Sensing the dynamic changes in the sector, microfinance company Ujjivan has added products, expanded reach and plans to further leverage policy changes for growth

Bengaluru based-Ujjivan Financial Services, started in 2005, was one of India’s first microfinance companies to provide credit to the urban poor, who were at that time a neglected lot. In 2010 alone, Ujjivan had around 37,000 customers and had disbursed more than 90,000 loans. Over five years since inception, Ujjivan had 230 branches in 13 states and served over 6.2 lakh customers.

As of April 2015, Ujjivan has a customer base of 23,84,455 and has disbursed a total of Rs.11,485 crore. In FY 2014-15, the firm disbursed 21,73,120 loans worth Rs.4328 crore.

With repayment rates at 99.87 per cent, Ujjivan cumulatively disbursed Rs.11,486 crore as compared to Rs.931.9 crore in March 2010. Overall, in the last five years, it has disbursed an incremental amount of Rs.10,554 crore. It is present in the North, South, East, West, Central India and experiences regional variations in customer demand.“The customers typically demand higher ticket loans in West and South. We have recently introduced agri-business loans targeted at the marginal farmers in the agrarian locations of East, South and West,” explains Samit Ghosh, founder and managing director. The team strength has increased from 2,800 employees in 2010 to 7,185 employees as of April 2015.

Ujjivan raised Rs 40 crore through issue of non-convertible debentures (NCDs) to Oikocredit International. Ghosh explains that the company raises NCDs from time to time to diversify its source of funds and to reduce dependence on bank borrowings. “The funds help support our growing business volumes and ensure prudent cash management by ensuring positive ALM benefits,” says he.

Catering to Urban Poor

Ujjivan provides three kinds of loans – group loans of Rs.6,000 to Rs.50,000 for family and business needs; individual loans of Rs.41,000 to Rs.1,50,000 for business needs, higher education, livestock procurement, home improvement and more; and a recently added product: housing loans for the largely under-served low income affordable housing segment.

“We do a broad financial analysis, estimating the cash inflows and outflows of a customer for Group Loans to assess the repayment capacity of a customer. House visits and visits at the place of business are also done to ascertain the income generated from the business,” explains Ghosh. Most of the income generated by the customers is seasonal in nature and it is difficult to ascertain the annual income with any reasonable accuracy and so they have to rely on customer self-declarations for annual income. But in addition to this, they also do a mandatory credit bureau check. Customers breaching the exposure limit of Rs.50,000 (now extended to Rs.1 lakh) or exposure limit of more than 2MFIs or delinquent records, are rejected.

Changing Dynamics

The segment has witnessed a lot of changes over the years. Currently there is all round optimism with the recent regulations by the RBI, inviting applications for the Small Finance Bank License, relaxation of qualifying assets criteria. There is renewed investor confidence and the sector has seen healthy growth.  “However, we wish that the SEBI relaxes its norms governing domestic PE investments in MFIs, which would boost domestic investment in the sector,” says Ghosh.

He adds that managing the business in the fast changing regulatory framework has been a serious challenge. “We had to focus, since the crisis, on becoming more efficient and reducing our operating expense ratio (OER) in an environment of margin and interest rate caps. We have been able reduce our OER from 17 per cent+ to currently at 8.4 per cent,” he says further.

The second challenge is to retain customers in an environment of serious competition and customers constantly demanding better service. This is primarily in the area of loan turn-around time (TAT), which Ujjivan has been able to reduce from three weeks to less than a week. This has improved customer retention from 70 per cent to over 87 per cent.

The third challenge is high dependence on cash transactions, which leads to higher cost and risk. “Today, our cashless loan disbursement has increased from 0 to 56 per cent,” says Ghosh.

Further, customers have scaled up business operations, sent their children for higher education or built their homes, which has increased their financial needs. They need higher size loans, which is only possible by moving from group to individual loans. “This has required us to build a completely separate business vertical from our traditional group lending business,” he points out.

However, competition is very keen with similar products at similar rates offered by the players. Ujjivan’s USP is its commitment to excellent customer service and strong customer and community connect. “Ujjivan is the first in industry to establish a dedicated, full-fledged service quality department in 2009 that focuses on customer retention, customer protection and grievance redressal to maximise customer convenience, and reduce the turnaround time,” explains Ghosh. This year, Ujjivan has partnered with professional call-centres to offer outbound calls for collecting feedback from customers and improving services and products. “We have reduced our loan turn-around time significantly,” adds Ghosh.

“Our other USP is commitment to our employees, our most important stakeholders,” says Ghosh. All employees are aligned to a mission of ‘Building a Better Life’ for our customers. This reflects in the job satisfaction that employees have despite working in very challenging conditions. This has improved staff retention over the years due to various employee engagement initiatives and its commitment to our human capital. It has also been endorsed multiple times by the Great Place to Work Institute. “This year we have been adjudged Asia’s 16th Best Company to Work for by Great Place to Work Institute and 9th Best Company to Work for, 2nd Best in Financial Services Sector- India,” says Ghosh with justifiable pride.

Making an Impact

In 2013, Ujjivan undertook an impact study revisiting a sample of 1,319 customers that it had first surveyed in 2010 and found that the monthly income of the respondents had doubled over a span of three years, 63 per cent of them had bank accounts, 94 per cent had ration cards as against 39 per cent and 88 per cent respectively in 2010.

The company also conducts high impact community development programs to foster deeper customer and community connect. “We started the initiative in the first year of our profitable operations (2010) to give back to the community and till date have conducted 1,144 such programs benefiting approximately 13 lakh members in the customer community,” explains Ghosh.

Future Plans

In the near term,Ujjivan plans to grow its core Group Lending (GL) business through increased penetration, and Individual Business by allowing self-employed GL customers to scale up their business by availing larger sized loans. “We plan to cover the ‘Missing Middle’ micro-entrepreneurs by providing them loans in ticket sizes between Rs.50,000 to Rs. 10 lakh,” he adds.  A separate business vertical to provide affordable housing finance has also been established.

The company has applied for the Small Finance Bank License. If it is successful, this will open up opportunities to provide savings, remittances, pension and insurance, in addition to a full range of lending products.