MFIs Reinventing Financial Inclusion in India

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S V Raja Vaidyanathan
Managing Director
Asirvad Microfinance Ltd

Financial Inclusion via micro finance institutions (MFIs) is just one aspect of banking the unbanked segments of society. But it is very important, as finance is pivotal for social as well as economic development of the poor populace, says S V Raja Vaidyanathan, Managing Director, Asirvad Microfinance Ltd, in conversation with Elets News Network (ENN).

How significant are MFIs in terms of Financial Inclusion in India?

Financial Inclusion (FI) is generally defined in terms of financial exclusion. In India, majority of the population belongs to lower income group. But the facilities which can be availed be it financial services or any other services generally targets the few rich people. Thereby the low-income group gets neglected. This is the kind of exclusion which needs to be highlighted by favouring the concept of Financial Inclusion.

The great tragedy lies in the fact that sometimes even though there are certain financial services, specially designed to meet the needs of these low-income group people, these people remain unaware about the due to illiteracy or other reasons. Thus, lack of awareness also leads to the financial exclusion.

Role of Micro Finance: The main aim of financial inclusion is to make the financial services accessible to lower income group and that is where role of micro finance comes in. For the achievement of Financial Inclusion, the most important goal is to make the banking facilities available to all the unbanked areas and each household.

Micro Finance plays a very important role in Financial Inclusion in different ways such as: Micro credit is provided to Self Help Groups (SHGs) consisting men and women in remote areas as they are the target group of this facility.

There are various organisations providing micro credit along with which they also conduct training for first time customers and impart them financial literacy and explain about the various micro finance products available to them.

According to a report released by Micro Finance Institutions Network, MFIs registered a growth of 43 per cent year-on-year. How do you analyse this growth for the sector and what opportunities do you see in this?

NBFC-MFIs play an important role in the government’s agenda of Financial Inclusions as they cater to the unbanked sections of Indian society under the regulatory oversight of the Reserve Bank of India (RBI).

The microfinance industry has witnessed impressive growth over the past five years, growing at a Compound Annual Growth Rate (CAGR) of 45 per cent. It has also evolved and matured with regulatory reforms following the Andhra Pradesh crisis (in 2010) that address product, pricing and protection of customer interest. Following these regulatory reforms, we have seen the emergence of regulated NBFC MFIs, the formation of a Self-Regulatory Organisation (SRO), and transformation of some MFIs into universal and small finance banks.

With over 45 million end clients, a loan book of over Rs 1 lakh crore, and employing over 1.2 lakh people across 10,000 odd branches, the microfinance sector has emerged as a formidable force for the spread of financial inclusion in India.

Despite the growth, the industry caters to less than 25 per cent of the demand and this indicates the potential for future growth. The outreach of MFI has been growing rapidly over the past few years due to low penetration of formal banking system, especially among lower income groups.

The impact of demonetisation has nudged the MFI sector to move towards cashless modes of operation. However, it is expected that a significant proportion of MFI transactions (mainly collections) would continue to be in cash due to small ticket size, and low penetration of smartphones among its low-income customer base.

We expect the industry to register a modest growth of 30 per cent.

Asirvad Microfinance has completed a decade in the industry. How has been your journey so far?

We have completed 11 years so far. Our growth strategy was very different initially. We always wanted to reach highest productivity in one territory before moving on to a newer one.

Capital was also a constraint for growth for us. But since Manappuram Finance acquired the company in 2015, the growth was accelerated and today we are the sixth largest NBFC – MFI in the country Rs 2300 crore Assets Under Management (AUM). We have a PAN India presence. We are spread across 21 states with 1.5 million members and a network of around 832 branches.

With the support of Manappuram, Asirvad will certainly emerge as one of the top three in the very near future. The journey has not been very smooth but it’s certainly satisfying given the fact that we put smiles across million women in India. With these small loans we help them to dream big.

Asirvad is committed to be a longterm player in the Financial Inclusion space and plays vital role in supporting the government in this endeavour.

“With over 45 million end clients, a loan book of over Rs 1 lakh crore, and employing over 1.2 lakh people across 10,000 odd branches, the microfinance sector has emerged as a formidable force for the spread of financial inclusion in India.”

What are your digital offerings?

Technology and innovation have become key drivers of economic growth. In the recent past, technology has undoubtedly triggered economic growth, impacting significantly microfinance sector too. Convergence of digital platform in financial inclusion benefits MFIs and clients alike. Automation of transactions due to digitisation enables MFIs enhance capital, flow of information and makes it convenient to organise and scrutinise data.

Digital offerings by Asirvad:

  1. Asirvad was one of the first few MFIs that embraced mobile technology in their filed operation as early as in 2008.
  2. TAB and Bluetooth printer to all field staff to get Real Time Data, Real time electronic receipting and accounting. Printed receipt to customers.
  3. E-Know Your Customer( Ekyc), e-Sign based customer on-boarding: Online/Offline modes, Paper less, Reduction in TAT
  4. Analytical Dashboard (Comparison with other MFI & BFSI):Our performance can be analysed w.r.t other MFIs, NBFCs and Banks
  5. Moved to 100 per cent cashless disbursement since August 2017 and are exploring least cost avenues o cashless collection.
  6. Many process automations are underway like field force tracking through GPS, center mapping etc. and such other measures to improve productivity and enhance member satisfaction.

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