to be expanded in terms of business volume by bringing a larger number of people within its fold through competitive services. Mere increase in the number of NGO-MFIs will only bring about throat-cut competition among them, which will plausibly lead to sharing of the limited market. This may not be, however, a desirable situation. As microfinance industry in the country is growing and evolving, new issues are constantly coming to the fore. The role of marketing in microfinance institutions is one such vital issue that had been ignored hitherto. While the focus of so many institutions has always been to give loans and get them back, very little circumspect effort has been put into this subject.

Social Mission and Commercial Strategy

NGO-MFIs in Bangladesh are not professionally very cost-conscious and hardly cast their eyes on the matter. Financial data of these organizations are not readily available as these are seldom produced and analyzed. They tend to remain within the bounds of social objectives - a kind of complacence, which is being seen among many. In fact, NGO-MFIs have both social mission and commercial motive. For a microfinance program each complements the other. Social mission assumes that more and more poor people should be covered and continuity of the service should be maintained through plough back of the recovered fund. The commercial sector producing goods and services has also socio-economic mission (in terms of employment generation, contribution to GDP and export earnings) as well as commercial objectives. They too are working for the welfare of the people satisfying their needs regardless of who are rich or who are poor. Social mission of NGO-MFIs also means, they will go to the doorstep of the poor people with appropriate financial services with a view to eradicating poverty. While doing these, they will have to pursue commercial strategy meaning covering full cost recovery with a desired capitalization. Indeed, the NGO-MFIs should follow the aforesaid two things by striking a balance for having the desired outreach and sustainability.

However, unless there is any fair competition, delivery of financial services will never improve and the needs of the poor clients will always remain unmet.

Commercialization of Microfinance

In view of the foregoing, strategic emphasis should be given on commercialization by the NGO-MFIs. In fact, the article attempts to focus on the issues of microfinance NGOs. The term "commercialization" in the microfinance industry of Bangladesh is relatively a nascent idea and has understandably wide ramifications. This concept is also gradually gaining ground in some other developing countries of the world. Chiefly, it tends to treat the poor as clients rather than as beneficiaries. It conceives the microfinance market not as segmented markets but as the integral of part of the country's total monetary system. It takes into view of healthy competition through product differentiation that encompasses the practice of marketing by launching new products. On the other hand, grant money that has zero cost, is not perceived favorably by many small potential organizations in the country as it distorts market competition. Anyway, microfinance is considered as a business and there is every justification to look at it from commercial angle. Notably, forty percent of a large sample of 533 NGO-MFIs surveyed recently shows that they have received grants from various donors for operating microfinance programs. Of the aforesaid figure, about thirty five percent has also received concessionary loans. There may be a commonality, however, between the grants and soft loans recipients. This advantage of grants and soft loans received by a segment of organizations may put the majority NGOs in a precarious position in pricing their loans. As a result, maximum number of NGOs will enjoy a very thin spread, if the grants and soft loan culture continues. Under the circumstances, the donors should ponder to review their policy of providing grants. The donors may rather come up with alternative ways of financing. This will consequently invigorate commercialization and help expand the microfinance market. This commercial approach also argues for the delivery of services at a scale and cost commensurate with the needs and ability of the market for which it is intended. People are indeed willing to pay full cost for a service they value. This is the universal text of value in market-based economy.

Market Competition

The present chemistry of microfinance technology reveals that it is poised for a transformation. The fact is amply manifest in the evolving microcredit theme, product diversification, overlapping, huge uncalled for consumption loans, individual loans, enterprise loans, savings collection from non-members and

highest frequency of prevailing interest rates. All these are clear syndromes, which tell us that the situation is moving somewhere. The system does not any longer like to follow the traditional discipline. On the contrary, microfinance practitioners are not seemingly prepared for commercialization but the situation is pushing them towards it, beyond their knowledge. There is no alternative to commercialization as it is the crux of competition. Competition here refers to the vying for market share among the financial intermediaries that are targeting a market comprising customers having similar needs or wants. Meeting customers' needs is not always sufficient to perform well in the market. Other competitors may be competing for the same customers with need satisfying marketing programs. Clearly, to be successful, the organization's marketing strategy must meet the customers' requirements. But a marketing strategy must also meet another, often more difficult challenge. The organization must effectively position itself against competition within the industry. Thus the essence of planning a marketing strategy is to find ways of effectively positioning one's organization against competition in the mindset of the customers. This, in other words, is to build an edge against the competition. In fact, the effectiveness of marketing programs depends on the reaction of both customers and competitors. Understanding of one's customers is not always enough. Knowing one's competitors is critical to effective marketing planning. An organization should constantly compare its products, prices, promotion and channeling of services with its close competitors.

As things stand today, microfinance NGOs seem to be driven by mere social commitment to combat poverty and generally they overlook the necessity to develop a progressive financial sector. Their philosophy seems to be deeply rooted in traditions of social mobilization. Despite this fact, the scale and performance of the microfinance sector is slowly approaching the banking system. It therefore necessitates these institutions to be looked at in a more market-oriented perspective. Everybody knows that banks charge interest on declining method, which generates an interest amount, almost half, compared to the flat method applied by the NGO-MFIs for their microclients. Nevertheless, if the banks become more enthusiastic in lending to the microclients directly (a possibility that cannot be ruled out) through a superior methodology, then the cutting edge of the NGOs may be lost. The bankers after all will not require much time to acquire mastery over microfinance, if they really choose to do so. Compared to many places in the world, our banks are lagging behind. In fact, the banks have certain advantages as well. They are regulated institutions. Many have extensive physical infrastructure from which to expand and reach out to a substantial number of microfinance clients. Banks have well established internal controls and administrative and accounting

systems to track large number of transactions. Bank ownership structures that include private capital tend to encourage sound governance structures, cost-effectiveness and profitability, all of which will lead to sustainability. Banks can rely on their resources of funds, deposits and equity capital and do not have to depend on scarce and volatile donor resources. They can offer a complete line of products, which are in principle attractive to a microfinance clientele. There is no doubt that the coming days ahead will be tough days for survival, unless prepared beforehand to face the reality. The NGO-MFIs will henceforth have to bear in mind that they will not merely compete with themselves but also with other significant actors in the whole industry. None should be afraid of competition. Competitiveness is a pre-requisite to remain in business. Competitors can be a resource rather than a threat; an NGO-MFI can adapt and /or improve on a competitor's product. Macro level economic factors viz. high inflation, demographic trends as for instance urbanization, environment factors such as natural disasters, and technology change can also create a demand for new products.

