In “Spotlight” we will be discussing the opportunities and challenges that our clients face in various sectors, in conversation with CXOs. This week, we speak to the CEO and MD of Agora Microfinance India Ltd., Ms. Meenal Patole. AMIL operates in the area of urban microfinance in India and is a subsidiary of Netherlands-based Agora Microfinance NV. We caught up with her to discuss the state of the microfinance sector and their journey over the last six years.
Can you take us through Agora’s India journey briefly as well as tell us more about Agora NV? How many customers and what sort of loan portfolio does Agora currently have?
The genesis of Agora is a small microfinance start-up that I started in the slums of Mumbai under a non-profit organisation called Takshashila Development Services. AMIL is born out of this initial experience and the support of its principal investor Agora Microfinance NV. Our work is now across Mumbai, Thane and Navi Mumbai areas, an outreach of over 16,000 clients through a network of 10 branches. AMIL primarily lends to clients in groups, but also offers individual loan products. The cumulative loan portfolio just crossed Rs. 25 crores in January 2018.
Agora focuses on urban microfinance, working with a very specific niche – the urban poor in Mumbai, in slums and low-income areas. What was the driving force behind the choice of this market?
When AMIL commenced its work, the urban outreach of MFI was very low with almost 80% microfinance lending being in rural areas. This was a critical point, along with the fact that Mumbai offers good opportunity to upscale with both operational and financial break-even. Mumbai is also diverse in term of economic engagement of people and equally offers entrepreneurial opportunities. This is good for an MFI such as us, where we primarily lend for business activities.
AMIL provides both personal and business loans. How different are the recovery profiles of the two types? On an overall basis, what sort of NPAs have you seen over the last few years?
Initially we focused on individual loans as per market demand, however over the years we saw that if client willingly or unwillingly does default, there is no fall-back option. Compared to group lending, NPAs for individual lending were higher. We have over the years strengthened our underwriting for individual loans especially for residence stability, multiple income sources, 360 credit bureau report and so on. We have also decreased our overall exposure to individual lending, which stands at ~8% of the total loan portfolio now.
The microfinance business is typically viewed as high-risk – therefore the high interest rates. How easy or difficult has fund-raising been for you and where does Agora get its funds from? How important is Government support in this process?
Microfinance operators do not lend beyond the stipulations of RBI and the on-lending rates are revised every quarter, based on base rate for 5 top banks – the argument that MFIs charge higher interest rate must been see from this perspective. Because of this, it is not possible for MFIs to vary interest rates as per regional specificities and/or risk profiles.
Most of our borrowing is from NBFCs and so the average cost of funds is ~14.40%. Yes, fund raising was a major challenge being a start-up, but over the years the liquidity requirement is fairly well addressed; though we still need to have access to low-cost funds. From this perspective, Government support through MUDRA loans, SIDBI, NABARD and so on is critical.
You’ve worked with several microfinance businesses in your career, both in India and overseas. How have you seen the field and the products evolve over this period?
Not much. Innovations are few, with JLG model being predominant and well-tested for the group guarantor mechanism. However, extension of micro-insurance services to borrower and spouse by MFIs is notable. MFI also submit regular borrowing data to credit bureau, this has helped in strengthening the underwriting policies and also as a tool for client education.
What are the biggest challenges today in the microfinance industry in India and what changes are you hoping for?
Political risks and interference of local influential elements is turning out to be a big challenge. I hope that the MFI sector does get significant recognition within NBFC realm, thus enabling us to drive policy level changes more effectively.
What is the key to the growth and profitability of the industry? What are some of the broader macroeconomic factors that drive the industry?
Scale is the key for growth and profitability. Changing lifestyle, consumption patterns and the fact that MFI sector outreach to urban areas has increased significantly, these will certainly impact demand conditions.
What is the most surprising or unexpected thing that you’ve come across in the course of your work at Agora?
The amount of patience that one needs to drive success stories!
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