Meet the man who gave loans to 36 lakh low-income women and built a Rs 1,448 Cr turnover microfinance company
HP Singh started Satin Creditcare Network Limited (SCNL) in New Delhi in 1990. With a focus on lending to low-income women in rural and semi-urban areas, he built it into India’s largest NBFC-MFI in terms of the number of customers and presence across India.
After becoming a Chartered Accountant (CA), HP Singh began auditing the accounts of several clients. What he found in their books gave him a business idea that changed his life forever.
The Delhi-based CA, while auditing the accounts of his enterprise client Shriram Honda, saw there were no channels for financing the purchase of generator sets for the company.
Generator sets are expensive. Singh realised many businesses couldn’t afford to pay the high upfront cost to purchase such assets. They did not have large and lump-sum amounts of cash on hand for capital investments.
It was the same for other small enterprises and micro-entrepreneurs trying to buy an expensive item. EMIs also worked out to be expensive for these low-income companies and entrepreneurs.
Finding an innovative solution
Singh found a solution to the problem by observing the behaviour of regular consumers buying television sets.
“I saw individuals and households purchasing television sets on a ‘rent-to-own’ model. This allowed the buyers to pay a daily rental amount for a period before eventually taking ownership of the item,” he tells SMBStory in an exclusive interview.
It struck him that small enterprises and micro-entrepreneurs could benefit from this model. If he could restructure loan repayments as a daily expense rather than monthly instalments, it would become easier for low-income entrepreneurs to repay the loans.
“Consumer durables financing wasn’t well established, and there was always a dearth of financing of low profile clients, such as East Delhi shopkeepers. I saw this untapped demand as an opportunity and wanted to start my own financing company, with a daily-collection model that was tailor-made to the requirements and cash flows of the target clients,” he says.
This simple idea inspired the CA to start Satin Creditcare Network Limited (SCNL) in New Delhi in 1990. Through the bootstrapped company, Singh set out to cater to a large number of underserved sections of society with the hope that the loans provided would create increased income potential, sustained and predictable cash flow, and ensure the wellbeing of the borrowers.
SCNL’s time-tested model still flourishes 30 years later. The NBFC-MFI (an entity with Non-Banking Financial Company and Micro Finance Institution status), is now India’s largest in terms of the number of customers (35.6 lakh), branches (1,354) and presence across 22 states, it claims.
SCNL says it recorded Rs 1,448 crore turnover in 2018-2019, and had Assets Under Management (AUM) worth Rs 7,284 crore in Q3 FY20.
Focus on low-income women and rural areas
Presently, the leading NBFC-MFI only lends to low-income women who are economically-active; its 35.6 lakh customers are all women from rural and semi-urban areas. They are primarily involved in animal husbandry or agriculture and allied sectors.
Since 2008, SCNL has operated on a Joint Liability Group (JLG) model. Collateral-free loans are provided to a group of women who give a guarantee for each other under the joint liability system. The repayments are collected from the women on a biweekly basis.
“Belonging to the economically-weaker sections of the society, these women otherwise have limited access to mainstream financial service providers. We help them in fulfilling financial needs, empowering them to build capacity and become bread earners and support systems to their families,” Singh says.
The company also finances products purchase of solar lamps, bicycles and loans for the development of water connections and sanitation facilities.
SCNL’s focus on lending in rural areas is a major reason why the coronavirus pandemic and lockdown has not upended its business.
“Around 80 percent of our portfolio is in rural areas where there is no major impact of the pandemic. The majority of our portfolio has not been affected as it is lent to borrowers engaged in animal husbandry and agriculture and allied sectors - categories that are considered essential services. Thus, recoveries from these borrowers are expected to be much faster,” he says.
Milestones and growth story
Six years after inception, SCNL got listed on regional stock exchanges DSE, JSE and LSE. In 1998, the company registered as an NBFC with the RBI.
The biggest challenge for SCNL during these early days was access to formal channels of funding. The business was profitable and worked well on bootstrapping, but its scale was limited.
“We then appointed a consultant who explained that since we are in the business of microfinance, we are eligible for dedicated funding lines. Thereafter, we raised our first loan from SIDBI in 2005. There was no looking back,” Singh says.
In 2008, it adopted the JLG model. In 2013, the company got NBFC-MFI status, and in 2015, it got listed on NSE and BSE.
“Last year, we crossed the $1 billion AUM mark to join the Ivy League of Companies in the billion-dollar club. This feat is a matter of immense pride and satisfaction for all of us,” he says.
He believes the differentiating factors for the company are the process and technology, where it strives to remain ahead of the curve ”in its strong underwriting practices and technological innovation”.
Digital loan management systems, built in-house, have made operations quick and easy for SCNL. They have enabled it to reduce the time taken from customer acquisition to disbursement from 15-20 days to a few minutes.
As on March 31, 2020, the company’s undrawn sanctions are around Rs 900 crore, Singh adds, and that it has one of the strongest financial and liquidity positions with liquidity of Rs 1,600 crore.
“We raised Rs 6,426.6 crore during the year, of which Rs 400 crore was raised since nationwide lockdown,” he says.
Competition and future plans
Presently, SCNL faces significant competition from other MFIs, non-MFI NBFCs, banks, and other financial institutions. Its clients are also prone to borrowing from unregulated local money lenders and non-institutional lenders, which may lend at higher rates of interest.
“We anticipate that MFIs operating in certain areas, due to their continued operations, may have better recognition and larger member bases than SCNL. Our ability to compete effectively will depend, to an extent, on our strong underwriting practices and usage of technology to optimise expenses by increasing operational efficiencies and managing credit costs,” he says.
However, the challenges are not insurmountable. Singh believes there is a large and unmet demand for microfinance in the country, and that the size of the pie is large enough to accommodate many players. Further, he maintains the top players “don’t overlap much and have their core area of operations separate”.
SCNL’s key strategies and business diversification will help to achieve better results and lead to a promising future.
During the last nine months, the company says it made investments in technology and has undergone process re-engineering. This, coupled with external challenges from the industry, have led to flattened growth, increased costs, and subdued profitability.
“But now, SCNL has the right processes and technology in place to achieve a robust AUM growth in the coming years. Considering COVID-19, the entire dynamic will undergo a massive change. The coming few months are critical to see how things unfold,” he says.
(Edited by Kanishk Singh)
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