Market Share of Three Leading NGO-MFIs

An analysis of some selected statistical data of last three years of three large NGO-MFIs viz. BRAC, Proshika and ASA reveal that BRAC and ASA have increased their market share (in terms of active membership) that rose from 36.6% in 1997 to 38.3% in 1999 and 12.4% in 1997 to 14.8% in 1999 respectively. While this figure has slightly fallen from 22.4% to 18.2% in case of Proshika. It is noticed that the market share (in terms of net savings) of BRAC has plummeted from 51.7% to 41.91% during this time. ASA also registered a slight fall from 21.3% to 18.3%. This means that BRAC and ASA are both losing market share (net savings) despite an increase of membership. While this picture is a little bit different in respect of Proshika. It registered a slight rise from 9% in 1998 to 10.5% in 1999, which implies an increase in its market share. In terms of portfolio (the largest current asset), BRAC and Proshika both experienced decline from 38.5% to 36% and 21.9% to 19.7% from 1997 to1999 respectively. While, ASA has slightly gained from 16.4% to 17.4% during this period. The performance reveals that both BRAC and Proshika are losing markets. This simple analysis tells us that performance of the three bigs has begun oscillating. In fine, BRAC is losing markets in savings as well as portfolio. Proshika is losing market in portfolio and making a slight gain in savings. ASA is losing market in savings and making a slight gain in portfolio. The picture shows that increase in membership did not have any bearing on the volume of savings and credit of these organizations. The absence of a marketing drive is indeed conspicuous from this little scenario.

Customers' Feedback and Analysis

Becoming more tuned and responsive to the client needs is a critical part of an NGO- MFI's methodological evolution, financial viability, institutional soundness and social impact. For these reasons, marketing research has to be pursued and new product ideas should be explored surveying customer needs, reacting to demands from clients, or actions taken by competitors. This is the basis of drawing a marketing plan and should be the way of serving the microclients. An NGO-MFI can harness new opportunities through signals from the market about customers, competitors and overall environment in which the NGO-MFI operates. Customers can voice their demand in the form of direct feedback to credit supervisors or field workers or during group meetings.

New Product Development and Testing

The poor people who are the customers should be treated well and perceived as king. By designing products to the evolving needs of clients, an organization can build client loyalty through customer service and thereby increase its profit. This means that the financial services offered by an MFI must be designed in response to the needs and capacities of the clientele. Terms and conditions of loan, savings and other products should respond to the particular needs of the client group. More importantly, products should be tested before launching in the market. Product testing is used to gauze the perception of the customers on the suitability of the new products. This practice is yet to be popular among the financial intermediaries in our country.

The Need for Marketing Audit

A financial intermediary may find that performance problems recur regularly. In fact, trying to deal with such problems bog down credit managers to the point where they neglect other important responsibilities. Realistically, marketing is one of the major areas, where rapid obsolescence of objectives, policies, strategies and programs is a constant possibility. Because of the rapid changes in the marketing environment, each organization needs to assess periodically its marketing effectiveness through a control instrument called marketing audit. Marketing audit is an in-depth assessment of marketing function. It is essentially an evaluation of where the service provider's marketing function stands at the present time.

Conclusion

The foregoing points suggest that real customer service through commercialization should be the bottom line for moving forward. In a competitive environment, customer satisfaction and commercialization should be the driving force for survival and growth. The microfinance regulation in the country is now underway, which will provide a legal basis and streamline the current and future MFI activities. To reap the benefits of commercialization, the clients should be allowed to exercise their free choices. They should be granted liberty to do their own financial management in order to increase their net worth. While, the financial intermediaries will require mandate for providing a wide range of financial operations. It is expected that the ensuing regulation will promote good governance and prudential management in NGO-MFIs, help protect depositors, improve access to finance, preserve the innovations and variety, integrate microfinance with formal financial system and pave the way for commercialization of microfinance sector.

Hari Srinivas - hsrinivas@gdrc.org  

 Return to the Bangladesh Page

 Return to the Virtual Library on MicrocreditWhat is Microcredit? Much of the current interest in microcredit stems from the Microcredit Summit (2-4 February 1997), and the activities that went into organizing the event. The definition of microcredit that was adopted there was:

Microcredit (mI-[*]Kro'kre-dit); noun; programmes extend small loans to very poor people for self-employment projects that generate income, allowing them to care for themselves and their families.

Definitions deffer, of course, from country to country. Some of the defining criteria used include- size - loans are micro, or very small in size target users - microenterpreneurs and low-income households utilization - the use of funds - for income generation, and enterprise development, but also for community use (health/education) etc. terms and conditions - most terms and conditions for microcredit loans are flexible and easy to understand, and suited to the local conditions of the community. 

Source : The Virtual Library on MicrocreditWhat is Microcredit ?

September, 2010

 

The word "microcredit" did not exist before the seventies. Now it has become a buzz-word

among the development practitioners. In the process, the word has been imputed to mean

everything to everybody. No one now gets shocked if somebody uses the term "microcredit" to

mean agricultural credit, or rural credit, or cooperative credit, or consumer credit, credit from

the savings and loan associations, or from credit unions, or from money lenders. When

someone claims microcredit has a thousand year history, or a hundred year history, nobody

finds it as an exciting piece of historical information.

I think this is creating a lot of misunderstanding and confusion in the discussion about

microcredit. We really don't know who is talking about what. I am proposing that we put labels

to various types of microcredit so that we can clarify at the beginning of our discussion which

microcredit we are talking about. This is very important for arriving at clear conclusions,

formulating right policies, designing appropriate institutions and methodologies. Instead of just

saying "microcredit" we should specify which category of microcredit. 

Let me suggest a broad classification of microcredit :

A) Traditional informal microcredit (such as, moneylender's credit, pawn shops, loans from

friends and relatives, consumer credit in informal market, etc.)

B) Microcredit based on traditional informal groups (such as, tontin, su su, ROSCA, etc.) 20

C) Activity-based microcredit through conventional or specialised banks (such as,

agricultural credit, livestock credit, fisheries credit, handloom credit, etc.)

D) Rural credit through specialised banks.

E) Cooperative microcredit (cooperative credit, credit union, savings and loan associations,

savings banks, etc.)

F) Consumer microcredit.

G) Bank-NGO partnership based microcredit.

H) Grameen type microcredit or Grameen credit.

I) Other types of NGO microcredit.

J) Other types of non-NGO non-collateralized microcredit. 

This is a very quick attempt at classification of microcredit just to make a point. The point is —

every time we use the word "microcredit" we should make it clear which type (or cluster of

types) of microcredit we are talking about. Otherwise we'll continue to create endless

confusion in our discussion. Needless to say that the classification I have suggested is only

tentative. We can refine this to allow better understanding and better policy decisions. 

Classification can also be made in the context of the issue under discussion. I am arguing that

we must discontinue using the term "microcredit" or "microfinance" without identifying its

category. 

Microcredit data are compiled and published by different organizations. We find them useful. I

propose that while publishing these data we identify the category or categories of microcredit

each organization provides. Then we can prepare another set of important information —

number of poor borrowers, and their gender composition, loan disbursed, loan outstanding,

balance of savings, etc. under each of these categories, countrywise, regionwise, and globally.

These sets of information will tell us which category of microcredit is serving how many poor borrowers, their gender break-up, their growth during a year or a period, loans disbursed, loans outstanding, savings, etc. The categories which are doing better, more support can go in their direction. The categories which are doing poorly may be helped to improve their performance. For policy-maters this will be enormously helpful. For

analysis purpose this will make a world of difference.

I urge Microcredit Summit Campaign secretariat to present the information that they already collect on number of clients, number of the poorest among them, number of poorest clients that are women, number of clients that have crossed the poverty line—broken down for each of the categories of microcredit. This will help donors to select the categories they would like to support. This sorting out is very important for the donors, as well as the policymakers.Grameen credit

Whenever I use the word "microcredit" I actually have in mind Grameen type microcredit or

Grameencredit. But if the person I am talking to understands it as some other category of

microcredit my arguments will not make any sense to him. Let me list below the distinguishing

features of Grameencredit. This is an exhaustive list of such features. Not every Grameen type

programme has all these features present in the programme. Some programmes are strong in

some of the features, while others are strong in some other features. But on the whole they

display a general convergence to some basic features on the basis of which they introduce

themselves as Grameen replication programmes or Grameen type programmes. 

