‘We’ll be bigger than Grameen Bank by 2010’
You’re the largest microfinance company in the country. Do you see yourself becoming bigger than the Grameen Bank in Bangladesh?
Our customer base has grown from 1.6 million to 4 million. Of this, around 30 per cent are old customers while the rest are new. We have 400 branches in 18 states with 14,000 employees. Our average ticket size is Rs 10,000. Globally, we are behind the Grameen Bank which has a customer base of 6-7 million. With our current growth rate of 200 per cent, we will be bigger than the Grameen Bank by 2010, by which time we will have 8 million customers — this will make us the largest microfinance institution in the world.
Your lending rates are very high compared to commercial banks. When will they come down?
Right now our lending rates are around 22-24 per cent. The reason for the high interest rates is that our operating costs are high — they’re around 9 per cent since we offer loans at the customer’s doorstep and also collect it from his/her doorstep. We borrow at around 12-13 per cent. As a result our margins on the loan are only 2 per cent.
However, in states where our loan volumes are higher, like Andhra Pradesh for instance, we are able to borrow at slightly cheaper rates (around 8 per cent). Hence we can pass this onto our customers. I am sure this will happen in other states as well.
But despite this, the effective interest on our loans is lower than that of state-owned banks which offer loans at 7 per cent — to this, you have to add other invisible costs such as those including the time wasted (which results in a loss of income) by customers who have to visit the bank several times to get the loan cleared; if the bank is far away from their residence, there is also a transport cost which needs to be added — in our case, as I have just said, we give the loans and also collect the repayments at the customers’ doorstep. Money lenders charge over 100 per cent, but that is, in any case, too high.
You already have in place a distribution system of employees who collect loans. Are you looking at leveraging this for other product lines which you can also sell?
We plan to go in for a pilot project with the German Cash-and-Carry retailer Metro Group. They will use our distribution channels for selling products in the rural market. We plan to begin with 70 stores in Hyderabad and then spread across to the rest of the country. For this project, we will provide a working capital of Rs 5,000-10,000 for two weeks to shopkeepers. We have a total of half a million kirana stores who are already our customers, so that is our eventual target group. The agreement is that the products will be delivered at the doorstep. The kirana retailer will thus save around 1-2 per cent of his costs every time by reducing his transportation costs.
We have also tied up with Nokia and Airtel for a mobile financing project. We are currently running a pilot project in Andhra Pradesh. We give loans of Rs 1,798 for mobile phones.
Apart from that, we are launching a solar light project with D’Lite. This is going to be especially helpful for women working after sunset in rural areas where there is no electricity. We are also evaluating a water purifier project with Unilever.
On the education front, we have already tied up with Career Launcher where quality English-medium education will be given to rural children. Ten schools are part of this programme. We also plan to partner with an NGO, and might even finance a school.
Health insurance is an important part of our portfolio. We have a tie-up with ICICI Lombard for 130 hospitals across the country. We give a card which enables the customer to walk into any of these hospitals and get a no-cash treatment against this. The premium is Rs 525 per annum and the maximum cover is Rs 20,000 for the entire year which covers the member, spouse and two children. Apart from the cashless transaction, we also ensure that the patients get good services against the card.
The long tenure of loans is clearly what has kept you away from rural housing. Given the growing demand for such loans, is this an area which you plan to tap?
We are towards the end of finalising a pilot project for rural housing. The term of the loans would be three to seven years and the loan amount would range from Rs 50,000-150,000. Our maximum group-borrowing stands at Rs 25,000 today. As in the case of all our projects, the collections for the rural housing scheme will also be on a weekly basis.
We plan to start a pilot project soon in Andhra Pradesh. Our target for this project is a million customers.
How do you plan to lower operational costs? Will this help lower interest charges?
We are trying to reduce our cash handling, and increase our mobile banking operations. We are also trying to reduce manual documentation and bring in more automation into our systems. Our operating costs are expected to go down by 4 per cent and this will help in reducing the interest rates we charge.
Are there serious impediments that you face because you are registered as an NBFC and does that affect your growth as a microfinance company?
As an NBFC, 50 per cent of our portfolio has to be from financial services, which is why we cannot aggressively venture into distribution among other things. However, while financial services currently account for 95 per cent of our portfolio, we expect that the non-finance business will grow to 40 per cent in the next four to five years.
The other problem we face as an NBFC is that we are not allowed to go for external commercial borrowings. We are also not allowed to access customer savings or deposits, in spite of the fact that there is a clear demand for it among customers, even in rural areas. As an NGO, we were doing small customer savings but the moment we attained an NBFC status, we were not allowed to venture into that area.