Started in November 2005 in Bengaluru, Ujjivan Financial Services has its presence in 21 states and three union territories with 452 branches across the country. Since 2005, it has disbursed Rs 11,129.3 crore in loans. In an interaction with Deccan Herald’sUma Kannan, Ujjivan’s CEO and MD Samit Ghosh shares the microfinance institution’s journey and its expectations from the newly created regulator and refinancer MUDRA Bank.
Ujjivan has recently partnered with IBM and Equifax on Business Intelligence(BI). Will digital revolutionise the banking industry?
Everybody is talking about digital technology, and it is going to transform the entire banking industry. We have already started making use of this technology. Our loan officers carry tablets and they use them to capture customer data, among others. With over two million customers in the last 10 years, we have a huge volume of data. We can use data to develop new products and also mange the risk.
We have engaged with IBM and Equifax on data warehousing, business intelligence, and analytics. We are the first MFI to embrace this model to achieve financial inclusion. IBM provides us the software and the hardware to store data. The first step is to clean up our database and then to prepare a scorecard.
The economy moves up and down with festivals and it happens everywhere. Customers do maximum business at the festival time.
Last fiscal, we gave pre-approved loans of Rs 300 crore. This is how you use data and it was very successful.
What is your repayment rate? Please tell us about your customers?
We have an excellent repayment rate of 99.87 per cent.
If they are not repaying, then it means you have either given to the wrong people or have lent in excess. Small farmers, who are landless, will not get loan from regular channels. But it is when we reach large farmers that we hear the query, ‘Do I have to repay? If so, will you give any rebate?’ It is about maintaining proper relationship with customers and they will definitely repay.
I have been a commercial banker for 30 years. The reason why microfinance has been successful is because we go to the doorsteps of people to deliver services. We have three categories of customers — self employed, employed (either domestic or factory workers), and piece-rate workers. The last of them are usually the poorest. Around 70 per cent of those we are lending are self-employed, and almost 100 per cent are women.
Women tend to use the money for the family. Also, different regions have different levels of empowerment. If you take the South, women are more empowered compared with the North. In the South, women are more independent, whereas when we provide loans to women in the North, usually their husbands co-sign.
When it comes to microfinance institutions, it is usually said that they charge exorbitant interest rates?
We borrow from banks, and the average cost of borrowing is 14 per cent. Even if it is small-size loans, we have to deliver at the doorstep of people and the operating cost is high.
RBI has permitted us 10 per cent margin. For instance, if the loan amount is Rs 10,000, the 10 per cent comes to Rs 1,000. Divide it into 12 as we are serving for 12 months a year. It comes to less than Rs 100 per month. Servicing cost is fairly high and that’s why the rate comes to 23 to 24 per cent.
If you take customers’ alternate source of funding — money lenders — they charge much higher. We can reduce the rate by becoming more efficient.
Right now we are not allowed to raise money, and if we are allowed to raise deposits, the cost of borrowing also drops — say from 14 to 10 per cent. And also the margin can come down to five per cent and so automatically we can lend at 15 or 16 per cent.
We are dealing with unsecured loans. You have to compare it with credit card and not two-wheeler or housing loans (they are secured ones). Banks are actually charging more for credit cards, but nobody talks about it.
People still go to moneylenders. Do you think if there is an increase in the number of MFIs, moneylenders won’t come into the picture?
Moneylenders will never disappear, but now their rates have come down. Poor people are susceptible to many problems and for them moneylenders are like ATMs. They need immediate amount and moneylenders are available and they provide service which nobody else is providing.
MUDRA Bank has been launched with a corpus of Rs 20,000 crore and credit guarantee of Rs 3,000 crore. What are your expectations from the MUDRA bank?
If you look at those poor who are right at the bottom, they are unbankable. Even we cannot provide them loans considering their transient state. And the one level above them are the ones that microfinance deals with. And beyond that are people who are micro entrepreneurs and those who run small businesses or small manufacturing units. They are at a level lower than SMEs and have turnover of less than Rs 10 lakh.
MUDRA Bank targets this particular segment, and the bulk of the Indian economy is actually made up of this segment. The idea is if we can provide them proper finance, and they will be able to grow up and the economy will also grow.
In February, you submitted a project plan to RBI for the small finance bank (SFB). What is the status?
If we get the licence, we will be able to widen our service. Right now we provide only loans, and if we become a bank, we can raise deposits and widen our range of services.
We can collect different types of deposits and remittances. Our customer retention is 83 per cent and we are constantly trying to increase it.
Published 12 July 2015, 15:22 IST