General features of Grameencredit are :

a) It promotes credit as a human right.

b) Its mission is to help the poor families to help themselves to overcome poverty. It is

targeted to the poor, particularly poor women.

c) Most distinctive feature of Grameencredit is that it is not based on any collateral, or

legally enforceable contracts. It is based on "trust", not on legal procedures and system.

d) It is offered for creating self-employment for income-generating activities and housing

for the poor, as opposed to consumption.

e) It was initiated as a challenge to the conventional banking which rejected the poor by

classifying them to be "not creditworthy". As a result it rejected the basic methodology

of the conventional banking and created its own methodology.

f) It provides service at the door-step of the poor based on the principle that the people

should not go to the bank, bank should go to the people.

g) In order to obtain loans a borrower must join a group of borrowers.

h) Loans can be received in a continuous sequence. New loan becomes available to a

borrower if her previous loan is repaid.

i) All loans are to be paid back in instalments (weekly, or bi-weekly).

j) Simultaneously more than one loan can be received by a borrower.

k) It comes with both obligatory and voluntary savings programmes for the borrowers.

l) Generally these loans are given through non-profit organizations or through institutions

owned primarily by the borrowers. If it is done through for-profit institutions not owned

by the borrowers, efforts are made to keep the interest rate at a level which is close to a

level commensurate with sustainability of the programme rather than bringing attractive

return for the investors. Grameencredit's thumb-rule is to keep the interest rate as close

to the market rate, prevailing in the commercial banking sector, as possible, without

sacrificing sustain-ability. In fixing the interest rate market interest rate is taken as the

reference rate, rather than the moneylenders' rate. Reaching the poor is its non-

negotiable mission. Reaching sustainability is a directional goal. It must reach

sustainability as soon as possible, so that it can expand its outreach without fund

constraints.

m) Grameencredit gives high priority on building social capital. It is promoted through

formation of groups and centres, developing leadership quality through annual election

of group and centre leaders, electing board members when the institution is owned by

the borrowers. To develop a social agenda owned by the borrowers, something similar

to the "sixteen decisions", it undertakes a process of intensive discussion among the

borrowers, and encourage them to take these decisions seriously and implement them.

It gives special emphasis on the formation of human capital and concern for protecting

environment. It monitors children's education, provides scholarships and student loans

for higher education. For formation of human capital it makes efforts to bring

technology, like mobile phones, solar power, and promote mechanical power to replace

manual power.

Grameencredit is based on the premise that the poor have skills which remain unutilised or

under-utilised. It is definitely not the lack of skills which make poor people poor. Grameen

believes that the poverty is not created by the poor, it is created by the institutions and

policies which surround them. In order to eliminate poverty all we need to do is to make

appropriate changes in the institutions and policies, and/or create new ones. Grameen

believes that charity is not an answer to poverty. It only helps poverty to continue. It creates

dependency and takes away individual's initiative to break through the wall of poverty.

Unleashing of energy and creativity in each human being is the answer to poverty.

Grameen brought credit to the poor, women, the illiterate, the people who pleaded that they

did not know how to invest money and earn an income. Grameen created a methodology and

an institution around the financial needs of the poor, and created access to credit on

reasonable term enabling the poor to build on their existing skill to earn a better income in

each cycle of loans.

If donors can frame category wise micro credit policies they may overcome some of their

discomforts. General policy for microcredit in its wider sense, is bound to be devoid of focus

and sharpness.

Three C's of Credit

Character: means how a person has handled past debt

obligations: From credit history and personal background,

honesty and reliability of the borrower to pay credit debts is

determined. 

Capacity: means how much debt a borrower can comfortably

handle. Income streams are analyzed and any legal obligations

looked into, which could interfere in repayment. 

Capital: means current available assets of the borrower, such

as real estate , savings or investment that could be used to

repay debt if income should be unavailable.

Source : The Virtual Library on Microcredit

Is Grameen Bank Different

Is Grameen Bank Different 

From Conventional Banks ?

September, 2010

 

Grameen Bank methodology is almost the reverse of the

conventional banking methodology. Conventional banking is

based on the principle that the more you have, the more you

can get. In other words, if you have little or nothing, you get

nothing. As a result, more than half the population of the world

is deprived of the financial services of the conventional banks.

Conventional banking is based on collateral, Grameen system

is collateral- free.

Grameen Bank starts with the belief that credit should be

accepted as a human right, and builds a system where one who

does not possess anything gets the highest priority in getting a

loan. Grameen methodology is not based on assessing the

material possession of a person, it is based on the potential of

a person. Grameen believes that all human beings, including

the poorest, are endowed with endless potential. 

Conventional banks look at what has already been acquired by

a person. Grameen looks at the potential that is waiting to be

unleashed in a person. 

Conventional banks are owned by the rich, generally men.

Grameen Bank is owned by poor women.

Overarching objective of the conventional banks is to maximize

profit. Grameen Bank's objective is to bring financial services to

the poor, particularly women and the poorest — to help them

fight poverty, stay profitable and financially sound. It is a

composite objective, coming out of social and economic

visions.

Conventional banks focus on men, Grameen gives high priority

to women. 97 per cent of Grameen Bank's borrowers are

women. Grameen Bank works to raise the status of poor

women in their families by giving them ownership of assets. It

makes sure that the ownership of the houses built with

Grameen Bank loans remain with the borrowers, i.e., the

women.

Grameen Bank branches are located in the rural areas, unlike

the branches of conventional banks which try to locate

themselves as close as possible to the business districts and

urban centers. First principle of Grameen banking is that the

clients should not go to the bank, it is the bank which should go

to the people instead. Grameen Bank's 22,449 staff meet 8.32

million borrowers at their door-step in 81,372 villages spread

out all over Bangladesh, every week, and deliver bank's

service. Repayment of Grameen loans is also made very easy

by splitting the loan amount in tiny weekly installments. Doing

business this way means a lot of work for the bank, but it is a

lot convenient for the borrowers.

There is no legal instrument between the lender and the

borrower in the Grameen methodology. There is no stipulation

that a client will be taken to the court of law to recover the

loan, unlike in the conventional system. There is no provision in

the methodology to enforce a contract by any external

intervention.

Conventional banks go into 'punishment' mode when a

borrower is taking more time in repaying the loan than it was

agreed upon. They call these borrowers "defaulters". Grameen

methodology allows such borrowers to reschedule their loans

without making them feel that they have done anything wrong

(indeed, they have not done anything wrong.)

When a client gets into difficulty, conventional banks get

worried about their money, and make all efforts to recover the

money, including taking over the collateral. Grameen system,

in such cases, works extra hard to assist the borrower in

difficulty, and makes all efforts to help her regain her strength

and overcome her difficulties.

In conventional banks charging interest does not stop unless

specific exception is made to a particular defaulted loan.

