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Archive for April 19th, 2011

Gold finance business – an exorbitant money lender or a liberator

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If you ever asked me to pawn my jewellery to meet a payment deadline or a short blip in a business cycle, I would frown at the thought. The picture that comes to mind is something from a Hindi movie, a fat man in traditional attire looking at me suspiciously while he pays me an unjust value of my most priced heirloom.

But that just means that I am one of those metro stereo types who can approach a bank, or draw over on my credit card bill or better still ask daddy of a bit of help. For the semi urban- rural dweller who relies on daily wages, that is as constant as my morning cup of tea,  for no fault of his is not termed as  ‘pre approved for a personal loan’ this money lender who is willing to trust him, at the stake of his jewellery is  sort of a God sent.

This is the concept that a NBFCs such as Muthoot Finance Ltd. (MFL) or a Manappurram Finance have drawn inspiration from.  You won’t understand the business if you don’t understand the nature of the need. It is not just lack of 20-20 vision that you and I would not notice an MFL outlet and walk right past it – it is the vision that arises from the need.  These companies have built a careful and strong network right through regions where the business would thrive. The testimonial – over 30 years in the business, over 2,000 operational branches, over 15,000 employees, serve over 60,000 customers on a daily basis  and all this culminating to an RoE of over 30% with quality of assets that might put most well managed banks to shame. Makes you wonder whether all the migrant financial institutions, which come to India to capture the underpenetrated financial services market, have been looking at the wrong customer demographic. Well of course I do understand that they have to play their strength which is usually selling credit cards to the affluent metro and urban population with 20% default rates.

Managements of gold loan NBFCs have spent years not just building full proof models risk measurement models but building the trust of the customer that walks through the door. They seem to have addressed a need which a very few financial institution have managed to capture- quick response time.

If you happen to speak to any of these managements and ask them the one most prized question, ‘how are the NPA’s so low, they will tell you that it’s not just the risk mechanism of assessing a collateral or a 15-30% margin but a mere emotional sentiment to the piece of jewellery that causes the customer to walk back into the outlet and repay his debt. It just re- affirms my faith that Credit, is the only enduring testimonial to man’s confidence in man.

From the desk of Chaitra Bhat

Written by Fundamental Side

April 19, 2011 at 6:17 pm