Micro Housing Finance Corporation
By Group 2
Suhani Mittal, Kunal Bansal, Asish Singh, Zahrah Imani, Abhishek Paul
Business Model
Product- Market Customer Segments Value Chain Supply Chain
Their customers were
Micro home loans (up to 1.5 Initial Processes: Setting Investors: Company structure
typically people who
Million for a maximum up bank accounts and was a social enterprise with
belonged to low income funding from impact investors
repayment time of 15 insurance.
groups or Economically and high equity with the
years for up to 85% of the Verification: background
weaker sections of India’s investors, motivated by the
value of the house) Urban Population. i.e. family checks on income and
aim for maximum growth.
Services to obtain the loan income of around 0.1 to 0.2 ability to repay
(opening a bank account) million INR annually. This instalments. Documenting
Project Partners: Strategic
were also taken care off. includes people in slums, the customer information
partners with well known
vegetable markets, staff at on a digital story board for developers and reliable
Market: lower income hotels. approval. projects.
sections that do not have Sanctioning: The loan is
access to home loans due MHFC also partnered with real sanctioned within 7-14 and NHB Partnership: NHB being
to informal source of estate project builders to disbursal depending on the the primary lender to MHFC
income, lack of credit offer reliable (reputation for developer and the stage of and working within the
completing projects and development. regulatory framework
history and no bank
regulatory compliance) provided by them was crucial.
account or insurance. Loan Payments: follow ups
options for their target
and relationship building
customers.
a. Return c. Investment
Fixed Salary: Competitive
packages, no sales pressure.
Time: Investing early
career years.
A career with
Social Fulfillment
Exposure to rural and urban
Field Work: Hands-on,
demanding work.
MHFC? - YES!
poor financing, Mission-Driven Career:
creditworthiness assessment long-term commitment
of informal sectors. to social impact.
Learnings: Skills applicable to Career Path: Limited Pioneer in social housing
microfinance, rural credit, and Uncertain investor
appeal for those seeking finance, unique culture,
LIG-focused FMCG landscape, smaller market
financial growth or
ESOPs: acquisition gains or competitive pay presence.
corporate hierarchy.
IPO. limited financial incentives
d. Mindset
b. Risk
Commitment to the
Smaller Firm: Less stable social mission
compared to established Integrity, collaboration,
HFCs and banks. and empathy toward Growing affordable housing Competition from large HFCs
Investor Dynamics: lower-income customers market in India, scalable and banks, pressure to shift
Potential shift in focus with Self-motivated and self business model. social mission.
new investors. driven - no sales
Scalability challenges incentives
without a change in mindset Rotation - be prepared to
& process - mission drift? handle multiple roles
How are impact investors different in DNA mindset risk and return from the -
VC/PE/Hedge fund investors in the
KEY PLAYERS IN THE HEALTHCARE INDUSTRY
investment market.
MAJOR DEAL ACTIVITY IN THE HEALTHCARE SPACE
Criteria Impact investors VC/PE/Hedge fund investors
dual objective- financial returns and social more attuned to the financial performance metrics,
impact scalability, and high-growth potential of their investments
DNA/ DNA rooted in principles of sustainability, often aiming for high revenue multiples or profitable exit
mindset inclusivity, and long-term systemic change strategies within a shorter timeframe
main sector focus- affordable housing, healthcare, main sector focus- disruptive sectors like biotech and
education, and renewable energy technology
risk examined through both financial and social
lens focused predominantly on financial risk
tendency to accept higher financial risk to strategies minimizing downside and maximizing returns
Risk
achieve social goals. risk tolerance entails portfolio diversification and is
risk tolerance aligns with belief that social gains bounded by performance metrics
trump value driven from financial metrics.
financial returns-primary financial measure with impact as
room for flexibility a byproduct
Return
may accept a concessionary return emphasis on high-value exit strategies such as IPOs or
Expectations
exit strategies are less aggressive acquisitions within set timelines
maximizing short- to medium-term returns
Should MHFC look for investors to replace Top 3 Evaluation Parameters
IFIF and MSDF? And why?