Interest charged on a loan can be multiple of the principal,

depending on the length of the loan period. In Grameen Bank,

under no circumstances total interest on a loan can exceed the

amount of the loan, no matter how long the loan remains

unrepaid. No interest is charged after the interest amount

equals the principal.

Conventional banks do not pay attention to what happens to

the borrowers' families as results of taking loans from the

banks. Grameen system pays a lot of attention to monitoring

the education of the children (Grameen Bank routinely gives

them scholarships and student loans), housing, sanitation,

access to clean drinking water, and their coping capacity for

meeting disasters and emergency situations. Grameen system

helps the borrowers to build their own pension funds, and other

types of savings.

Interest on conventional bank loans are generally compounded

quarterly, while all interests are simple interests in Grameen

Bank.

In case of death of a borrower, Grameen system does not

require the family of the deceased to pay back the loan. There

is a built-in insurance programme which pays off the entire

outstanding amount with interest. No liability is transferred to

the family.

In Grameen Bank even a beggar gets special attention. A

beggar comes under a campaign from Grameen Bank which is

designed to persuade him/her to join Grameen programme.

The bank explains to her how she can carry some merchandise

with her when she goes out to beg from door to door and earn

money, or she can display some merchandise by her side when

she is begging in a fixed place. Grameen's idea is to graduate

her to a dignified livelihood rather than continue with begging.

Such a programme would not be a part of a conventional

bank's work.

Grameen system encourages the borrowers to adopt some

goals in social, educational and health areas. These are knows

as "Sixteen Decisions" (no dowry, education for children,

sanitary latrine, planting trees, eating vegetables to combat

night-blindness among children, arranging clean drinking

water, etc.). Conventional banks do not see this as their

business.

In Grameen, we see the poor people as human "bonsai". If a

healthy seed of a giant tree is planted in a flower-pot, the tree

that will grow will be a miniature version of the giant tree. It is

not because of any fault in the seed, because there is no fault

in the seed. It is only because the seed has been denied of the

real base to grow on. People are poor because society has

denied them the real social and economic base to grow on.

They are given only the "flower-pots" to grow on. Grameen's

effort is to move them from the "flower-pot" to the real soil of

the society.

If we can succeed in doing that there will be no human "bonsai"

in the world. We'll have a poverty-free world

The MONSANTO Innitiative: Promoting Herbicides Through Micro-credit Institutions

In late June of 1998 Monsanto, the giant US agri-business company announced that it was forming a partnership with Bangladesh's Grameen Bank, with the aim to bring some of Monsanto's agricultural technology to poor and low-income families in the villages. After lots of protests from the environmental groups and individuals Grameen called off the deal on 27th July, 1998.

Grameen Bank is known worldwide for its micro-credit lending to the poor families, especially to the poor women without any collateral. It lends credit to over 2.3 million borrowers in 38,551 villages spread all over the country at a high interest rate of over 20% and with a system of weekly mandatory repayment. Headed by Prof. Muhammad Yunus, Grameen's activity to expand the monetary circuit of global capital to the poor local communities impressed the elites of the world, that include President Clinton and the first lady. It is understandable. While, since seventies, the governments are failing to pay back the loan and increasingly becoming defaulters, the poor were lauded for their disciplined submission to the rule of credit money, that is the financial capital mediated through development agencies and the banks for the ''poor" like Grameen. Money circulated through the poor communities self-expanded often to 130 percent appropriating the remaining resources of poor in the form of interest. Indebting the poor has become the new game of development and swept the development discourse and the practice. This is profoundly an ingenious role invented by elites who manage global capital. No wonder why ''micro-credit" became very popular in the United States and other developed countries. It's not the rich who should salvage the crisis of global capital, it is the poor, now, and who must shoulder the burden to keep the system in order. This is a specific feature of the present phase of globalization, which people often ignore, or do not notice for the rhetoric of the ''poor" and the glory songs of "micro-credit"

Getting a whole hearted support from the First lady Hillary Rodham Clinton, Yunus became the most favourite not only to the financial elites but also to the transnational companies, mainly the US corporations. Grameen became an easy access to the poorer families in Bangladesh for the introduction of technologies. Although Prof.Yunus has made several other deals with transnational companies such as Telenor, to promote cellular mobile phones, the news about Monsanto-Grameen deal came as a shock to development and environmental activists worldwide.

It came at a time when the US Company Monsanto was running a $1.6b European advertising campaign to further the case for food biotechnology.

Organizations involved in the people's movement around the world increasingly becoming active opponents of the push toward genetically engineered crops. The aggressive Monsanto drive in Europe raised lots of controversies. But Monsanto was trying to grab the world for its commodities.

According to the company sources, the Monsanto-Grameen deal was to set up Grameen Monsanto Center for Environment-Friendly Technologies in Dhaka. They claimed that new technologies in agriculture and nutrition, health care, and water sanitation would be available to poor people in Bangladesh, as the result of a 'new, unique partnership between the Grameen Bank of Bangladesh and Monsanto Company'. Professor Muhammad Yunus, founder and Managing Director of the Grameen Bank, and Robert Shapiro, Monsanto Chairman and CEO announced this.

The partnership was to provide access to technology to very low-income people in order to help them leap from traditional technologies and allow their utilization of appropriate, environmentally-sensitive methods to benefit communities and improve living standards for families.

Robert Shapiro was too enthusiastic. He said, 'The Grameen Monsanto Center will provide the opportunity to demonstrate how sustainable technologies, combined with microcredit, can transform peoples' lives, allowing them to improve their quality of life and the environment,''

Yunus, on the other hand, was equally enthusiastic. He said, Grameen and Monsanto could accomplish things, which were never thought achievable. State-of-the-art technologies can be made available to those in need in a shape and size designed to snugly fit their needs. The Monsanto-Grameen collaboration is an excellent example. Any private sector company can build similar bridges through Grameen in the areas such as health, education, computer software, data processing, Internet services, marketing, processing, manufacturing, information technology, and renewable energy. We are willing to do it, even in an experimental way, to try out an idea's business potential. Already an exciting beginning has been made''. The immanent nature of ''micro-credit" as a globalizing phenomenon of capital and its inherent alliance with the transnational corporation came into full circle through these shameless statements and actions by people who until today ceaselessly uses the rhetoric of the ''poor"" and the ''poverty alleviation", and their profile as the friend to the ''poor". It's good that the strong alliance between transnationals and microcredit is now open and visible.

Grameen and Monsanto were supposed to share equal ownership of the Center. Monsanto was to provide initial funding and a variety of its technologies. Grameen will provide access networks so that the poor can ''directly benefit"" from new technologies. For example, Grameen is already engaged in a significant initiative to provide cellular phones in the villages of Bangladesh through the inter-mediation of Grameen women. Poor women of Bangladesh

could never think of using cellular phones. But the Grameen provided the money; women took the money as credit with high interest rates, and through the intermediation a market for cellular phone in a poor rural community was created. This poor women ended up not only paying for the phone, but also the interest for the capital she was advanced as ''credit". This is ''empowering of women".

