While MFL is listed on the BSE in 1995, the debt instruments of the parent company as well as its home finance subsidiary are also listed. MFL has also raised debt capital from the international markets through issuance of dollar bonds, which are listed in Singapore.

“The fact that the company did not face any challenges on the liquidity front over the past two years, otherwise a particularly challenging phase for India’s NBFCs,” says Bindu A. L., CFO, MFL. She started her career with MFL as a freshly minted chartered accountant and over the past 21 years, she has meticulously achieved excellence in various roles and responsibilities.

As a CFO, she is the face of the company to the investors, bankers and institutions. She has also taken the company to the global arena by raising dollar funds through the maiden international bond issuance of the company in January 2020. 

Over the last five years, the company has diversified into new business areas like microfinance, vehicle and housing finance, and SME lending. Today, the company has 4,616 branches (including subsidiary companies) across 28 states and Union Territories with an AUM of Rs25, 346 crore and a workforce of 26,633. 

“Manappuram Home Finance Ltd (MHFL) focuses on the affordable home finance segment providing credit to the less fortunate customers. The AUM of this subsidiary is about Rs673 crore and we hope to achieve Rs1,000 crore mark in the medium term, while keeping the NPA levels in check,” says Jeevandas Narayan, MD, MHFL Prior to joining Manappuram, Narayan was MD with State Bank of Travancore. He has experience of over 37 years in the financial services industry. 

“The vehicle and equipment finance (V&EF) business has grown handsomely over the years and now accounts for nearly 5 per cent of the consolidated AUM at nearly Rs1,200 crore. The V&EF business has enormous growth opportunities, especially in the second-hand vehicle market which has seen heightened interest in the current environment where shared mobility takes a back seat as customers prefer to use their own vehicle,” says Senthil Kumar, head of V&EF. Kumar brings over 24 years of experience in the areas of finance in business development, product positioning, market penetration, credit & risk and profit centre operations in organisations like Fullerton India, HDFC Bank, Citicorp etc.

A record of resilience

Gold loans have the dominant share in the company’s business mix accounting for about 70 per cent of its consolidated business. Today, MFL is among India’s largest NBFCs in the gold loan business. “It’s a business with a proven record of resilience to economic downturns. As the world economy currently deals with a crisis caused by the strict measures to contain the spread of Covid-19, it’s worth going back to the days of the global financial crisis in 2008-2009 when major economies went into recession, stock markets around the world crashed, and there was concerted action by central banks and governments to revive the global economy by resorting to easy money and fiscal stimulus,” says Nandakumar.

“Then, notwithstanding the dismal macro-economic backdrop, MFL recorded uninterrupted growth and profitability during this period. Sequoia Capital, which in 2007 (just before the global meltdown) became one of the first PE investors in the company, was able to exit in 2010 having grown its investment five-fold,” adds Nandakumar.

More recently, in late 2018, India’s NBFC sector was thrown into a crisis when IL&FS, one of largest NBFCs with a AAA rating, went into default. Banks then became wary of lending to NBFCs and liquidity dried up. It came to light that many prominent NBFCs were faced with severe asset-liability mismatches (ALM) because, during the preceding low-interest rate regime, they were borrowing short and lending long. When the going was good, they reported faster growth and higher profitability, but once the tide turned, it turned out to be not a good idea. 

The outlook for NBFCs became gloomy and share prices of NBFCs suffered severe erosion.

However, it was not long before the market woke up to the fact that NBFCs like MFL were predominantly into short term loans – the company’s gold loans are typical of three months tenure and micro finance loans usually get repaid in about a year – and therefore comfortably placed in respect of ALM.

Cutting-edge technology

“Once this realisation came about, MFL’s share price recovered and outperformed the market,” observes Nandakumar. The promoters hold about 35 per cent of the equity capital, with global institutional investors – PE, VC, AMC, insurance, pension, etc holding a similar chunk and the balance shares are owned by domestic mutual funds, HNIs and retail investors.

MFL has a networth of Rs6,000 crore and borrowings of R18,000 crore; about 37 per cent as working capital from banks, 18 per cent as term loans from banks and financial institutions, 22 per cent from non convertible debentures (NCDs) and bonds, 14 per cent from external commercial borrowings (ECB) and balance 9 per cent from CPs and others.

