Jayendra Patel Vice-Chairman & Managing Director
"70% of India is rural. 59% of Indias population earns less than Rs 100 aday. In this scenario the most successful poverty reduction measures are those thatempower the poor to enrich their livelihoods. At Arman we focus on empowering thecountrys poor with the objective to create a prosperous India."
Two of the most important words in India today are financial inclusion'.
This is because 62% of India's population does not have a bank account. Because 50% ofthe country's population does not enjoy any access to organised financing. Because 59%ofthe country's population earns less than Rs 100 a day.
At Arman we are convinced that a majority of the country's poor do not need sops orsubsidies; what they need is access to informed debt'. When provided this financingintervention can help rural Indians address local income-generating opportunitiesstrengthen their financial discipline
inculcate the savings habit and strengthen an entrepreneurial mindset.
To start with informed debt' does not just comprise the provision of adequateand timely finance; it extends to complementing advice insight and support that can helprecipients use their resources
most productively. The combination of debt and data works better than the mereprovision of debt or data and definitely better than any short-term subsidy. When the debtprovider provides supplementary advice on how a local livelihood should be run
what opportunities can be addressed how cash flows can be managed and how livelihoodscan be grown then the debt does more than merely service a temporary local need; itfacilitates livelihood growth creates first-generation entrepreneurs transformsentrepreneurs into employers and strengthens the rural social fabric.
When you engage in a business that strengthens the rural fabric across the world'ssecond largest rural population then by implication that business however local it mayappear is essentially national (and even global) in influence.
At Arman we believe that microfinance companies are attractively placed in that theyreach the country's rural pockets wider and deeper enhance local learnings are able toestablish creditworthiness down to respective neighbourhoods are able to recruit locallyprovide smaller ticket loans than competitors larger in size -and in doing so are able toservice the country's grassroots economy more faithfully than any competing segment. Theresult is that there is a distinctive role for the country's microfinance sector in theeconomic destiny of the nation.
This role is most visibly manifested at the point - the grassroots - where it can playthe biggest role in driving the national economy ahead.
At Arman we enjoy an early mover's advantage in extending the benefits of organisedfinance to an entire constituency deprived of such a support. The Company went intobusiness championing the cause of financial inclusion more than two decades ago wellbefore the term financial inclusion' had been coined. It is to the Company's creditthat in a space marked by high mortality Arman has evolved adapted and grown acrosseconomic cycles.
The Company possesses a large customer base a high proportion of repeat customersnegligible nonperforming assets and one of the most trusted Balance Sheets in the regionalmicrofinance and asset finance sector.
At Arman we selected to grow our rural presence through two interventions -assetfinance and microfinance. The former is secured by collateral; the latter is unsecured andusually comprises small amounts that help grow local businesses and livelihoods.
Our robust growth across some of the most challenging years in the Indian economy(20102014) was the result of
having prudently selected to finance three-wheelers with a low down payment in theasset finance space a vehicle that facilitated an attractive independent livelihood.While the company has slowed its three-wheeler financing division even a small segmentlike three-wheeler financing can leave a large footprint. Consider this mental exercise -in the past six years (approximately the average life of a rickshaw) Arman has financedno less than 3000 three-wheelers; an average revenue generation of about Rs 800 pervehicle per day implies that Arman is driving this segment of the country's bottom ofpyramid economy by Rs 88 crore per annum and helping thousands to climb out of poverty.Besides we grew the number of microfinance cases from 36157 in 2011-12 to 81113 in2014-15; we increased the average ticket size from Rs 11968 to Rs 13936 across theperiod.
Arman strengthened financial inclusion by widening its presence from 29 branches to 43branches including nine new branches in Madhya Pradesh. The Company increased itscustomers from 77000 to 104000; it grew employees from 317to 375. The result is thatArman delivered yet another year of profitable growth in 2014-15. Income
from operations increased 21% over the previous year; net profit grew 36%. The Companyinvested in cutting-edge IT solutions to moderate operating costs; it strengthened returnon equity from 14% to 17% in 2014-15.
I am pleased to state that Namra Finance (subsidiary focused on microfinance) becamethe first in India to receive the prestigious NBFC-MFI (Non-Banking Finance Company -Microfinance Institution) license from the Reserve Bank of India. Both Arman and Namrareceived an Investment Grade' rating upgrade from CARE Ratings strengthening itsability to mobilise low-cost funds; it received an MFI-2 grading for microfinanceoperations which is a step lower than the highest possible grading.
At Arman we believe that non-banking finance companies have a growing role to play inemerging rural economies. NBFCs accounted for 9.4% of the total credit in India in2005-06 increasing to 12.1% in 2014-15 and a projected 17.1% by 2018-19; correspondinglythe share of India's government-owned banks is likely to decline from 64.5% last year to58.6% by 2018-19.
Arman will continue to enhance its focus on microfinance an area marked byunprecedented opportunities.
Microfinance: Arman will widen presence in Madhya Pradesh by expanding its branchnetwork increasing the state's share from 12% of our overall microfinance revenues to anestimated 35% in 2015-16. We are
evaluating the options of expanding our footprint to a third state which could sustainour growth beyond the industry's y-o-y growth rate of 30%.
Asset financing: In this vertical Arman intends to extend into MSME financing lendingbetween Rs 50000 and Rs 500000 with MUDRA Bank while exploring geographic expansion inIndore and Ajmer.
As Arman's loan ticket size increases (two-year loan in the microfinance and MSME loansin asset financing) operating costs are expected to decline. The Company's improvedcredit rating could facilitate fund mobilisation at moderated coupon rates. The Company'sinvestments in cutting-edge IT solutions could enhance operating efficiency. The largebusiness volume
could help fixed costs being amortised more efficiently strengthening margins.
The message that I wish to send out is that we will continue to tread a cautiouslyaggressive business strategy focused on quality growth.
In doing so we will strengthen the robustness of our asset portfolio and growshareholder value sustainably. I thank all Arman stakeholders and most of all itsdedicated staff whose diligence and hard work have made it possible for Arman to deliverrecord year-on-year growth.
I look forward to another successful year.
Vice-Chairman & Managing Director