MICROCAPITAL STORY: UTI Asset Management, Invest India Micro Pension Services (IIMPS), and BASIX to Offer Micro Pension Scheme Supported by Technical Services Grant from KfW

As reported in the Economic Times of India, UTI Asset Management, an Indian mutual fund, has teamed up with Invest India Micro Pension Services (IIMP), a pension and insurance products company for low-income workers, and BASIX, a Hyderabad-based microfinance institution, to offer a micro pension scheme. The partnership is supported by a grant from the German development bank KfW of approximately Rs. 2.2 Crore (USD 438,000) to IIMPS for technical support. Under the plan UTI will offer its UTI-Retirement Benefit Pension Fund to customers of BASIX.

“We do not set any target for micro finance scheme. The objective of the scheme is to cater to the downtrodden working in the unorganized sector across the nation, especially in remote places. Through this scheme we want to secure their post retirement life. The strategic partnership will further help intensify our efforts in that direction,” said U K Sinha, Chairman and Managing Director, UTI Asset Management Company.

Minimum investment in the UTI Retirement Fund is Rs. 50 (about USD 1) per month, and in multiples thereof. The fund invests 60 percent of its assets in fixed income instruments and up to a maximum of 40 percent in equities. Currently, due to volatile market conditions, the fund holds approximately 23 percent in equities. The fund has had a compound annual growth rate (CAGR) of over 11 percent since its launch in 2006.

According to a study in the International Research Journal of Finance and Economics entitled “Economic Implications and Sustainability of Micropensions in the Era of Pension Reforms in India,” the share of the aged in the total Indian population will rise to 8.9 percent in 2016 and 13.3 percent in 2026 (from 6.4 percent in 1991). Males and females in India at age 60 are expected to live beyond 75 years of age. Thus, on average, an Indian worker must have adequate resources to support him or herself for approximately 15 years. Of concern is the increase in government expenditure on non-contributory pensions and health services which have increasingly been a serious drain on government finances. The present formal provisions for old age income security in India cover less than 11 percent of the estimated working population. Also according to the study, the only formal micro pension scheme that is in vogue in India is the one which has been rolled out by UTI.

UTI Asset Management, formerly known as Unit Trust of India, has been active in the Indian asset management business for over 40 years. As of September 2007 UTI had total assets under management of approximately USD 9.9 billion and approximately 8.1 million client accounts. UTI’s shareholders are the State Bank of India, Life Insurance Corporation of India, Punjab National Bank and Bank of Baroda, which are all controlled by the Government of India.

BASIX, founded in 1997, had over 300,000 active borrowers as of March 2008, according to the MIX Market, the microfinance information clearinghouse. As of the same date BASIX’s gross loan portfolio was USD 56 million, and total assets were USD 67 million. Debt-to-equity was 8.49, ROE was 4.93 percent and ROA was 0.59 percent. BASIX has been rated 5 diamonds for its level of disclosure by the MIX. The MIX Market rates MFIs on their level of disclosure through a diamond system: the higher the number of diamonds the better an MFI’s disclosure. A five diamond rating indicates that an MFI has disclosed general information, two consecutive years of outreach and impact data, two consecutive years of financial data, two consecutive years of audited financial statements, as well as adjusted data such as ratings, evaluations, due diligence and other studies. A five diamond rating is the highest rating. According to its website, BASIX is currently working with 1.5 million underprivileged people 90 percent of which are from poor rural households and 10 percent of which are from urban slums.

IIMPS was established in 2006 by development and pension sector companies to provide a low cost, scalable and secure mechanism to the working poor to save for their retirement. IIMP’s investors include SEWA Bank of India, and UTI Asset Management. Donors include KfW.

KfW, a German bank founded in 1948 with the goal of financial sector deepening and developing inclusive financial systems, had total assets dedicated to microfinance of USD 923 million as of June 30, 2007, according to the MIX.

By Laura Anderson, Research Associate

Additional Resources:

The Economic Times: UTI MF ties up with BASIX for micro finance

UTI Asset Management: Home

India Invest Micro Pension Services: Home

BASIX: Home

KfW: Home

The MIX Market: Home, BASIX Profile, KfW Profile

SEWA Bank: Home

International Research Journal of Finance and Economics: Economic Implications and Sustainability of Micropensions in the Era of Pension Reforms in India, by Uthira.D and Hansa Lysander Manohar