A look into Micro-Financing in Bharat: Subhash Acharya from Seeds Fincap

Subhash Acharya, from Seeds Fincap Private Limited (Incorporated) comes in to throw light on the MFI industry in India. A voice from the depths of what can now be called the right enabler of rural development, Micro-Financing. He jumps right into giving us a glimpse into his Bharat, and tells us about his journey, enabling financial inclusion, the structure of MFIs and the role of technology in enabling MFIs.

Excerpts from his interview with Ankita Kapoor, from Impact[X] Media.

This article will give you a glimpse into the MFI landscape through the words of Mr. Subhash Acharya and reports on this domain.

“Seed Fincap Pvt. Ltd. is based out of Delhi and we incorporated recently, in November 2019. At present we are a 3-member team. We are looking forward to working with rural India. With an aim of income generation with Loans and other financing services. We will be providing loan to people for business purposes specifically, in the rural areas basically Tier 3 and 4 cities. And we will be working on the model of Individual lending. I, myself have experience of around 12 years in the field of Micro-Financing in the rural areas with different organisations. There is a lot of demand by people in rural areas and they seek financing opportunities which are not provided by banks due to lack of documentation with rural households. This section of the society needs financial inclusion. Micro-finance is one way to do it. We have plans of most probably starting in August and hoping by next year this time around, an ALM (Asset and Liability Management) of 100cr.

Micro-Finance is providing finance to economically weaker sections of the society who can’t access credit/loans from banks in general mostly for business purposes. These people are unable to meet the document requirements like ITRs, fixed income statements, etc. usually like local dwellers, street hawkers, small-scale grocery store people who are unable to produce a proof of their income and other important documents. So micro-finance services are provided on basis of ‘Group Liability’, under which 5-10 people form a group and themselves bear the liability(collectively) in case of any default by the borrower. It is more of an organised and disciplined sector and requires field visits for the finance provided. This is the model of Micro-finance and was brought forward by Muhammad Yunus in Bangladesh. He won a Nobel Prize for the same in 2005. In India, during 1970s Indira Gandhi started the SHGs (Self Help Groups) as an another model of micro-finance. At present it is a sector of more than Rs. 3 Lakh crore and around 50-55 institutions are already working in this domain.

What inspired you to get into this sector?

Inspiration can come from anywhere.  I have completed my BTech from NIT Jaipur in 2004 and completed my MBA, and this segment has made me passionate enough that has kept here all this time. When you go in rural areas people who are looking for financing are often seen stuck in the vicious spiral of high interest rates on borrowings from local money-lenders. These people are often exploited to great extent because of the absence of proper formal structure to provide and regulate such financial services. They often fall into a debt-trap. Considering that 60-70% of the population today is in rural areas, to develop the rural economy is one crucial step to make a difference in our country’s growth. Providing financial opportunities to such marginalized communities is more about creating a social impact in the society rather than just financial motive. It provides you the satisfaction of a social activity and alongside high (revenue) growth potential.

What are the challenges you have come across in this field? How have you coped up with the demand and supply side of business activities? Please give us a brief.

If I talk about the most basic challenge that persists is Illiteracy. The literacy level in rural areas is quite low. Your process flow needs to be simple in order to make them understand. Like conventional Banking, it has complex processes that makes its services inaccessible to people in these areas. Thus, you have to make them comprehend the system and build mutual trust.

Another challenge is recruiting the right kind of people. This field involves a lot of travelling especially rural areas. With branches in urban areas you will be tapping the rural areas. So, the required staff needs to be highly motivated, competent enough and who is willing to serve the society also. They need to be technically advance, tech-savvy and flexible. So, the quality of staff and their retention is important. And, their development, recruitment and training needs to be kept balanced with the job.

There is enough noise about this domain and resources are being made available from both government as well as from the markets. scarcity of investment in the sector. People are eager to provide funding in this segment given its return and growth prospects.

This business line requires more of a human touch, you need to maintain cordial relations with the client, considering their demographic and geographical parameters to maintain trust and confidence in dealings.

Are you looking forward to integrate with other Businesses? In what other potential verticals would you like to take organisation as in expansion or diversification of services?

Our focus is on Rural areas. Today all the major companies, be it FMCGs like HUL, and every other sector all our looking forward to gain market in rural areas in spite of their positioning in urban areas. So, I believe we can be a vehicle for them because we have that kind of penetration. As a sector more than 3 crore people are associated with us mostly from rural regions. So anything that is to be carried into this market we can be channel for those. Micro-finance already has a partnership with the FMCG products like mobiles, television, etc. Even with groceries we are doing tie-ups to provide enhanced services. So we can tie-up across sector that want to provide relevant products and services to this section of society.

