Microfinance industry has proved its viability as a business model. It will continue to remain a relevant and important conduit for providing financial services to a vast segment of the population, complementing the banks, says Jugal Kataria, Chief Financial Officer, Satin Creditcare Network Limited, in conversation with Elets News Network (ENN).
How Microfinance Institutions are supporting the Government’s agenda of Financial Inclusion and bridging credit gap between unbanked and underbanked parts of the country?
In the last few years, the Government of India has been instrumental in driving financial inclusion across the country. However, as per the April 2018 Global Findex Survey by the World Bank, India still lags behind rest of the world on many counts of financial inclusion. Only a tiny fraction of bank account holders in the country uses the financial services available to it. The lack of bank branches in remote parts of the country is a persistent challenge. In the absence of formal banking services and credit facilities, micro-finance institutions have enabled crores of people to become part of the formal economy. The significance of Microfinance Institutions (MFIs) in the country can be understood from the fact that there were more than 2.65 crore borrowers associated with these institutions with the outstanding Gross Lending Portfolio (GLP) of Rs. 1,48,097 crores as on 30 June, 2018. This represents 39 percent Year-on-Year growth.
Tell us about Satin Creditcare Network Limited’s existing business portfolio and future expansion plans.
Satin Creditcare Network Limited (SCNL) is the second largest microfinance institution in India in terms of Gross Lending Portfolio (GLP), i.e., Rs 6,025 crore at Quarter 1 Financial Year 2018- 19. We are ‘Reaching Out’ to unbanked and underbanked women in semi-urban and rural parts of India through Joint Liability Group model. By facilitating collateral-free, microcredit for economically active women, we empower them to start or grow their business and be a part of the formal economy.
We also offer microloans to individual businesses and Micro, Small & Medium Enterprises (MSMEs); finance the purchase of solar lamps, as well as the development of water connections and sanitation facilities. Our wholly-owned subsidiary housing finance company has already started disbursing loans in Delhi-NCR and Rajasthan on a pilot basis. Satin Housing will lend for micro-housing and home improvement.
As of now, we are serving close to 30 lakh clients across 20 States and union territories, with strong presence in North, East, and Central India. In the last few years, we have focussed on geographical expansion to diversify the business risk and reach a larger client base. By the end of 2018, we aim to start operations in two more states in South India. This will help us increase our GLP by about 40 percent in 2018- 19.
What technologies do you implement to ensure quick loan disbursal and controlling the performance of ground workforce?
With our state of the art in-house technology, our loan disbursal time has gone down significantly. Today, most of our loan disbursements are through electronic transfer, where we transfer the loan amount to client’s bank account using banking API. Document digitisation is another way to speed up processes within India’s deep rural geography with real time information flow. Vernacular paperwork, wherever possible is generated from system on demand, reducing carbon foot print and administrative costs.
On a macro level, real time data analytics helps SCNL to keep a check on portfolio performance, customer concentration and other risks involved. This also helps us in identifying areas of growth, potential markets, eventually enabling strong governance. Digital Know Your Customer and loan application using mobility devices has increased customer connect and reduced our turnaround time significantly.
Loan underwriting process automation is possible with robust rule engine and partner system integration for real time data transfer and validation. This cuts down our operational cost significantly and becomes a competitive advantage.
What is your take on the future of microfinance industry?
Microfinance industry has already proved its viability as a business model. It will continue to remain a relevant and important conduit for providing financial services to a vast segment of the population, acting as a complement to banks. Increasing use of technology and digital transaction to reach rural India will be the game changer for the industry. As rural India gets connected to the outside world, consumer awareness on formal channels of financing will increase. We believe that this will create a platform for rural focused companies like us to chart new growth regions.
What security challenges do you come across while implementing various technologies? How do you overcome such challenges?
Using open source technologies is cost effective but comes with security challenges. Therefore, at SCNL, we limit the use of these technologies. We evaluate our systems and keep all patches updated on regular basis. We are also part of several tech groups which allows us to stay abreast with any ongoing security risks. Data transfer between systems is prone to external threats. All our in-transit data is encrypted and transferred on secured protocols only. We regularly conduct required tests and simulated hacking to check our systems for possible hacking attempts. All external API are encrypted and access is limited to relevant people only to avoid any misuse, especially regarding payment and financial services.