This was a good model for Monsanto to follow. The deal actually meant that Grameen was to provide access to the poor households for Monsanto technologies. No one ever asked the poor families whether they wanted such credits and technologies. No one has ever done any study what is the implication for this to poverty situation in general and in the lives of the rural families for the introduction of hi-tech technologies which in essence an absurd surrealistic scenario. A hungry poor women calling long distance with cellular phones. Yunus after working with the poor for so many years unfortunately could see the welfare of the poor only in making available cellular phones and proprietary technologies of Monsanto.

Monsanto had a plan to introduce a number of businesses in maize, rice and cotton. Utilizing microcredit loans and input financing, these new technologies will then be available to local farmers through the Center and the Grameen Agricultural Foundation. Monsanto was more interested in cotton.

Grameen was selected also because of its image and acceptability worldwide and therefore has the chance to be replicated in the poor communities in other parts of the world.

Monsanto has been involved in the private sector, mostly in merging of companies. The Grameen Monsanto Center was going to a new partnership to sell technologies to the poor around the world. In this partnership, Monsanto does not have any risk. For the poor to buy technologies they need the purchasing power. Grameen provides the credit to the poor, which is conditioned to spend for purchasing the technologies the lending agencies want or coercively force them to accept. Grameen role is to create an effective demand for technologies of transnational companies. In this way Monsanto gets an easy and secured market. Grameen takes the trouble of realizing the loans advanced and repayment. There is no risk for the Monsanto's business operation. It was impossible for them to avail such an easy marketing infrastructure.

In this venture Monsanto's investment is very nominal - an initial amount of only $150,000 to establish the new center in Dhaka. The planned activities included a series of pilot projects and demonstrations, with the aim of running the center longer term on a "for-profit" basis.

Monsanto's plan was to supply "traditional" hybrid seed technology and stocks. According to the company, it was delaying introduction of genetically- modified

crops because Bangladesh lacked a regulatory regime. However, it did not rule out extending its technology input to genetically engineered traits in the future.

Monsanto's entry into Bangladesh is deceptive. As Greenpeace has already accused that part of Monsanto's strategy has been to supply seeds engineered to tolerate its own herbicides, specially Round Up, which could have the adverse effect of promoting the use of these chemicals in developing countries. "Monsanto is saying that it's going to feed the world, when most of its crops are engineered to sell herbicides." It may be noted that Monsanto has been selling the Round Up in the Tea Gardens of Bangladesh for over 10 years. It is registered in the Pesticide list of Plant Protection Unit of Bangladesh.

The biotechnology giant Monsanto, did not give up its heinous efforts to find its business partner in Bangladesh even though Grameen Bank has officially cancelled the plan to set up Monsanto-Grameen center in Dhaka. The Vice-President (Development) of Monsanto Company Mr. Horacio Navarretti visited Bangladesh on 30th August, 1998, just one month after the announcement of cancellation. His visit was not announced anywhere even from its head quarter Washington. This was rather a secret visit in trying to find partners to market its harmful agricultural technologies. The environmental and farmers groups in Bangladesh and worldwide have protested against Monsanto's efforts which would threaten the livelihood of hundreds of thousands of farmers. Monsanto's skills in agriculture are in the field of genetically engineered crops designed to use more agrochemical such Roundup, which is a broad spectrum herbicide. The Roundup herbicide eliminates all the green from the face of earth and the Terminator technology that Monsanto has acquired sound the death knell for agriculture. Monsanto seemed to be desperate in marketing its products and was even trying take secretive measures to enter into the Bangladesh market. They made contacts with BRAC, one of the largest NGOs working with the poor, and international NGO CARE to be their partners in Bangladesh.

Monsanto is the proprietor of a number controversial agricultural technologies which are destructive to the food security of farmers at the household level and at the national level. The genetically modified hybrid seeds are introduced to make farmers dependent on the companies rather than on the own sources of the farmers. This effort of Monsanto has been protested in other countries.

UBINIG and Nayakrishi Andolon and the national contact of SANFEC (South Asian Network on Food, Ecology and Culture) organised a protest rally infront of the Pan-Pacific Sonargaon Hotel in Dhaka where Mr. Horacio Navaretti was staying during his three day visit. Among others, Farida Akhter, Natasha Ahmad, Palash Baral, Shahid Hussian Shamim, Sunil Karmakar, Ashrafuddin, Mizanur Rahman Apel, Mahfuza Touhida, Sayyida Akhter, Marina Chowdhury were present. Distinguished personalities like Mr. A.Z.M. Obaidullah Khan also joined the rally. Though the rally was protesting silently holding banners in hand, police did not let the rally stand infront of the hotel and forced the group to go on the

other side of the road. They brought large number of male and female police to confront the rally and tried to dismantle them. However, the public was in support of the rally and were taking keen interest in the issue. They were saying that this must be stopped.

The members of UBINIG, Nayakrishi Andolon and SANFEC were holding banners with slogans such as "Mr. Horacio, Please go back", "We do not want Monsanto", "Monsanto out of Bangladesh", "Monsanto is a Monster", Monsanto is anti-farmer" etc. in both English and Bengali language.

It was learnt that Monsanto had already registered the Company in the name "Monsanto Bangladesh Ltd". A temporary office located in Hotel Mid Way, Paltan, Dhaka with an Indian person as incharge was taken. His name was Mr. F. Ahmed.

Another strategy of Monsanto of Mansanto was that it was keeping a link with the retired government bureaucrats such as Retired Secretary Mr. Kazi Azhar Ali, Retired Secretary Mr. Ershadul Huq and a Deputy Secretary Mr. K. P. Chowdhury in the Ministry of Agriculture.

At present, Monsanto is learnt to be working in Bangladesh with somewhat clandestaine approach, as they know that Monsanto has already achieved a bad reputation among the general public.

TABLE OF CONTENTSCompany Overview..............................................................................................4Key Facts...............................................................................................................4SWOT Analysis.....................................................................................................5Nomura Holdings, Inc. Page 3© DatamonitorNomura Holdings, Inc.TABLE OF CONTENTS

COMPANY OVERVIEWNomura Holdings (Nomura) is a holding company, providing financial services such as securitybrokerage, investment banking, asset management and merchant banking services through itsvarious subsidiaries. The company has operations in 30 countries including Japan, the US, the UK,Singapore and Hong Kong. It is headquartered in Tokyo, Japan and employs 26,374 people.The company recorded revenues of JPY1,150,822 million ($12,417.4 million) in the financial yearended March 2010 (FY2010), compared to JPY312,627 million ($3,373.2 million) 2009 (FY2009).The operating profit of the company was JPY105,247 million ($1,135.6) million) in FY2010, comparedto an operating loss of JPY780,265 million ($8,419.1) million) in FY2009.The net profit was JPY67,798million ($731.5) million) in FY2010, compared to a net loss of JPY708,192 million ($7,641.4 million)in FY2009.

