Just saying the “bottom of the pyramid is important isn’t enough” we need action, Manoj Nambiar, Managing Director of Arohan Financial Services tells Mahesh Nayak. As Arohan looks to diversify its portfolio for scale and sustainability, Nambiar underscores the need to balance profitability with purpose to keep investors engaged and ensure the sector’s long-term viability. Excerpts:
What are Arohan’s key priorities as you look to scale in the current environment?
We are exploring secured lending products like gold loans, loans against property, and home improvement loans to diversify our portfolio across customer segments and stabilise the balance sheet. The new 60:40 regulation for microfinance asset qualification has opened up space for this.
What are the biggest challenges facing Arohan and the broader microfinance sector today?
Microfinance faces challenges like authentic KYC due to multiple IDs, outdated credit bureau data hindering real-time lending decisions, and external disruptions causing repayment uncertainty and delinquencies. Initiatives like Karz Mukti Abhiyaan and state interventions create confusion, impacting debt funding availability. Higher delinquencies have slowed down debt availability, crucial for growth.
How are you managing credit costs and profitability?
Credit cost is a key component in the pricing. We have introduced a credit scoring model and are moving to risk-based pricing. In a difficult last year, we were in the black and delivered Rs 105 crore in profit. Our ROE was 6%, and ROA about 2.9%. This year, we are aiming for growth and being profitable as well. The real issue is such volatility impacts profitability and hence hurts investor confidence.
What do you see as Arohan’s core strengths?
We are practitioners. We understand the ground realities of microfinance. Our doorstep delivery model, robust risk filters, and deep customer relationships give us operational resilience. We have built a profitable business even in turbulent times, with ROEs peaking at 22% in FY18–19 and 18% in FY23–24. We also have a strong investor base with impact investors like FMO, IFU (The Investment Fund for Developing Countries), and others who believe in our long-term vision.
What opportunities excite you most in the current landscape?
The sector is still only 33% penetrated with availability of formal regulated credit. That’s a massive untapped market for a population of our size. With the government & RBI pushing for Financial Inclusion and the upcoming BULA (Ban on Unlawful Lending Activities) legislation, we expect better regulatory clarity and protection against informal lenders. Also, the shift toward secured lending offers new growth avenues while mitigating risk.
What’s holding back that growth?
Structurally, the RBI has done its bit—SROs, credit bureaus, progressive policies & KYC norms. But the bottleneck is on the infrastructure – authentic KYC, online credit data and external disruptions. Lack of credit guarantees, slow policy execution, and insufficient equity infusion will impact growth and outreach. Just saying “bottom of the pyramid is important” isn’t enough. We need action.
What’s the way forward for the sector?
Consolidation is inevitable. Smaller players are struggling to raise debt. We are well-capitalised with 35% capital adequacy and see this as an opportunity to grow. But unless equity flows in the MFI sector will remain stuck at around Rs 4 lakh crore.
Are you planning for an IPO?
We have evaluated listing, but timing is key. Investor sentiment in MFI is sensitive to rising credit costs and political narratives. We will focus on strengthening ROE to 10-15% and expanding operations before considering a listing. Regulatory clarity on differentiated rights for MFI will also impact this decision. For now, we are building resilience, not chasing optics.
Any final thoughts on the road ahead?
Microfinance is a pillar of Viksit Bharat. But it needs nurturing, and we must balance profitability with purpose. If investors don’t see returns, they won’t fund growth. And without growth, we risk pushing millions back into the arms of moneylenders. That’s the real cost of inaction.
You have spoken about unmet demand. How large is the gap?
The current credit outstanding is about Rs 3.75 lakh crore serving about 78 million borrowers across the sector in India, but the potential is at least three times that. Formal, regulated credit still hasn’t reached vast swathes of the bottom of the pyramid. We are only scratching the surface and opportunities to also provide other financial services exist.
The microfinance sector today touches over 80 million customers. What does that scale mean for India’s broader socio-economic landscape?
It’s transformative. If you consider a family size of four, we are impacting over 320 million lives. And if even half our borrowers employ one additional person, be it a helper, driver, or cleaner, that’s potentially 120 million jobs. Microfinance isn’t just credit; it’s a catalyst for employment and dignity.
What’s your current portfolio size and growth outlook?
We manage Rs 6,600 crore in AUM across 17 states with 1,000 plus branches and 9,500 employees. West Bengal is our strongest market. We expect to grow 25% this year, reaching around Rs 7,500 crore. Our average outstanding per customer is Rs 30,000.
What’s holding back faster growth?
Authentic KYC & online credit bureau data is key. Misunderstanding of interest rates is also a big one. We are often criticised for charging 24% per annum, but on a reducing balance, that’s just Rs 13.47 for a loan of Rs 100 for a year. Compare that to other products like credit cards, loans against securities, short-term fintech loans etc who are in the 50% plus range. The last option for a borrower is informal credit at over 200% per annum interest. Also, investor sentiment has been shaken by sectoral delinquencies. Listing plans are on hold due to poor market multiples and the recent stress in listed MFIs. We need regulatory support, real-time credit data, and public awareness to unlock the sector’s full potential.
What’s your take on financial inclusion via investment products?
Mutual funds and insurance have made good strides on outreach & penetration. We have sold NPS Lite, and today all our 22 lakh customers have group credit life insurance. Products like hospi cash, covers income loss of Rs 500 per day for illness or Rs 1,000 per day for ICU, offer income protection. But SIPs and term plans need banking habits, which are still nascent.
Any plans to transition into a small finance bank?
Not yet. Banking is a different business model — liability management, compliance, governance. As an NBFC-MFI, we focus on deployment and asset growth. That’s our edge. But if we don’t get differentiated rights, the incentive to remain a dedicated MFI diminishes.