Do you see any direct/indirect impact of movement of migrant workers to their hinterlands on the demand of services?

Definitely in the present scenario if you see that reverse migration is going on. As of now, most of our clients were women who usually had spouses relocated in cities for work. These people back in their native places, being the earner in the family will need to look out for work or business ideas to strike an income. So, in near future their stay can mean a spurt for requirement of finance in these areas. As of now, any financial requirement will be majorly to meet consumption of households. Due to lack of rotation of cash many businesses are not running efficiently, so likely due to uncertainties in this time of pandemic the impact can be seen after next two months when the industries get going.

With Economy revival plans and the introduction of stimulus package by FM, what do you see the impact will be in your domain? How can it used to make up for liquidity crunch in the sector?

Definitely the stimulus package government has announced for this sector has the potential to create a positive impact. Initially, for LTRO they have announces 50,000 crores, for NBFCs, MFIs and HUFs a total of allocation made can help to lower the interest rates on the funds by that they can have initial liquidity and can disburse the loan while maintaining required working capital. So a total of around 50000-60000crs. amount that has been allotted for NBFCs and Micro Finance Sector if channelized into the system in a proper way can help to meet the liquidity crunch in the sector. It’s a good policy that has been formulated but again it comes down to how execution takes places. Implementation of the policies is crucial for significant results. The expertise available with government or via market system, how the injections are disbursed is key to successful impact in the sector.

What trend on demand and supply side have you observed in the present scenario of Covid 19?

As of now everything back seems to be in recovery mode since last 15-20 days. Though essential goods have continued to be there in the market, in rural areas dairy products have taken a hit. Around 20-30% consumption has fallen causing a dip in prices of livestock produce. Similarly supply chain has also been affected due to infrastructure. Non-essential goods have seen neither a demand or supply so far. It will take around 2-3 months to spur demand in these markets.

What is the current industry size and how is it going to change in follow up period?

The current industry size, if I talk about the MFI segment which is properly organised is around Rs. 3 Lakh Crore. For MSMEs its around Rs. 7 Lakh crores. In my opinion, in near future we can see retrenchment in the sector but after that it can pace up with revival of the economy with demand in the market. MSME will be the first one to recover fast followed by MFIs. So, it be approx. 6-12 months to get back on track and from there refinancing requirements will arise and portfolio will increase.

What is the composition of your market? (In terms of Agri-tech, women entrepreneurs and small cooperatives and rural needs)

Our clients consist mostly the women entrepreneurs because we provide loans only to women and very few to men. We create the groups of women. When you talk about the JLG (Joint Liability Group) model focus is 100% on women entrepreneur. But otherwise if one is following Individual lending model there can be both women and men entrepreneurs who can be catered to. So, around 97-98% of our customers are women and remaining men. The SHG model is usually followed by government (PSUs and Banks) which covers the agri-tech and small cooperatives as well.

Share any one habit which you think makes you more resilient. Any personal Lessons you would like to share.

This segment requires more of travelling and adaptable, and interacting with rural households makes you see the impact you are creating in livelihoods there. That makes me more motivated, to have been capable to bring a positive change in people’s lives with services I am providing. We have come across a no. of cases in the past 12 years in this segment who have made the best of our services and are flourishing now. In this journey I have almost travelled all around India, many rural areas where we sat down with the people, understand their needs and the change we bring is the inspiration to continue on the same path.

If in present you have to pivot in terms of business structure in given economic and external factors, how will it be?

Any Business structure that improves the client relations with better connectivity and understanding being more of a one-way sector. Technology is essentially going to revolutionize the Financial industry. Staff management, motivation, client-touch, client intervention, and so on, any structure that supports these aspects well is going to survive well. And not only in present times of pandemic but also in any scenario.

Technology’s Impact on MFIs is becoming evermore important. Technology can help reduce the TAT of the entire process of sourcing to disbursement. Clients are already aware of basic technologies and the movement of customer data and files is reduced. This in turn helps in reducing the time for disbursement, client’s data being captured properly. The front-end IT, the IT that is used at staff level sourcing, helps them in efficiently sourcing. In addition, the process of collection is greatly simplified by technologies like NASH, UPI that have come up, especially in this time when cash is not be touched due to fear of pandemic these cashless collection modes have become even more important. In the coming time technology will play an important role and with time will keep changing as well. Before demonetization the collection and disbursement used to be in cash only, after demonetization technology has been adopted across. due to social distancing becoming a norm, technology will become very important from now on.