We will make haste, but slowly: SBFC Finance founder & CEO Aseem Dhru

Backed by the Singapore-based Clermont Group and Arpwood Partners, SBFC Finance wants to redefine the play in lending to micro-enterprises

Three years after acquiring the Rs 807-crore loan book of Karvy Financial Services, SBFC Finance’s assets under management exceed Rs 3,000 crore. Backed by the Singapore-based Clermont Group and Arpwood Partners, it wants to redefine the play in lending to micro-enterprises. 
 

ASEEM DHRU, the company’s founder and chief executive officer, spoke to Raghu Mohan. Edited excerpts:

What is your positioning in the small-ticket credit markets?

The small-business segment is in the rain-shadow of state-run and private banks, and there is space to be a nationwide player in it. There are nearly 65 million small businesses and not more than 8-9 per cent of them have access to organised finance. Well-run small and medium enterprises are financed either under the supply chain, or any of the yardsticks banks would employ. What I mean by small businesses are the very, very, small outlets you see, say near railway stations and bus stops — garages, salons, chemists, or stationery shops.

They are below the threshold banks usually finance, and the average ticket-size of the loans tends to be Rs 1-1.5 million or thereabouts. We have grown significantly in just three years after acquiring the retail portfolio of Karvy Financial Services. The assets under management stand at Rs 3,000 crore. We have more than 125 branches spread across 100 cities and 17 states, and disburse more than Rs 100 crore on a monthly basis.

How different is your business from that of a micro-finance institution (MFI)?

An MFI does what it does under a joint liability group. And this tends to be loans of Rs 5,000 or a maximum of Rs 10,000 per individual, or Rs 50,000 per family. These are basic finances to very poor people to whom no credit is available. They don’t file income-tax returns, or have credit bureau records. What we do is micro-enterprise lending, not micro-finance. Our customers file returns, hold licences issued under the Shops and Establishments Act, and have been operating on their premises for generations.

We don’t go into rural areas, or the hinterlands. Ours is more of a tier-2 and tier-3 cities business. Property is our collateral, and lending rates are a lot less, because these loans are cash-flow backed. The entire distribution is ours — all the 125 branches and the people. Only 20 per cent of the loan book is co-originated. Our staff originates the loans, and manages the collections — whether it is soft-collections through call-centres, or with boots on the ground.

Are you a sourcing agent for banks as well?

No, we are not. Generally, non-banking financial companies (NBFCs) book loans and then securitise them. We thought a better structure is to co-originate at the start. We were the first to set up a bank-NBFC co-origination platform in the country in January 2019 with ICICI Bank. Co-origination accounts for over 20 per cent of our monthly disbursements. In FY2020, we disbursed more than Rs 1,100 crore to over 47,000 customers.

The Reserve Bank of India (RBI) has said that an NBFC’s share in co-origination is to be 20 per cent. And it can’t avail of funding from the bank it has teamed up with. Doesn’t this affect yourco-origination model?

There are two parts to this. It’s true an NBFC has to keep a minimum of 20 per cent (of the co-originated loan), but between the bank and itself, both parties may agree to keep 50:50, or any amount they come to agreement over. Then, the RBI has also not said that you can't borrow from the bank with whom you have co-originated. What it has said is that the share of the NBFC in the arrangement can’t come from the bank it has tied up.

So, effectively, our loans from ICICI Bank, with whom we have partnered with for co-origination, can't be more than 20 per cent of our loan book. Basically, what this amounts to is that the money that you bring in for your share of this loan (co-originated) can’t have been borrowed from the same bank. As long as it is something you can achieve, the bank can be a lender to you while co-originating.

Do you expect the third-party loan management business to get bigger?

In the United States, about 55 per cent of the mortgages business is carried out by third parties — not by the originators of these loans. In the developed markets, the loan-management business is an established model. We feel this is an idea whose time has come here as well. Because earlier, you didn’t have bankruptcies among NBFCs. Now that they have transpired, lenders have realised the need for third-parties.

Every year, about Rs 2 trillion in loans is securitised. Eventually, about 50 per cent of this will move over to third-parties. We currently manage about Rs 3,000 crores of assets on behalf of others — that is, the entire process from customer service to collections. We are the pioneers and the only player in this area. This is likely to become a large business for us. We have ambitious plans from where we are, but we believe in festina lente — Latin for “make haste slowly”.