Mission Alignment Investor’s expertise &
Yes, they should look to replace IFIF & MSDF, because: Investment Terms
network
GROWTH PHASE For MHFC, Investment Terms An investor with
MHFC has entered the growth stage of development, maintaining the such as ownership experience in
hence, should focus on sustainable growth with big-ticket social impact goal structure (equity affordable housing
loans, possible through better customer outreach and is essential. stake of the or financial inclusion
acquisition, which requires higher capital investment from MHFC should stakeholders), can offer industry
prioritize investors tentative exit insights, help
investors.
willing to support timeline for the navigate regulatory
client-centered investor, landscapes &
policies like compensation provide strategic
NEW NETWORKS
affordable interest received by each advice on scaling
New investors can offer new networks & expertise for rates, flexible loan co-founder etc are sustainably.
MHFC to expand and grow. terms and long- some specific Additionally, those
term social investment terms with connections to
outcomes over that need to be relevant
EQUITY OVER DEBT immediate evaluated. stakeholders can
The business model of MHFC doesn’t support leverage in financial returns help open new doors
& provide industry
the financial structure because of the high-risk profile of
networks.
the borrowers, capital & refinancing limitations and
inability to cover the borrowing costs due to the low
interest rates charged from the customers.
Yes, founders must be cautious of the risk of mission drift in MHFC must focus on NBFC MFIs that are focused on
their evaluation as the company is held together by their financial inclusion rather than Social investors or PE/VC
common social mission. A mission drift might cause the investors because
company to tumble due to internal conflicts & clashing interests.
Social Investor NBFC MFI
Risk Mitigation is possible through
Pros Pros
1. Alignment with Mission and Values 1. Higher investible capital
2. Patient Capital with Long-Term Focus 2. Alignment of mission for investors already
Screen investors not only for capital but also for 3. Access to Networks and Resources in seeking to diversify into MHFCs industry.
3. Bigger networks helping in growth
values, ensuring they support similar missions Social Sectors
Cons Cons
without compromising social outcomes. 1. Limited Access to Larger Capital Pools 1. Mission Drift Toward shorter duration higher
2. Less Aggressive Growth Expectations interest rate based loans.
2. Different client profiles: MFI serves clients
3. Potential Pressure to Prioritize Social
needing small short-term loans, against MHFC
Outcomes Over Financial Performance serving larger housing loans.
Aim for equitable distribution of ownership & include PE/VC
provisions that allow advisory board members to
weigh in on key strategic decisions Pros
1. Access to Substantial Capital for Growth
2. Enhanced Operational Efficiency
3. Increased Financial Returns Potential.
Cons
Specify exit strategy guidelines in the investor
1. Growth Phase might not align with their
agreement, requiring mission alignment in the event of expectation of instant returns in short term
a change in ownership. 2. Higher focus on profitability than sustainable
growth
Pros
Should they sell only part or all their stakes to the
new investors? What’s the logic?
MHFC should sell only a part of their stake to prevent: Large institutions have substantial financial resources, access to long-term capital &
the ability to scale efficiently. MHFC could leverage these resources to expand more
1 Alignment of Interest rapidly across India.
Crucial to manage the young 30 year old promoter’s interest in the Established players have advanced operational infrastructure & expertise in credit assessment,
business, as selling off the entire stake might lead to career uncertainty risk management, and compliance. MHFC would benefit from streamlined processes and reduce
overhead and customer acquisition costs.
2 Safeguarding organizational structure
Acquisition by a stable institution like HDFC can provide job security for MHFC’s team, career
The organisational structure of MHFC unites the company and its advancement opportunities, and access to HDFC’s resources for professional development.
workforce via its social mission. Selling the entire stake to a new
investor could undermine the company’s core values and lead to its
Cons
destabilisation.
Mission drift causing collapse of existing structure Loss of autonomy & decision making power
(Additionally, as further discussed in the Cons of having large financial
Large financial institutions prioritize returns, potentially As a subsidiary, MHFC would have less control over
institutions as investors, selling the entire stake runs the risk of mission pressuring MHFC to focus on more profitable segments, strategic decisions such as lending practices, interest
drift, customer alienation & loss of autonomy) diluting the core mission of financial inclusion. rates, and customer outreach.
Customer Alienation Misalignment of interest
Should MHFC try to approach and sell the business to a large MHFC’s customers may feel distrustful of a large In a merged entity, MHFC’s top management could see
financial institution such as HDFC and become its subsidiary? What institution, especially if new policies create barriers or their roles redefined or subordinated reducing their
are the pros and cons increase loan costs. influence, causing career uncertainty or loss of incentive
No, don’t sell the business to a large financial institution because the
cons outweigh the pros. Designed around community-centered services, MHFC workforce may not be able to adjust to the new corporate
culture of a large financial institution. This cultural clash could lead to employee dissatisfaction or turnover.