KEY FACTSHead Office Nomura Holdings, Inc.9 1 Nihonbashi 1 chomeChuo kuTokyo 103 8645JPNPhone 81 3 5255 1000Fax 81 3 3274 4496Web Address http://www.nomura.comRevenue / turnover 1,150,822.0(JPY Mn)Financial Year End MarchEmployees 26,374New York Ticker NMRTokyo Ticker 8604Nomura Holdings, Inc. Page 4© DatamonitorNomura Holdings, Inc.Company Overview

SWOT ANALYSISNomura Holdings, through its subsidiaries, provides financial services such as security brokerage,investment banking, asset management and merchant banking services. The company has utilizedits dominant position to offer high value added products and services. However, increasing competitionand economic slowdown in Japan are likely to affect the company’s revenues and market share.Strengths WeaknessesAlthough improving, risk managementstructure is still weakEnhanced platform and dominant positionin the Japanese securities marketContinued negative cash flows fromoperating activitiesReduced exposure to illiquid assets helpedturnaround at global markets divisionStrong capital levels and robust liquidityprofile help withstand adverse marketdevelopmentsOpportunities ThreatsIntense competition in Japanese financialindustry could reduce market share of thecompanyAcquisitions and alliances could help arrestthe decline in revenues and profitsEntry into new markets may offset declininggrowth in matured markets Economic slowdown in Japan likely to affectPositive prospects for asset management business volumesindustry Increasing regulatory challenges and costof complianceStrengthsEnhanced platform and dominant position in the Japanese securities marketNomura is Japan's largest securities company. As of end March 2010, it had JPY73.5 trillion or $0.8

trillion (JPY59.3 trillion or $0.8 trillion at end March 2009) retail client assets. At end March 2009,the company’s market share in Japanese retail client assets was 35.7% and its market share isestimated to be around 36% at end March 2010. Nomura has a strong market position in many ofits market segments in Japan. Nomura is consistently one of the top companies in Japan in wholesalesecurities brokerage, underwriting, and advisory, with a strong track record, especially in IPOs andfinancial advisory services. At the end March 2010, the company had a market share of 9% inJapanese Government bond auctions; and 11% market share in secondary bond trading in Japan.Nomura’s market share in Japanese IPOs was 39% at end March 2010. Since 2009, the company’snew platform allowed it to expand decisively from its historic Japan focus to a market that includesNomura Holdings, Inc. Page 5© DatamonitorNomura Holdings, Inc.SWOT Analysisall of Europe and Asia-Pacific, which is over four times larger. Enhanced platform and dominantposition in the Japanese securities market enables the company to be a price leader.Reduced exposure to illiquid assets helped turnaround at global markets divisionNomura’s global markets division achieved turnaround in its performance in FY2010. In FY2010,the global markets division recorded revenues of JPY658,441 million ($7,104.6 million), comparedto net revenue expense of JPY157,254 million ($1,696.8 million) in FY2009. Nomura turned aroundglobal markets division’s performance by reducing its exposure to illiquid assets that primarily causedlosses in FY2009. Moreover, in FY2010, Nomura saw positive results from its expanded businessplatform following the acquisition of certain Lehman Brothers operations in October 2008. In additionto growth in client equity and fixed income trading in Japan, the company also saw an increase insuch businesses in both Europe and Asia. In the equity business, Nomura expanded its clientfranchise by enhancing services related to European and Asian equities in addition to its existingJapanese equity-related business. Moreover, in FY2010 Nomura became a Primary Dealer in theUS. Reduced exposure to illiquid assets should sustain profitability of Nomura’s global marketsdivision in FY2011 and beyond.Strong capital levels and robust liquidity profile help withstand adverse market developmentsNomura’s capital levels and liquidity profile improved in FY2010 when compared with FY2009. InOctober 2009, Nomura raised JPY435.5 billion ($4.7 billion) through issuance of common shares ina global offering. As a result, total equity as of March 31, 2010 was JPY2.1 trillion ($22.7 billion), anincrease of JPY581.5 billion ($6.2 billion) compared to March 31, 2009. Total qualifying capital asper Financial Conglomerate Guidelines in Japan increased from JPY2,257 billion ($24.4 billion) atend FY2009 to JPY2,805.9 billion ($30.3 billion) at end FY2010. Tier 1 ratio rose from 11.7% at endFY2009 to 17.3% at end FY2010. The company’s liquid assets rose from JPY1,203.9 billion ($13billion) at end FY2009 to JPY3,908.8 billion ($42.2 billion) at end FY2010. Strong capital levels androbust liquidity profile help the company withstand adverse market developments.WeaknessesAlthough improving, risk management structure is still weakNomura’s risk management structure, although improving, is still weak when compared to global

peers present in Japan. A majority of Nomura’s executives, who are directly or indirectly responsiblefor risk management activities, lack sufficient experience in risk management activities. A case inpoint is the company’s losses due to its exposure to illiquid assets during subprime crisis and themanagement’s inability to unwind such portfolios even after coordinated capital infusing actions bygovernments across the globe. Since the company’s business is becoming increasingly internationalas the company is expanding its global footprint, the need to tighten risk management structure isall the more pressing.Nomura Holdings, Inc. Page 6© DatamonitorNomura Holdings, Inc.SWOT AnalysisContinued negative cash flows from operating activitiesNomura cash flows have been negative for the last six years (2005-2010). Net cash used by operatingactivities rose from JPY360,780 million ($3.9 billion) in 2005 to JPY1,500,770 million ($16.2 billion)in 2010. Continued negative cash flows from operations has constrained the company to dependmore on financing activities and also cut back its investments in order to generate cash and cashequivalent assets. For instance, cash raised through financing activities rose from JPY198,017million ($2.1 billion) in 2005 to JPY2,176,530 million ($23.5 billion) in 2010. Continued negativeoperating cash flows accentuate the need to increase long term borrowing which could becomecostlier as the need for global corporate refinancing is increasing at a rapid pace.OpportunitiesAcquisitions and alliances could help expand revenues and profitsNomura has been expanding its geographic reach and strengthening its business division throughacquisitions and divestitures. Major recent acquisitions include Instinet (2007), a stake in CallivaGroup (2007), Lehman Brothers' Asia Pacific franchise, equities and investment banking businessesin Europe and the Middle East, and its specialized service companies in India (2008), and NikkoCitiTrust and Banking Corporation (2009). In December 2009, Nomura Holdings, an investment bank,announced that it is acquiring Tricorn Partners, a UK-based corporate finance advisory firm. Theacquisitions have strengthened Nomura’s wholesale and investment banking businesses andexpanded its global capabilities. Acquisitions and alliances could help Nomura expand revenuesand profits.Entry into new markets and new license wins may offset declining growth in matured marketsIn the last two to three years, Nomura has increased the pace of its entry into new markets. In March2007, Nomura opened an office in Moscow, Russia. With the launch of Nomura (CIS) Ltd, Nomuraexpanded its reach in the EMEA region to 14 offices in 13 countries. Nomura announced that it willprovide a full range of investment banking products and services to its clients in Russia. Thecompany's unique positioning as both the leading Asian investment bank and one of the largestglobal investment banks is expected to help the company gain quick traction in Russia. Entry intoRussia is expected to drive up the business in CIS countries. In May 2008, Nomura received SaudiArabian securities business licence. The licence will enable Nomura to conduct capital markets,corporate finance and wealth management activities, as well as deal as an agent for overseassecurities. This is the first time an Asian securities firm has been authorized in the Kingdom of Saudi

