Interest rates on micro-loans to reduce further: Udeesh Ullas, Muthoot Microfin | The Financial Express

Interest rates on micro-loans to reduce further: Udeesh Ullas, Muthoot Microfin

In the absence of a proper banking system and loan disbursement mechanism in interior places, microfinance has become a lifeline to empower entrepreneurship in rural India.

Interest rates on micro-loans to reduce further: Udeesh Ullas, Muthoot Microfin
How microfinances address the issues like financial inclusion and bringing rural women to mainstream economic activities.

In the absence of a proper banking system and loan disbursement mechanism in interior places, microfinance has become a lifeline to empower entrepreneurship in rural India. Micro-loans provided by the Non-Banking Financial Companies (NBFCs) not only help people in rural areas to start their own ventures, but also help them liberate themselves from the clutches of the local money lenders.

Muthoot Microfin COO Udeesh Ullas talks to Financial Express Online on how microfinances address the issues like financial inclusion and bringing rural women to mainstream economic activities.

  1. How have micro-loans changed and impacted the lives of people?

Microfinance has been a boon for the underserved and disadvantaged communities in the remote rural settings of the country who had no access to formal credit facilities. Over the last two decades, microfinance has largely penetrated such corners and has offered easily accessible credit at reasonable interest rates. Microfinance addressed two major challenges that our country faced, which are financial inclusion and bringing rural women to mainstream economic activities.

Microfinance empowered millions of women by supporting their entrepreneurial endeavours and helped them achieve financial independence. This further enabled women with decision making capabilities and to be in charge of their lives. Microfinance has helped rural households and micro businesses to prosper, low-income households to stabilise their income and save for future needs; and at times of crisis, helped them cope and rebuild.

  1. How easy or difficult is it to get a micro-loan from Muthoot Microfin or in the industry?

Microfinance loans are the most easily accessible formal credit facility for rural households to support their small businesses without the requirement of any collateral to pledge. Though formal banking has spread widely to rural areas, the penetration in deep rural areas and particularly among women folk is quite limited due to cumbersome procedures, requirement of collateral, proof of income and related formalities. Microfinance makes it easier for them to get timely and required financial assistance with minimal documentation. At Muthoot Microfin, we give collateral free loans by following a simple and easy process with minimal documentation and at reasonable interest rates. Further, we offer the service right at the doorstep of the customers making it very convenient and easy for them to avail a microfinance loan.

  1. What kind of interest rates are currently running in the industry; would you want them to change?

Currently the industry operates in the interest bracket of around 19-25 per cent (diminishing), which is a risk adjusted pricing for the collateral free loans. RBI has also mandated strict guidelines in credit underwriting and pricing of microfinance loans. Before the emergence of microfinance, local money lenders used to charge exorbitant interest rates in the range of 70-100 per cent.

Improvement in overall macroeconomic conditions and use of innovative technology will help MFIs reduce interest rates further by at least 2-3 per cent from what they are charging now. Technology and digitalisation will enable more specific and scientific credit assessments leading to better credit profiling of the customers and eventually lead to lower cost of lending to credit worthy customers.

  1. Where do you think the industry would evolve most in the near future?

The industry is evolving rapidly, and I believe the next major development will be the digitalisation of microfinance, especially in the ‘repayment’ mode. Microfinance repayments are still largely collected in person by loan officers. After demonetization, we have converted 100 per cent of disbursement into a bank account but the bulk of the collection still remains in cash.

In fact, this change is already in force and is gaining momentum, when the pandemic and the related lockdown occurred, the movement of employees was restricted, and cash collections were severely disrupted. So, we took a serious look at the alternatives and realised that digital was the way to go. We developed a customer app called “Mahila Mitra” and requested customers to install it on their or their family members’ smartphone. Presently, more than one million active customers have installed this app on their phone. We have given them multiple options like UPI, BBPS, Card payments, Web Portal, WhatsApp pay etc to make their repayments.

To promote digital repayments, we ran large campaigns and offered cash back to customers. It really helped and within 3 months, the digital collection increased 5 times, and now 25 per cent of the total collection is received digitally. Our aim is to increase this to 50 per cent by the end of this financial year.

  1. How do you ensure proper utilisation and repayment of loans?

Before disbursing loans to customers, we give them three days of training, a process called “Comprehensive Group Training”. One of the objectives of this session is to sensitise them about proper utilisation of the loan amount. All loans are given only for stated purpose and as part of our operational process, Loan Utilisation Check (LUC) is done in the field by supervisory staff within 30 days from disbursement.

In case of repayment of loans, the instalments are collected at a centre meeting, in which the meeting schedule is pre-fixed in consensus with all the group members. As it works on a joint liability model, the installments of all customers are collected by the centre leader during the centre meeting and handed over to the loan officer. If any customer in the group defaults on payment, the group members share and pay on behalf of the distressed member.

  1. Are there any other unique benefits why should anyone approach you for a micro-loan?

Being a part of Muthoot Pappachan Group, we can offer multiple products to our customers (through different group companies) to meet their life cycle needs, be it microfinance loans, vehicle loans, housing loans, gold loan, savings, insurance, remittance etc., which a typical microfinance institution cannot do. We use advanced technology to deliver superior customer experience such as paper less operations, doorstep service, transparent transactions and quick loan approval.

Apart from the wide product basket of financial offerings, we provide skill training, business acumen and financial literacy classes to our customers. Further, we conduct community outreach activities, which are a continuing process closely integrated and aligned to the business and societal goals of the organisation. The skill training programs are aimed to help rural women achieve better living standards by enhancing their employability skills.

Further, we have set up e-clinics at our branches to offer accessible and affordable basic healthcare facilities to our customers. Our customers can also benefit from the #RestartIndia campaign run by Muthoot Pappachan Group, which is aimed at offering guidance and assistance to small businesses to restart their business post the lockdown and pandemic.

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