So, as an NBFC, MFL is primarily engaged in the lending business. More than 70 per cent of the assets are deployed in gold loans which are loans extended to retail customers against the security of their household gold jewellery. Of the balance portfolio, the biggest share (nearly 20 per cent of the consolidated portfolio) is accounted for by the microfinance subsidiary, Asirvad Microfinance.

The other assets are diversified in vehicle and equipment finance, affordable home finance, business and personal loans. MFL also has an interest in insurance broking, and in the information technology area through subsidiaries.

“Asirvad is now present in most of the states and UTs and is consistently diversifying its customer base. The medium term growth outlook for the company is encouraging, although some short-term hiccups are likely in the immediate aftermath of the Covid-19 pandemic,” observes S.V. Raja Vaidyanathan, MD, Asirvad Microfinance Ltd. Vaidyanathan is a B Tech from IIT, Chennai and an MBA from IIM, Kolkata.

He has more than 36 years of experience in financial services, infrastructure, media, telecom and retail. As MD of Asirvad Microfinance he has brought the company from about Rs300 crore of AUM in 2015 to its present status as the fourth largest MFI in India with an AUM of over Rs5,000 crore. 

“Manappuram should continue to experiment with cutting-edge technology so as to achieve customer delight and deliver higher business profitability,” observes B.N. Raveendrababu, non-independent and non-executive director at MFL, who has been involved with the company from the earliest days.

His vision and leadership drove MFL’ s technological prowess. He piloted the early adoption of digitisation, artificial intelligence, machine learning and robotics to improve the systems and processes enhance the off-site and on-site surveillance mechanism. 

Manappuram serves mostly the unbanked and under-served customers, who are poor and marginalised by the larger banking institutions, via gold loan, microfinance, affordable home loans and business loans to small and micro entrepreneurs. “As per a recent survey, about 30 per cent of our customers are small time entrepreneurs. About 40 per cent reported monthly earning between Rs10,000-Rs25,000. Nearly 10 per cent of them had approached banks in the past but were denied credit.

About 25 per cent of customers use gold loan to invest in their livelihood activities; 20 per cent for medical purposes, 15 per cent for cash-flow mismatches; 10 per cent for education and balance for meeting livelihood expenses,” discloses Nandakumar.

As a lender, MFL competes with banks like SBI, ICICI, Federal Bank, CSB etc., and NBFCs like Muthoot, IIFL etc. in the formal segment and with moneylenders and jewellers in the informal segment. “Our primary competition is with the informal moneylenders, who often exploit borrowers for the lack of access to the formal credit to them. The primary aim of the company is to formalise the credit economy through easy access of credit to the needy, be it through increased reach in rural and unserved or underserved locations, or through the quick and easy delivery of credit products,” says Nandakumar.

Focused approach

Formalisation of the gold loan sector is still lagging. Indeed, the gains made on this front over the first decade of the millennium suffered a reverse when the loan to value (LTV) ratio for lending against gold jewellery was capped at 75 per cent by the regulator. “With the informal segment under no such constraints, we could lure back some of our customers on the promise of higher LTV,” says Nandakumar. 

Today, the informal gold loan business is twice the size of formal gold loan players (which includes commercial banks, rural and co-operative banks, specialised NBFCs and other formal lenders). The competition from the informal moneylenders and jewellers has been losing steam thanks to the consistent and focused approach of companies like Manappuram or Muthoot. 

MFL aims to achieve a 50:50 ratio of gold and non-gold loan businesses over the years. It has invested heavily, and continues to invest, in advancing its technological prowess. MFL was the first company to launch an Online Gold Loan (OGL) product in 2015 which allows customers to avail or repay a gold loan from the comfort of their homes, without having to visit a branch. The 24x7 digital facility serves customers even during the holidays, providing a ready cash facility just like an overdraft facility.

In addition to the convenience OGL allows the customers to save costs on travel, interest and other related costs. “As for moving into other businesses, and the question of acquisitions, the company remains open to the idea of acquiring businesses where the strategic fit is good and the valuations are reasonable. The fintech space is an area of particular interest to the company,” sums up Nandakumar.