Sadaf Sayeed, CEO, Muthoot Microfin Limited

17 Dec 2023 , 01:05 PM

Give us an overview of the company’s journey so far and the key learnings thereof.

Muthoot Microfin is a part of the Muthoot Pappachan Group, a business conglomerate with presence across financial services, automotive, hospitality, real estate, information technology infrastructure, precious metals and alternate energy sectors. At Muthoot Microfin, we have a history of serving rural markets with high growth potential in the microfinance segment, and have maintained a track record of financial performance and operational efficiency through consistently high rates of customer acquisition and retention and expansion into underpenetrated areas.

We primarily adopt a joint liability group model which caters exclusively to women in lower income households and is premised on the fact that if such individuals are given access to credit, they may be able to identify new opportunities and supplement and grow their existing income. The history of the Muthoot Pappachan Group in working with customers at the bottom of the economic pyramid helps us better address the needs of women in rural households and design lending products to cater to their requirements.

How does Muthoot Microfin differentiate itself in a competitive microfinance market?

Being the fifth largest NBFC-MFI in India in terms of gross loan portfolio as of March 31, 2023 and also the third largest amongst NBFC-MFIs in South India in terms of gross loan portfolio, the largest in Kerala in terms of MFI market share, and a key player in Tamil Nadu with an almost 16% market share, as of March 31, 2023 according to CRISIL Report, we enjoy market leadership. This factor along with the fact that we have a well-diversified portfolio across 339 districts in 18 states and union territories in India, as of September 30, 2023 positions us uniquely as market leader with a Pan-India presence.

Our ability to secure capital at competitive costs, recruit and retain skilled employees, retain existing customers, add new customers, expand into new regions and grow our portfolio of products from time to time are our key strengths. We have built a resilient business model that has allowed us to continue to grow our business through events such as the Indian banknote demonetization in 2016, the Kerala floods in 2018 and 2019, the cyclone in Tamil Nadu in 2018 and the COVID-19 pandemic. Our relationship with the Muthoot Pappachan Group provides us with brand recall and significant marketing and operational benefits. In addition, there are opportunities presented by the financial services businesses of the Muthoot Pappachan Group for the growth of our operations and expansion of our customer base and geographical footprint across India. 

Other than financial services, we have synergies with the operations of MFL. For example, we use Muthoot Pappachan Group branches and expertise in specific areas of our operations including cash management, gold assessment and storage. In addition, in collaboration with Muthoot Exim Private Limited, we offer Swarnavarsham gold coins, an investment scheme aimed at promoting savings, to our customers. Through our Swarnavarsham gold coins investment scheme, we offer our customers one gram of gold at market value with a payment tenure of 37 weeks or nine months or 18 fortnights.

What measures are in place to ensure the sustainable repayment of micro-loans, and how does the company address challenges such as economic downturns or unforeseen events?

Our widespread branch network in rural markets, together with our technology led initiatives, results in significant competitive advantages, particularly by giving us the capability to offer a variety of financial products in areas where financial services penetration is limited. We have significantly implemented the use of technology across our microfinance operations in India. Some key aspects of our technology include a unique credit score card along with Equifax to improve our underwriting capabilities, our proprietary application, called “Mahila Mitra”, which helps expand our digital collections infrastructure, to name a few. We have extensive cybersecurity measures, including firewalls, encryption, antivirus software, access control and incident response planning, in place to protect sensitive information and prevent cyberattacks and cyber frauds. We have a robust customer on-boarding process with a high level of data entry and underwriting automation. We have developed an IT system with ability to track field activities on a real-time basis, enabling centralized, online reporting of transaction numbers real-time and immediate handling of fraud and repayment issues. This also allows us to easily introduce new or modified products into the system.

What are the key strategic priorities for Muthoot Microfin in the coming years?

Our strategies include expanding our geographical footprint and sourcing platform across India. While our operations have historically been concentrated in South India, we have in recent years expanded into North, East and West India. Moving forward, we expect that a significant portion of our future geographic expansion will include rural areas in these regions and intend to grow our branches in four key states: Uttar Pradesh, Bihar, Rajasthan, and Punjab, which are underpenetrated or moderately penetrated states that may have potential for growth and customer expansion. We will continue to enhance our Information Technology capabilities with a focus on customer service, operational efficiency and cost optimization; and further diversifying our sources of funding. 

How does Muthoot Microfin navigate regulatory challenges and ensure compliance while scaling its operations? 

In March 2022, the RBI increased the household income limit for microfinance loan eligibility from Rs. 0.20 million per annum for semi-urban/urban areas and Rs.0.13 million per annum for rural areas, to Rs. 0.30 million per annum for both semi-urban/urban areas and rural areas, which we believe has expanded the total addressable market for NBFC-MFIs. Going forward, we intend to tap this additional customer base and increase our wallet share by targeting eligible customers that we determine to be in very low risk or low risk categories. 

Further, in line with the removal of interest rate cap for NBFC MFIs by RBI in March 2022 (provided that the interest charged is not be usurious and subject to the supervisory scrutiny by the RBI), we intend to focus on risk-based pricing in order to improve our yields and net interest margin, as the removal of interest rate cap will allow us to price our loans according to our assessment of the default risk in a particular region or state. For example, we price our loans at a higher interest rate for regions or states that we assess to contain a higher default risk. 

Can you highlight your prominent corporate social responsibility initiatives? 

We have adopted a CSR policy in compliance with the Companies Act. During the Financial Years 2021, 2022 and 2023, and the six months ended September 30, 2022 and 2023, our expenses on corporate social responsibility amounted to Rs. 26.95 million, Rs. 19.95 million, Rs. 6.23 million, Rs. 3.13 million and Rs. 9.55 million, respectively. We have established a Board-level CSR committee which is responsible for monitoring and executing our CSR policy. As of September 30, 2023, 96.58% of our total customers were from rural areas. We seek to facilitate opportunities in such areas for such customers as well as by recruiting locally. We aim to service the unbanked population and provide financial services to women customers who are economically and socially challenged. We seek to engage the local workforce and encourage personal volunteering efforts of our employees in order to promote a culture of responsible citizenship. We have established a number of CSR initiatives to encourage good health and well-being, including the cleft lip surgery “smile please”, nutrition support program, blue butterfly (pediatric cancer treatment support), COVID-19 response activities, and disaster management initiatives (including rehabilitation and reconstruction initiatives).

Give us an overview of the company’s Environmental, Social and Governance (ESG) strategy.

We examine the risk exposure in states that are vulnerable to climate risk by adopting data published by reputable organizations in order to comprehend and evaluate the risk exposure in each state. To protect our customers from the risks of natural calamities, we have, since May 2020, also provided natural calamity insurance to our customers to whom we disburse loans across our branches in India. We have invested in building robust control and review mechanisms to promote better governance within our Company. Our internal audit department evaluates compliance with internal controls and processes, and the impact and risks associated with any non-compliance of internal controls and processes.