'Lending to credit-starved small truck owners is viable'

Four years ago S Murugan was a mechanic and part-time driver who worked on the outskirts of Chennai. Today, he is a successful entrepreneur in the tiny town of Chengalpattu, owning two trucks that cater to the needs of his former employer as well as others.

He is one of the thousands of small truck-owners (STOs) who, neglected by banks and other financial institutions, have been provided credit by Shriram Transport Finance Company (STFC) to buy trucks.

STFC's business mission is to finance this credit-starved segment of transporters, which accounts for 70-75 per cent of the industry, and build long-standing relationships with them, said R Shridhar, managing director of STFC. “We have proved to the finance industry that this business is a high-growth and profitable one.”

 

Today, with increased confidence in STFC’s business model, banks and financial institutions are willing to channel their funds to small truck-owners and pre-owned trucks by routing them through the company, he said.

STFC is part of the Chennai-based Rs 13,500 crore Shriram Group, which has a presence in consumer finance, life insurance, general insurance, stock broking and distribution.

STFC’s current market share is over 20 per cent and assets under management (AUM) are estimated at Rs 28,000 crore, which the company said it would increase to Rs 60,000 crore. It not only finances truck purchases, but also provides STOs with working capital to buy second- hand vehicles, accessories and tyres.

Credit support to STOs is expensive and inequitable, according to Sridhar. Banks are unable to evaluate their credit-worthiness, mainly due to lack of proper documentation. STOs therefore have to approach private financiers, who charge exorbitant interest rates, said Trailer Owners’ Association president S Raja.

“When we started lending to small truck-owners to buy new vehicles, we found a mismatch between their aspirations and abilities. The truck operator was not capable of supporting the credit levels required to buy a new truck. Hence we decided to think out of the box and fund pre-owned trucks, and the results followed,” said Sridhar.

The company finances about 1,000 vehicles purchases daily. It sanctions loans without taking any major collateral or post-dated cheques, since most of its customers are not familiar with banking. The whole process is relationship-based.

The company currently has a client base of around 600,000 and has financed over one million vehicle purchases across 500 locations in the country.