A paperless growth in housing finance

Vastu Housing Finance is trying to leverage technology to establish and distinguish itself

After many years of a comfortable banking career with leading banks like GE Capital, Standard Chartered and Barclays, SandeepMenonand SujayPatil decided to shake things up a bit. At roughly 40, they found themselves at the crossroads with two options before them: one was to continue on the stand, oft-treaded path and stay within the comfort zone and the other was to stir things up a bit and take the plunge to go entrepreneurial.

It was following a long chat with his mentor and senior career banker P.H. Ravikumar(chairman of SKS Microfinance and Vastu housing finance) that Menon decided to rock the boat. Starting a new socially relevant business focused at the lower end of the pyramid seemed the more attractive choice. The goal was to build a “large credible, respected franchise in a for-profit model” with social impact as a key objective.His former colleague SujayPatil, a graduate of Jamnalal Bajaj institute and his former colleague at Standard Chartered and Barclays joined as his co-founder at Vastu.

Vastu housing finance was conceived in 2015 and has expanded at break-neck pace. BY the end of March 2017, the company will have disbursed loans of around Rs 200 crore and will have around 250 employees on its rolls.The company has a presence in 18 (and will be taking this to 25 in the next 2-3 months) urban and semi urban cities.

The venture is well funded, having raised US $ 22 million of capital in the first year itself but has another US $ 70 million committed from a star-studded line up of investors including RenukaRamnath, PramodBhasin, Samir Bhatia and Vikram Gandhi among others.

The Business Model

What Vastu is attempting is neither new nor unique. At last count, there were 16 new entrants in the space. At least 14 existing large players are already in the fray and several of them are expanding significantly.

So, how does one stand out in an already crowded space ?Menon says that his company is using a fin-tech platform called Pulse – a proprietary digital interface (built in house by the Vastu team) that allows them to give an in principle approval (locking in the customer) and then go do a physical validation as required by the regulatory process. “Five years ago – without this kind of tech support, we would have had to have 5000 people to build a business of the size we are aiming for. Technology will allow us to do the same with 2000 people”, says he. The experience for him has been a learning one because the new business has required him to shed all the legacies of a traditional bank or financial institution. So Vastu is able to give a “virtually paperless approval” and this is possible because of how they have leveraged technology to their advantage.

The company’s customers range from vegetable vendors in Nasik to diamond workers in Surat and many have any income as low as Rs 12,000 a month. On an average though their customers have an income of Rs 50,000 in larger cities, Rs 35,000 in smaller cities and around Rs 25,000 in rural areas.The company already has 20 plus branches.

A second distinguishing factor will be the talent pool they are trying to build. In an industry where churn is high and employee retention is quite a challenge, Vastu has decided to invest deeply in experience. The company has hired 16 “state leaders” with experience of 12-15 years each. Menon says the company interviewed over 250 candidates before choosing the ones they invited on board. Most of the leaders have considerable experience in the housing finance space with a reasonable understanding of underserved customers, the segment VHF is catering to. To ensure that they don’t lose talent, the company does regular “salary corrections” based on performance.

Learning So Far and the Future

Over the next 7-10 years, the company hopes to expand its total assets under management to US $ 2 billon (75 per cent in housing and 25% in non housing), have a total of 200 branches and 2500 employees. It is with this kind of ambition in mind that the founders are proceeding.

Menon says that a start up of this kind is a humbling experience. “You have to be ready to keep all past glory aside, roll up your sleeves and go back 15 years in time and execute on ground”. Moreover, you have to be ready to accept your mistakes, course correct and adapt fast. And above all, you need patience, patience and then some more patience.

Do Menon and Patil have the kind of patience required ? The next decade will provide the answer.