Breaking Barriers: New Horizons in Tier 2 & 3 City Financing

The financial sector in tier 2 and 3 cities is experiencing rapid evolution, driven by advancements in financial inclusion and emerging market opportunities, shared Shalya Gupta, Chief Executive Officer, PHF Leasing Limited, in an exclusive interaction with Srajan Agarwal of Elets News Network (ENN).

Financing in tier 2 and 3 cities often have unique challenges, such as limited credit histories and lower financial literacy. Can you elaborate on the primary issues PHF Leasing Limited faces when providing financing solutions to these areas and underserved populations?

At PHF Leasing, our mission is to empower underserved communities through financial inclusion. We offer funding and financing solutions primarily to income-generating activities.

Some of the key challenges that we face are:

1. Verifying customers’ income due to insufficient documentation and limited transparency about their financial status: We conduct thorough self-assessments and economic profiling to evaluate loan applications, focusing especially on customers’ capacity to manage EMIs.

2. The lack of financial literacy: While the absence of credit history is less of a barrier nowadays, thanks to the efforts of microfinance institutions, a bigger issue is the lack of financial awareness. Many of our clients lack proper bank accounts, despite widespread banking services, with essential features like debit cards and auto-debit facilities often unavailable. This deficiency increases our operational costs, contributing to higher interest rates.

3. Building Trust: Fostering trust and relationships with customers amidst competition from informal lenders who offer quick, but risky loans at exorbitant rates without adequate safeguards, is another significant challenge.

4. Lack of Clarity on funding needs: Many customers lack clarity on their funding needs when applying for loans. Ethical concerns arise from unethical sales practices, such as through DSAs and dealer-based sales, impacting customer trust and satisfaction negatively.

5. Policy Issues: In the electric vehicle financing sector, the absence of clear policies and guidelines leads to issues like unregistered vehicle sales, ambiguous licensing requirements for drivers, and unpredictable government regulations on e-rickshaw operations.

At PHF Leasing, we remain committed to navigating these challenges to better serve our communities and contribute positively to financial inclusion efforts.

Given the challenges in these markets, what specific strategies have PHF Leasing Limited implemented to address these hurdles effectively? Can you share any success stories or key learnings from these efforts?

We establish a physical presence at each location to ensure direct customer interaction with our team. Following these on-site meetings, we maintain ongoing communication from our Head Office.

In the EV loan segment, for example, we utilise both digital and physical verification methods and ensure a seamless customer journey, explaining all loan terms transparently. We emphasise the importance of proper documentation such as a valid driving license, vehicle registration (RC), and insurance before approving any funding.

Educating customers on the benefits of comprehensive banking services is also a priority, highlighting potential savings and convenience.

All our loans have mandatorily a female borrower as a co-applicant. This is crucial as it ensures that women in the household understand their financial responsibilities and are involved in decision-making. Given their significant role in managing household finances, their awareness of loan risks and benefits is essential. We have realised that having a female borrower substantially reduces the risk of default.

The shift towards electric vehicles (EVs) presents new opportunities in the financing sector. How is PHF Leasing Limited positioning itself in this niche market, particularly concerning financing eRickshaws and eLoaders?

We have solidified our position as a leading player in the E-Rickshaw and E-Loader segments, aiming to empower more self- employed individuals.

Our vision includes expanding our services nationwide in the coming years. Currently, we operate in 11 states and Union Territories.

As electric vehicles gain traction in Southern regions, we are focused on extending our presence there as well.

Our expansion efforts are already underway in Madhya Pradesh, with plans to target Chhattisgarh and Maharashtra as key territories for growth in the current financial year.

Since joining PHF Leasing Limited, you have driven significant growth and profitability, with the company’s AUM reaching over Rs. 210 Cr. What key factors and strategies do you attribute to this remarkable success, and how do you plan to sustain this growth trajectory?

I firmly believe success is a team effort, and credit should be shared among all involved. PHF leasing has grown by leaps and bounds, but we still have a long way to go.

Early on, we identified an opportunity in the EV segment and conducted thorough market research to understand prevalent practices. Upon entering the market, our
goal was to address existing challenges by not only providing funding but also assuming responsibility as a service provider. While numerous lenders operated in this segment, we differentiated ourselves by taking a proactive approach, ensuring accountability rather than relying solely on dealers and distributors. We emphasised a streamlined business approach for ourselves and our partners. And this has led us to establish a strong presence in the segment. Lenders are also happy to be a part of our growth story.

In terms of people management, I believe that transparency and accountability are really important. Honouring commitments made by the company’s leadership is essential in fostering loyalty and trust among our team members. I am happy to state that today, we have a team that is a miX of young blood and experience and it is an unbeatable combination.

Identifying opportunities, creating a strong systems driven business plan, onboarding quality lenders, being transparent in the interactions with the customers and focusing on people in the company have been the main reasons for PHF’s success and I am happy to have created a roadmap for success for the company.

The financing sector continuously evolves, particularly in tier 2 and 3 cities. What emerging trends do you foresee in these markets, and how is PHF Leasing Limited preparing to adapt and capitalise on these changes?

The financial sector in tier 2 and 3 cities is experiencing rapid evolution, driven by advancements in financial inclusion and emerging market opportunities.

There are two critical aspects to consider in this evolving landscape:

• The strides made in financial inclusion

The MSME segment presents significant opportunities, yet there remains a huge gap in the availability of comprehensive products that effectively serve organisations, MSMEs and Individuals.At PHF Leasing Limited, we recognise that our role extends beyond mere financing; we must act as partners to our customers, offering opportunities that foster mutual growth. It’s essential to engage withstakeholders both in their homes and businesses.

• The growth potential within these markets We are committed to developing products and services that extend beyond traditional finance, enriching the lives of our customers personally and professionally.

Also Read | Breaking Barriers with Tech: NBFCs redeflning Financial Inclusion

For example, during our field investigations, we take the time to understand our customers’ diverse needs. This includes anticipating future asset requirements such as refrigerators, televisions, or water purifiers, and addressing specific financial needs like school fees or festival-related expenses such as during Diwali. Our pledge is to support our customers in achieving their life aspirations.

In terms of business support, our assessments encompass more than just financial requirements. We strive to fulfil our customers’ overall needs, ensuring they have the resources and assistance essential for sustainable growth. Through this comprehensive, partnership- driven approach, PHF Leasing Limited is poised to effectively navigate and capitalise on the evolving dynamics of tier 2 and 3 markets.