Arabia. Nomura has numerous long-standing client relationships with Saudi government bodies,financial institutions, corporates and private investors. Entry into Saudi Arabia will enable the companyto capitalize on opportunities in corporate finance advisory and capital markets activities in thatcountry. In February 2009, Nomura was granted a banking license by the Dubai Financial ServicesAuthority to provide investment banking and capital markets services from the Dubai InternationalFinancial Centre. In FY2010 Nomura became a Primary Dealer in the US. Entry into new regionsNomura Holdings, Inc. Page 7© DatamonitorNomura Holdings, Inc.SWOT Analysisand new license wins could help the company offset the decline or stagnant conditions in developedmarkets.Positive prospects for asset management industryThe global asset management industry has been growing at a fast pace driven by the increasingdemand for fund management services for private individuals. The global asset management andcustody banks sector grew by 19% in 2007 to reach a value of $72,470 billion representing acompound annual growth rate (CAGR) of 13.3% for 2003-2007. The compound annual growth rateof the industry during the period 2007-2012 is expected to remain at 9.9%. This growth is expectedto drive the sector to a value of $116.1 trillion by the end of 2012.The main factors driving this growthwould include the need for private individuals to make provision for their pension requirements. Theasset management of the company is carried out through its subsidiary, Nomura Asset Management.In addition to Nomura Asset Management, the company also conducts its asset managementbusiness through Nomura Corporate Research and Asset Management (which manages bonds andloans in the US); Nomura Funds Research and Technologies in Japan; Maintrust KAG in Germany;Nomura Funds Research and Technologies America in the US; and Private Equity Funds Researchand Investments.TPositive prospects for asset management industry props up Nomura's prospectsfor revenue expansion.ThreatsIntense competition in Japanese financial industry could reduce market share of the companyThe Japanese financial industry is highly competitive.The company encounters significant competitionfrom commercial banks, commercial bank- owned securities subsidiaries and non-Japanese firms.Nomura faces intense competition in terms of price, particularly in brokerage, underwriting and otherbusiness, in terms of delivery of value-added services to customers, such as corporate advisoryservices. The company competes with competitors having larger volumes of business and greaterfinancial resources than those of the company.The company competes with players such as Citigroup,Deutsche Bank, Mitsubishi UFJ Financial Group and Mizuho Financial Group. High level of competitionin the market place could erode the market share of the company.Economic slowdown in Japan likely to affect business volumes

The group generates majority of its revenues from the Japanese market. In the FY2009, IMF hasindicated that the world GDP will grow by 3.9% in 2010 and 4.3% in 2011. IMF has indicated upwardrevisions to US and BRIC nations, but the growth rate of Japan in 2010 was left unchanged and the2011 forecast was actually trimmed by 0.2% points. In 2010, Japan's economy is expected to recoveronly one-third as fast as the global economy, and half as fast as the world economy in 2011. TheBank of Japan (BOJ) most recent medium-term outlook is even more cautious than the IMF's growthforecast. The BOJ is looking for 2010 Japan GDP growth of 1.3%. Economic slowdown in the regioncould affect business volume and financing facilities of the group.Nomura Holdings, Inc. Page 8© DatamonitorNomura Holdings, Inc.SWOT AnalysisIncreasing regulatory challenges and cost of complianceReform of financial services industry remained a high priority for many governments 2009 throughfirst half of 2010. Meetings of the G20 formed the backbone of inter-governmental discussions toensure a coordinated and consistent response. Targets and benchmarks for national authoritieshave been set by the G20, while the revitalised Financial Stability Board has been given responsibilityfor overseeing their implementation. The directions of financial services industry regulatory reformssuggest that cost of compliance is likely to increase in 2010 and beyond. Moreover management’stime spent on regulatory issues is likely to be higher than it had been so far. As a result, profit marginsfor banks are likely to be suppressed.

COMPANY OVERVIEWNomura Research Institute (NRI) provides information technology (IT) solution services.The companyprimarily operates in Japan. It is headquartered in Tokyo, Japan, and employs 6,118 people.The company recorded revenues of JPY341,279 million ($3,412.8 million) during the financial yearended March 2009 (FY2009), a decrease of 0.3% over 2008. The operating profit of the companywas JPY49,713 million ($497.1 million) in FY2009, a decrease of 5.6% over 2008. Its net profit wasJPY24,513 million ($245.1 million) in FY2009, a decrease of 12.9% over 2008.

KEY FACTSHead Office Nomura Research Institute LtdMarunouchi Kitaguchi Building1-6-5 MarunouchiChiyoda-kuTokyo 100 0005JPNPhone 813 5533 2111

FaxWeb Address http://www.nri.co.jpRevenue / turnover 341,279.0(JPY Mn)Financial Year End MarchEmployees 6,118Tokyo Ticker 4307Nomura Research Institute Ltd Page 4© DatamonitorNomura Research Institute LtdCompany Overview

SWOT ANALYSISNomura Research Institute (NRI) provides consulting and systems solutions services. NRI has hadstrong focus on quality since its inception, which has enhanced the brand image of the company.However, as the group generates over 90% of its total revenues from Japan, the economic slowdownin Japan could affect the revenues of the company.Strengths WeaknessesDependence on specific businesscategories and limited capacity intechnology and resourcesStrong focus over qualityTotal solutions providerOffshoring modelOpportunities ThreatsExpansion in China Slowdown of Japanese economyRecovering financial services industry Dependence on subcontractorsBPO services Competition from foreign firmsStrengthsStrong focus over qualityNRI has been focusing on quality since its inception. The Quality Management Division controlscompany-wide quality control activities, promoting and supporting quality control activities by individualbusiness divisions. The company has also formulated and is implementing a medium-term plan inpursuit of quality enhancement. During FY2008, NRI revised the plan’s mid-term basic policy androadmap. NRI is building a quality management system, NRI-QMS based on the knowledge acquiredin the past. In addition, the company determines rules and procedures related to business processesto ensure project quality. NRI earned a certification under the ISO9001 quality management standard,which covers information system construction projects of a certain size. In conformity with NRI-QMS,the company holds review meetings at each project milestone.The crucial target in quality control for information systems is to reduce system failures to zero. NRIimplemented a Two-Year Plan to Double Quality in FY2007, succeeded by a second initiative, theThree-Year Plan to Double Quality, which was launched in FY2008. Through this plan, the companyaims to reduce incidences of system fault generation by 50% by FY2010, compared with FY2007levels. NRI data center system management and operation services gained ISO9001 certificationin 1998. Furthermore, during FY2008, NRI constructed an IT service management system, Operation

