Wrestling demonetisation Satin Creditcare style

CEO, Satin Creditcare Network, Dev Verma at the launch of the company’s first office in South India at Mandaveli, Chennai.

Chennai: Delhi headquartered Satin Creditcare, a decade old microfinance institution (MFI) which is the second largest in the country has entered the South Indian market for the first time, commencing its operations from Chennai.

Speaking to News Today about the company’s strategy in Tamilnadu and expansion plans is its Chief Operating Officer, Dev Verma. He says that if it were not for demonetisation and its ripples, Satin Creditcare would have entered this part of India two years earlier.

Here are excerpts from the interview.

How important is South Indian market and what are your expansion plans?
In the microfinance industry, the south contributes 26 per cent, which is a large chunk. We are primarily a rural-based MFI and 80 per cent of our centres are in rural pockets. So, we see huge opportunity in the south which has a lot of potential rural pockets. This is how we would build ourselves up. Our primary objective is to be a pan-india organisation and as and when the company has grown, we have always gradually expanded. Tamilnadu is our 21st State. From Tamilnadu, we will go to Karnataka, Kerala and so on. Chennai will be the circle office where the head of south operations will sit and we will have regional offices in the other States.

Why did it take so long for you to come here?
We were scheduled to launch here two years earlier, but, because of the demonetasaion we slowed down. We did not know how long the market would take to recover from it, the regulatory changes and how the business environment will be different. So, we took a cautious approach and continued expanding internally in areas where we were already present. The moment we felt things were settling, we started scouting around to pick up the right people for expansion here. So, if it were not for demonetisation, we would have definitely been here two years earlier.

How did demonetisation impact you?

The maximum impact of demonetisation was in the north, followed by Central India. In the South, it was very minimal. So, when demonetisation hit us in 2016, its impact on us was larger than other microfinances as we had more at stake in the north. There was a genuine breakdown in currency flow. Demonetisation had a direct hit on loan repayment. Even clients who had been with us for eight years defaulted, but you cannot blame them. We had to invest more than other microfinances to reach out to clients and gave emergency loans to people to tide over the crises.

What were the lessons you learnt from demonetisation and what are its positives?
Our focus to expand and diversify our stocks is part of a de-risking strategy that is an indirect impact of demonetisation. Entering different markets and offering different products, helps in the derisking of portfolio. The positives of demonetisation is the digital factor. Today, 70 per cent loan disbursments happen directly into accounts. Earlier, it was all cash. We have pushed hard on the tech front and re-invigorated our process to make it more stringent. It also helped us identify the men from the boys within our own team who could handle crises. Demonetisation also helped us understand our clients better and not take them for granted.

How is the market post demonetisation?
There are some MFIs that have converted into banks. They are either payments bank or small finance banks and some have even merged with banks. In some sense, this has created a void in the MFI sector. Previous MFIs have shrunk their MFI portfolios, focusing more on the banking side. So, new generation MFIs and regional players are coming in due to the market demand. As for us, we have diversified into housing loans and loans for SMEs. We offer pilot capital for two-wheelers, solar installations, water and sanitary needs. We have a 30 lakh client base. We will only grow as we enter the south. The idea is to diversify as much as possible and offer maximum products so that our clients don’t go anywhere.

So, will microfinance eat into targets of banks in the future?
Today, we see NBFCs are eating into the shares of banks as they have more flexibility of reaching out. Similarly, banks cannot operate in rural areas as it is not financially viable for them. So MFIs, as an intermediary channel will always co-exist with banks. MFIs also have less NPAs and cost of operations are lower than any bank.

A Harsha Vardhan