Arohan Financial Services MD Manoj Nambiar: Beyond financial requirements, we try to cater to customers’ core needs

Arohan Financial Services MD Manoj Nambiar: Beyond financial requirements, we try to cater to customers’ core needs

Kolkata-headquartered Arohan Financial Services is a rapidly growing player in the microfinance space. Manoj Nambiar, MD of the company, talks about the focus of the group and how the same is an enabler for Arohan to grow as rapidly as it has done in the past. He talks about all this in a chat with Pankaj Joshi.

What is the reason behind two entities in the NBFC space?
Our lending business is split between two entities, Arohan and Intellegrow. Arohan has been in existence since 2006 and was acquired by the Avishkar-Intellecap group in September 2012. Arohan is into the standard non-banking financial company-micro finance institution (NBFC-MFI) space. This is aimed at the bottom of the pyramid clientele and is highly regulated. It is defined in terms of products, pricing, the target segment, tenure and other things. The other business looks at the institutional lending, by which I mean the micro, small and medium enterprises (MSME) clients. This is not so much regulated.
When we acquired Arohan, it had a net worth of Rs 13 crore and a portfolio of around Rs 25 crore. Today, the portfolio is around Rs 2,500 crore and the net worth has correspondingly grown to Rs 400 crore. The footprint is across ten states with 490 branches, 20 regional offices and 3,800 employees catering to around 13 lakh end-customers. The promoter group has around 24 per cent of equity and institutional investors hold 71 per cent, with the rest divided among high net-worth individuals (HNIs), employees and the ESOP trust.

FY2014 FY2015 FY2016 FY2017 FY2018
Gross disbursements (in Rs mn)
2,608.29 5,139.49 8,465.42 13,356.06 26,935.90
Disbursement growth (%)
160.12% 97.04% 64.71% 57.77% 101.68%

How does this fit into the group focus?
Let us have some perspective about the group. The Avishkaar-Intellecap group has interests in equity investment, advisory services and NBFC businesses. The total assets under management would be around Rs 3,000 crore. Equity investment is under Avishkaar, which looks at early-stage businesses with a social sector focus, such as water management, green energy, healthcare, education and so on.

The advisory business is under the Intellecap brand, which provides business consulting to developmental financial institutions, as well as small private businesses. Here again, the focus is on socially-relevant businesses. The investment banking activity helps raise capital for the same, and beyond that are initiatives like Sankalp, which is a platform where entrepreneurs can showcase their ideas and vision in an ecosystem of investors, lenders, industry observers, regulators and growth facilitators. Basically, enterprises in the developmental social space get a convening platform and attract investment and growth opportunities and scale up better. Today through Intellecap, we are facilitating building of businesses in Africa and the Far East as well. We also have a fintech business, Tribe Tech, which looks at machine scrutiny of credit proposals and credit approval and recommendations to banks and NBFCs.

As of March 2018, Arohan was the seventh-largest NBFC MFI in India and the largest in Eastern India. Our footprint in Central, Eastern and North-Eastern India –we start from Madhya Pradesh and go up to Arunachal Pradesh and Tripura – encompasses 10 out of the 14-15 low-income states of India. When you look at states like Uttar Pradesh, Madhya Pradesh, Bengal, you can see they have a good population and good demand but MFI penetration is very low. This signifies good potential.

Where this fits into the group vision is that Arohan goes beyond credit to focus on financial inclusion. Be it bank accounts, pension accounts, insurance needs, remittances, even investments, Arohan tries to play a part. We are corporate insurance agents, both in life and non-life categories. We are banking correspondents for IndusInd Bank and have a tie-up with Paytm. Once the customer gets a bank account, savings and remittances and other things become easier.

Going beyond financial requirements, we try to cater to certain core needs of our customers. Things like a solar lamp, mobiles across different budgets, bicycles, water purifiers, cooking products – we have an Arohan e-bazaar app which offers such a curated range of products. We believe that such an offering would deepen our relationship and make it stronger and multi-dimensional.

Given that your space is so much regulated, how do you create differentiation?
We have quite a few tech-based differentiators. At the front end, all our 2,500 loan officers are tab-enabled. This ensures the loan process – KYC, Aadhaar-based linking, credit bureau report access – is paperless and the feedback (again algorithm-based) is instant. The tab reports sync into profile, a core banking system of FIS. Our quality control hub, apart from checks on the KYC and documents, also focuses on incremental disbursements being cashless. Our post-disbursement file storage is again in hard and soft form.
The call centre is trained in customer relationship management. The HR platform, Adrenalin, is again state-of-the-art. It takes care of complete personnel requirements. Our risk management model goes beyond individual checks to a regional geography check. We can zero on into a location and check the quality of credit demand there. We can benchmark ourselves vis-a-vis the geography and find out how we are growing against the benchmark. We have a real-time internal audit process which does online monitoring of the field work programme.

Business-wise another USP we have is that we are perhaps the only NBFC which has a ticket from Rs 10,000 – Rs 1,00,000 (the MFI vertical) and then from Rs 1 lakh to Rs 1 crore (MSME vertical). Typically our average ticket sizes across both verticals are Rs 20,000 and Rs 25 lakh respectively.

In our MFI business, we also use the business correspondent model which is a tie-up with smaller players who are our agents. It helps our penetration to improve at lower cost and the credibility and customer connect of the local players is used to our advantage. We provide liquidity and the end-user gets funding, so it benefits all.

What is the strategic importance of the MSME business and how are you looking at it?
Both our businesses have separate sourcing and processing functions, but ultimately it is about using the infrastructure investment to optimum levels. We understand the MSME market is highly under-penetrated and that is the opportunity. We started in mid-2015 with a merchant cash advance product, based on POS receipts. As of March, we have a portfolio of Rs 76 crore in this segment.
Here the key factor is risk mitigation, which we achieved through repayment innovation – an automated clearing house link set to the customer’s bank account which gives us a percentage on the borrower’s revenues. So when the customer receives revenues in his bank accounts, we generate our repayments side by side. This also reduces his obligation on a regular basis rather than through the end-of-month procedure. We grow without undue risk and can broaden our portfolio and help us penetrate more in our chosen territories.
MSME penetration is roughly one-third of what is needed and penetration is now needed into interiors and rural areas because the urban areas are well-serviced. Therefore, greater penetration and lower overheads is our focus.

How does Arohan stand in terms of pricing which is a key factor?
Pricing today, under regulation, is a function of the cost of funds. At 20.75 per cent, we are the second lowest in India. Most of our contemporaries operate in the 23-25 per cent range.

Pricing again is one factor in our favour. We believe that under the community programme, which is mostly women-oriented, we are an exception in that as we have introduced a bazaar for men. Beyond these basic products, we have the premium segment which caters to borrowers in the Rs 50,000 to Rs 1 lakh segment. We firmly believe that we have the building blocks in place and like you have seen in the past, we will continue to grow at an excellent pace.


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