Should the founders look to
continue investing their time and
continue in the business?
Condition Description Rationale
The founders should strongly Require investors to uphold MHFC’s focus
Ensures that investment decisions
align with MHFC’s social mission and
consider ongoing involvement. on low-income clients and affordable
Mission-Driven prevent drift towards profit-only
housing loans
Investment Covenant focus
Mission Alignment with Specify portfolio distribution goals (e.g.,
Retains customer trust and market
80% loans for low-income segment)
Investors: Founders’ differentiation
involvement prevents mission
drift, ensuring the core mission Protects MHFC’s operational
remains central. Founders retain board seats with veto autonomyand ensures mission
Board Representation rights over critical strategic decisions, adherence in core areas
Preservation of Product- and Veto Rights particularly around client segments, loan Safeguards against pressure for rapid
terms, and product innovation scaling or changing loan structures
Market Fit: Founders’
that might harm low-income clients
specialised expertise in micro-
mortgages and risk models
Agree on social impact KPIs (e.g., loan Reinforces MHFC’s dual commitment
tailored to informal income
accessibility, customer satisfaction) to to financial and social returns
clients is central for MHFC’s Impact Measurement
evaluate MHFC’s success Include regular Provides investors with clear metrics
and Reporting
differentiation. impact reports to investors alongside on social impact, aligning expectations
financial results with MHFC’s goals
Trusted Market Presence:
Founders’ established Preserves MHFC’s tailored approach
reputation and deep regulatory Ensure founders maintain some control for low-income borrowers
insights enhance MHFC’s Operational and over credit assessment standards, Reduces risk of adopting conventional,
Lending Autonomy interest rates, and loan structure profit-driven lending practices that
credibility and adaptability
policies could harm client retention and
loyalty
What should Geeta Goel do?
What are her options?
Option 1: Seek a new impact-focused investor who aligns with MHFC’s mission, ensuring continued
commitment to social impact.
Option 2: Partner with a PE or VC firm to bring in higher capital for scaling, potentially prioritizing financial
growth over social objectives.
Option 3: Sell MHFC to a large BFSI like HDFC, which would integrate MHFC but potentially streamline and
scale operations for broader reach.
What would be the Top 3 evaluating parameters for the options? Maximize Returns or something else.
Impact Preservation- Ensuring MHFC’s original mission is maintained, especially for underserved urban populations.
Scalability and Growth Potential- Assessing the potential to scale MHFC’s operations without sacrificing impact, with financial growth as a
secondary objective.
Operational Independence- Determining whether MHFC retains autonomy, particularly in decision-making around customer outreach, loan
evaluation, and support.
Will her mindset and role be only be exclusively that of an investor or does she have other roles to play and which are they?
Strategic Advisor- Offering guidance on mission alignment and growth strategies to ensure MHFC’s vision continues to guide its operations.
Ecosystem Builder- Fostering partnerships within the housing finance and social impact spaces to amplify MHFC’s influence and resources.
Steward of Mission- Ensuring alignment between social objectives and investor interests by actively participating in high-level decision-
making and potentially board membership
a. YES, we would enthusiastically invest in MHFC!
Founder Product Market
Experienced leadership team with
Unique product addressing a critical gap in Large, untapped demand with a
strong finance and social impact
significant housing shortage in
backgrounds. micro-mortgages for low-income families.
lower-income segments.
Clear mission alignment with Proven market acceptance with consistent Early mover advantage and strong
financial inclusion focus and ethical growth in loan disbursements. positioning in a growing market.
practices.
b. Valuation Basis c.
1. Earnings and Loan Book Growth: Valuation would be based on
MHFC’s historical and projected earnings growth, loan
Strategic PE Fund
disbursement rates
2. Asset Quality: Metrics indicating quality of portfolio- NPA, Focus on synergies, long-term Emphasis on financial
delinquency rates, collection efficiency integration, and cross- returns, operational
3. Market Multiples: Benchmarking against comparable housing efficiencies, and potential
leveraging client bases.
finance companies using P/E or P/BV ratios, adjusted for social exits
The buyer might prioritize
Possibly leading to a more
impact. MHFC’s market position, brand,
conservative valuation
4. Impact-Adjusted Metrics: Factoring in the company’s track record and customer base, leading to a focused on short- to medium-
of targeting underserved segments and its established niche in valuation premium. term growth.
micro-mortgages.