ITSMS, based on ITIL in preparation for ISO20000 accreditation relating to IT service operation andmaintenance management. NRI’s strong focus on quality enhances its brand image.Nomura Research Institute Ltd Page 5© DatamonitorNomura Research Institute LtdSWOT AnalysisTotal solutions providerNRI provides total solutions services ranging from anticipating and resolving clients’ problems, toimplementing and managing solutions. Total solutions services are divided into seven categories:projections for society and industry; market research and business analysis; proposals for businessand public administration; proposed solutions for execution of business innovation; systemsdevelopment and the provision of solutions; outsourcing and systems operations; and support forbusiness execution.The company generates revenues from financial services, distribution, and public and private sectors.NRI’s package products and multi-user system services, such as STAR, I-STAR, T-STAR, BESTWAY,and BESTPLAN, are highly valued by many financial institutions and hold large market shares. Thecompany differentiates itself from its competitors as a total solution provider and attracts morecustomers.Offshoring modelThe company increased its productivity and sales using external resources. There has been aparticularly prominent effect from offshore operations. Its development operations consist ofpartnerships with over 20 Chinese firms. The company estimates that the 4,000 system engineersoffshore have boosted the firm’s developmental capabilities by over 50%. The cost of Chineseengineers is less than half of their Japanese counterparts, thus increasing profitability. Its successin offshore operations is a result of its focus on China due to insufficient developmental capacity inJapan as well as the stable high volume of work for the securities sector. Offshoring model hasincreased its productivity and sales giving NRI a competitive advantage.WeaknessesDependence on specific business categories and limited capacity in technology and resourcesNRI is dependent on specific business sectors and has limited capacity in terms of its technologyand resources. For FY2009, the NRI Group’s combined sales to the financial services accountedfor a little less than 70% of its total sales. Moreover, NRI Group’s combined sales to its major clients,Nomura Holdings, and its subsidiaries, and Seven & i Holdings and its subsidiaries, amounted toslightly less than 40% of its total sales. NRI could experience an enormous impact on businessperformance in case the business circumstances of these major clients changed or they radicallyreexamine their information systems strategies.In addition, NRI’s resources and technology are insufficient to address broader industrial sectors inthe Japanese market. For instance, the firm is not capable of developing basic bank systems. Aninability to handle bank settlement systems, one of the most crucial system types, could put aconsiderable curb on its expansion plans. The basic system for Seven Bank is run by Nihon Unisys.As a relative latecomer to the field, NRI has no particular edge in basic corporate systems. As theNomura Research Institute Ltd Page 6© DatamonitorNomura Research Institute LtdSWOT Analysis

company plans to reduce dependence on financial services and acquire clients in other industries,it is important for the company to enhance its resources and technology expertise. NRI’s dependenceon few sectors and insufficient resources and technology could limit its growth in future.OpportunitiesExpansion in ChinaThe company is rapidly expanding its presence in China. In FY2008, the company began its effortsin China to tap the information systems market. NRI’s current business operations in China areconfined to systems support and packaged software sales to Japanese companies that have officesin China. At present, the information systems market in China is focused on packaged software, andthe demand for value-added, high-reliability systems, is not very high. However, these systems areexpected to be upgraded in the next five to ten years, thereby, creating an opportunity for thecompany. Based on this projection, the company plans to begin human resources development ofsystems specialists in China.NRI Shanghai has grown to become NRI’s largest consulting services location in Asia. The biggestsales in NRI Shanghai come from Japanese companies, which are trying to expand their businessin China, and their Chinese subsidiaries. There is a strong demand for consulting services asJapanese companies are increasingly interested in consolidating their business operations in China.The company aims to strengthen its presence in Asia. NRI has established an Asia Region SystemsDivision and a tie-up with Mitsubishi Corporation to promote experience and expertise in the systemssector. Expansion in China could create new market opportunities for the company.Recovering financial services industryCompanies in the financial services industry appear to be resuming projects that had been put onhold during the economic downturn. For financial institutions (FIs), it is vital, from the standpoint ofcompetition and operational management, to strengthen their information systems constantly in linewith the development and spread of technologies worldwide. The securities industry is working onsystems which can be used to prevent trading trouble, strengthen compliance, introduce diversifiedand more sophisticated services, and raise productivity using IT and the internet. Demand relatedto industry restructuring is also expected with the integration of systems at Mitsubishi UFJ Securitiesand Mizuho Securities.NRI is also growing business with presence in the insurance and corporate sectors. The insuranceindustry is its fastest growing sector, with a particularly rapid expansion in dealings with JP Insurance.The company has been involved associated in with JP Insurance systems since the 1990s. JPInsurance is likely to continue its investment in systems in order to broaden its service lineup as aprivate firm. It is estimated that NRI secured several billion yen worth of new orders in the first quarterFY2010. Sales to other insurers such as Nippon Life and Tokio Marine are also growing, promptingNomura Research Institute Ltd Page 7© Datamonitor

Nomura Research Institute LtdSWOT AnalysisNRI to increase its staff in insurer-related operations. The recovering financial services industry willgenerate incremental revenues for the company.BPO servicesThe company founded NRI BPO Services in April 2009. NRI invested JPY40 billion ($0.4 billion) inacquiring IT assets (hardware and software) to provide outsourcing back office services for NomuraSecurities’ domestic retail business. Nomura Securities’ system development and enhancementformerly comprised overlapping individual projects, but through this acquisition, outsourcing will becontracted for an annual fee, which will be a more stable, contract-based business format. In thefuture, the company plans further software development investment and business investment indata centers and other facilities. The BPO services sector in Japan was valued at $16,881.3 millionin 2008, growing at a CAGR of 3.5% between 2008 and 2013. This sector is expected to reach avalue of $20,036.8 million by the end of the period. The company’s new BPO operations will enableit to capitalize on the growing demand for such services.ThreatsSlowdown of Japanese economyNRI is over dependent on the Japanese market for its revenues. In addition to its operations in Japan,the group also operates in China and Singapore. However, it derives more than 90% of its revenuesfrom the domestic Japanese market. Overdependence on Japanese economy makes the companyhighly sensitive to the demand dynamics of the country. Due to its high dependence on the Japanesemarket, NRI has limited flexibility in its operations and is exposed to risks related to currency andother economic fluctuations in the Japanese economy.The Japanese economy is expected to decline in 2009. According to the International MonetaryFund (IMF), the real GDP growth rate of Japan was 2.3% in 2007, which contracted by 0.7% in 2008.The real GDP growth rate is further expected to contract by 5.4% in 2009. As the group generatesover 90% of its total revenues from Japan, economic slowdown in the domestic market could affectthe revenues of the company.Dependence on subcontractorsThe company is dependent on subcontractors for a significant portion of its production. In FY2009,NRI’s subcontractors were responsible for a little less than 50% of the company’s actual production.It is essential for the company to secure high quality subcontractors and maintain a good businessrelationship with these subcontracting partners in order to carry out the operations smoothly. Moreover,the subcontracting costs of the company increased from JPY73.1 billion ($0.7 billion) in FY2005 toJPY121.5 billion ($1.2 billion) FY2009.Nomura Research Institute Ltd Page 8© Datamonitor

Nomura Research Institute LtdSWOT AnalysisNRI’s subcontracting partners are not only in Japan; they are also spread out in various overseaslocations, especially China. Currently, Chinese companies account more than 10% of subcontractingcosts.The company is therefore striving to strengthen these partnerships. In case, NRI fails to securesuperior subcontracting partners or maintain a good business relationship with them, it might affectthe business operations of the company.Competition from foreign firmsJapan’s information services market is the second largest in the world, behind the US. Although itis not an easy market for foreign firms to enter there have been successes such as IBM andAccenture. It is not impossible for Chinese or Indian firms to gain market share in Japanese ITindustry through mergers and acquisitions. Already Indian firms like Infosys, Wipro, TCS and Patnihave material presence in Japan. Companies like Infosys and Patni are planning to make acquisitionsin Japan.This will put pressure on domestic-oriented NRI. Furthermore, if the company is unable to keep upwith the increasingly globalized operations of Nomura Holdings and Seven & I Holdings, its dominancein the domestic market could come under threat, as there will be a need to merge foreign andJapanese information systems. Competition from foreign firms would affect the market share of thecompany.