P N Vasudevan, managing director of Equitas Holdings, set some practices in place for the company to reach a global benchmark for fairness and transparency

POORNIMA KAVLEKAR

“This is a world, where if your income is more than Rs. 2000 per month after you cross the age of 60, you have made it – this is the world of Bharath,” says P N Vasudevan, an accidental entrepreneur, who set up Equitas Holdings with an intention of creating a financial institution for the under privileged, with a deep-rooted focus on fairness and transparency. And to achieve this, he set certain basic framework and governance systems in place.  “We follow the best governance standards, similar to that of listed companies in India,” states Vasudevan.  A professionally run organisation, Equitas is supervised by a strong independent board and is not owned by anyone. Currently a Rs. 480 crore company, Equitas has interests in microfinance, vehicle financing and affordable housing among others.

Understanding the market

Before setting up the company, Vasudevan studied the industry and found that from a clients’ perspective, micro finance was a product that was needed very badly. They were thankful for microfinance institutions (MFI) for providing such long-term loans at lower rates, lower than what they would have otherwise borrowed at.   On the other hand, meeting with the MFIs was an eye opener, as they seemed to be chasing growth when the PE funds entered the market in 2005. The lending rate became 45 per cent to 50 per cent, which may still be lower than what the clients could have borrowed from other sources.  This apart, there were no controls and processes in place ,which was risky, as the institutions handle a lot of cash, which means risk of fraud is high.

A fair price policy

Determining a fair lending rate in a market where there was not competitive pressure was a big challenge for Equitas. But, the company still managed to set a benchmark in the market by offering loan at 25.5 per cent on a reducing balance interest rate to the customer. To achieve this, it projected a growth for the first five years at 40 per cent to 50 per cent, a steady growth after that and a likely operating cost it will have incur.

Interestingly, four years after the company was incorporated, RBI came out with a regulation for MFIs and capped the lending rate for MFIs at 26 percent. This apart, it came out with a 12 point guideline to regulate the sector and all 12 points were a reflection of what Equitas has been doing from day one.

Social initiative

It is very likely that you will have a behaviour change when you do some lending activity to the economically backward segment. So the institution’s social agenda picked up and Equitas Trust was started within 2 months of incorporating the company.  The company contributes 11 per cent of its profits every year for the trust activities. Also, 15 per cent of the group’s net worth is reserved for creating infrastructure to run schools. The company has a tie up with 850 hospitals across six states. It conducts medical camps every month, which benefits close to 70,000 people. It also facilitates a skill development-training programme, spanning 15 hours, where it trains people on small-scale cottage activities like making agarbathis, soaps, paper bags and more.

In short, for Equitas, the brand was built simply by delivering to its customers and shareholders through fair and transparent means.

Key Takeaway

Deliver to your customers, even if it means your growth is slower. Bring in investors and board members who understand the finer nuances of building a sustainable venture in your sector. The brand is automatically built by what you offer. In the case of Equitas, it required a internally focused team to build and scale its business in a sector where executing well has proved to be difficult.