Statistics have always told a story and often times, these stories are gritty. Take, for instance, a statistic from Sa-Dhan’s The Bharat Microfinance Report 2015 which says, in the year 2014-15, microfinance institutions (MFIs) have reached out to an all time high of 37 million clients with an outstanding loan portfolio of Rs.48,882 crore. Yet, it is a known fact that over 86 per cent of India’s population does not borrow from a formal source. Here is where IFMR Holdings, India’s leading financial inclusion platform, plans to make a difference. The organisation is well positioned to impact a larger number of lives through its three business verticals; IFMR Capital, IFMR Rural Finance and IFMR Rural Channels. The company made positive news in August 2015 by raising US$ 25 million in equity from Accion, a financial inclusion pioneer, LeapFrog Investments, a specialist investor in emerging-market financial services and investor firm, Lok Capital.
IFMR Capital, which acts as a bridge between high-quality debt originators and debt capital market investors, has on board close to 90 partners or originators offering micro-loans, small business finance, affordable housing and commercial vehicles finance. “There isn’t another comparable institution today which does what IFMR Capital does and that is to reduce end cost of borrowing for consumers through a tailored approach based on understanding the originators needs,” says Sucharita Mukherjee, CEO of IFMR Holdings and non-executive director of IFMR Capital. Over the next five years, she sees that number going up to 200. Mukherjee also elaborates on the company’s aggregation approach, thanks to which, a number of investors who may not have shown any interest in the debt capital market are now taking notice. “We are best placed to create off shore interest in financial inclusion through our alternative investment fund (AIF) management platform,” says Mukherjee.
Through its asset management division, IFMR Investment Managers Pvt. Ltd., the company announced in January 2016 that it was raising a Rs. 250 crore debt fund to target businesses that catered to the BoP. With the fund raising expected to be completed in the month of March, the fund has already collected Rs.165 crore from six institutional investors and plans on investing in nearly 12 companies over a six-year term. This is the second fund launched by the company which in 2014, launched a Rs. 100 crore fund, meant to lend exclusively to the microfinance sector in India. Given that it is one of only two companies to have gone the AIF route, Mukherjee stresses on how the company will stay vigilant in the future to create more avenues of financial inclusion. “I would say a risk management market is still very much absent and interest rate risk hedging is missing for originators,” she voices and states that this is only one of many secondary markets the company would like to develop.
Creating the saving culture
At present, IFMR Rural Channels, which provides credit, insurance and pensions, has 242 branches and over 6 lakh customers. In the next five years, Mukherjee sees this network growing four-fold to become 1,000 branches strong. Since its inception, this vertical has distributed 9 lakh personal accident insurance policies, 4 lakh term life insurance policies and opened over 1.73 lakh savings accounts. “Today, we do more loans and insurance products and there is not yet a deep penetration of savings and investments products, we would like to see these go up,” says Mukherjee. The key to realising this segment’s potential is the understanding of customer data and usage patterns. The company prepares a financial well being report on each customer, but it only uses about 25 per cent of the data it collects and this percentage needs to get much higher. “Our approach to a customer is very much around his/her goals and the financial services sold are always in this context. Our aspiration is to provide wealth management service at a rural branch which is comparable to the service you get at a branch in Nariman Point, Mumbai, “ says Mukherjee.
Another crucial aid for IFMR in creating a larger footprint deep within India is its technology. “We have to constantly invest in technology to better the use of risk analytics, credit scores, better upgrade customer centricity and so much more,” she adds. Through IFMR Rural Finance, the company created the Kshetriya Gramin Financial Services (KGFS), a technology platform that is easily integrated with banks, insurance companies and the likes and allows for a high degree of automation. “Technology has been a core of our business and we will continue to use technology to bring down cost of delivery. If we can digitise a large part of rural India and near eliminate cash transactions, that can significantly bring down costs,” says Mukherjee.
Changing risk reward perception
The microfinance industry in India has seen many institutions buckle under the pressure of liberal lending to customers who simply lacked the ability to repay, poor regulatory reform and a less than supportive ecosystem. While some institutions succumbed to the microfinance crisis in 2010-11, IFMR Holdings went about its business using relevant data systems and a sound distribution network to consolidate its position as a market leader. However, Mukherjee and her team have to fight hard against a skewed risk to reward perception when it comes to investing in this sector and Mukherjee says, “Microfinance default rates have been 1 per cent or under and they have been the same for the last eight years but people imagine the percentage to be a lot higher than reality.”
In 2014-15, the Government of India did its bit by launching MUDRA, the refinancing and regulatory organisation for micro-enterprise financing, which aims to provide a regulatory framework for MFIs and this augurs well for the sector. Then, as is mostly the case, there is the people challenge. “Senior management spends a lot of time on hiring and we have to find people who are aligned to our mission and passionate about the cause of financial inclusion,” stresses Mukherjee while stating that using this as a key parameter has helped in finding the right fit across levels of hiring. IFMR Holdings also invests a significant amount of time, energy and resources on training its employees that are on the ground as they are the first faces of the company that the consumer sees. The training imparted includes modules on soft skills and usage of technology. “Most of our mid-level managers are home-grown and we are in the process of figuring out a system that helps us identify and enhance such talent,” shares Mukherjee.
For an organisation such as IFMR Holdings judging progress happens on a multitude of levels. As Mukherjee states there are three metrics that it uses to measure its growth; the first is measuring volumes of financing through its multiple channels, the second metric is predicting, understanding and mitigating inherent long-term risks in all its businesses and the third is measuring the impact its business has had on the lives of consumers. For Mukherjee and everyone else at IFMR Holdings, each metric holds great significance and the ultimate goal is to grow the company in the most holistic manner possible.