Birla scion banks on Aadhaar and tech to deliver microfinance to rural women

Svatantra Microfin Pvt Ltd, a microfinance company founded by Ananya Birla, is betting on Aadhaar, India’s controversial citizen ID project,  to increase efficiency delivering financial services to a lucrative cohort of customers — women in villages.
Ananya Birla is the daughter of billionaire Kumar Mangalam Birla, chairman of the $41 billion Aditya Birla Group and one of India’s most powerful businessmen. She started Svatantra in February, 2012, when she was 17 years old. Today, at 23, she has learnt invaluable lessons in how to target microfinance better than industry peers.
About a year ago, Birla, as we will refer to Ananya in this story, realised that Svatantra had to go completely cashless in its own operations if it had to penetrate deeper in the hinterland. The problem, of course, was know your customer (KYC) norms and authentication of data for which Aadhaar was the most viable option.

“Our agents can take (the Aadhaar number) and all the information of the client is directly pulled out. It is more like an e-KYC,” says the Svatantra chairperson. “Once that is done, we get eligibility criteria in 15 seconds from credit bureaus.” She credits the 15-second turnaround time to proprietary algorithms.
The algorithm extracts information like name, age, gender and address of the individual from the Aadhaar database. This is matched with credit information bureaus to extract the loan eligibility of the person, assuming that her or his Aadhaar number is linked to the bureaus, and feeds it back into Svatantra’s system. The system shows if the person is eligible for a loan and suggests the amount that can be extended.
Others in the microfinance business link to Aadhaar, too, but Svatantra seems to be only one — or, at least, one of the early few — to have gone fully paperless. For two years, self-regulating organisations (SROs) such as Sa-Dhan and Microfinance Institution Network have been trying to enroll villagers into Aadhaar and have been asking member companies to make Aadhaar mandatory. These SROs monitor microfinance institutions (MFIs) and ensure compliance by lenders.

Bharat Financial Inclusion, earlier known as SKS Microfinance, also uses Aadhaar to determine credit score, using biometric identification. Others may soon follow.
According to Birla, Svatantra’s algorithms have improved turnaround-time by 60%, which, in turn, has boosted yields in the business. Absolute numbers were not immediately available.
Svantantra has nearly 180,000 clients, a gross loan portfolio of Rs 263.78 crore, and has disbursed Rs 490.85 crore worth of loans to date.
That’s small compared to India’s microfinance business, to be sure. According to a report by Sa-Dhan, India has 39 million microfinance clients and an outstanding loan portfolio of Rs 63,853 crore.

Saathi to aid Svatantra’s journey

Birla believes Svatantra is just scratching the surface in villages. “All our clients are deeply rural. They are so rural that no other microfinance institution that have gone there. There is only one who has a much similar client base — that’s Bandhan (Bank). Others are very urban and semi-urban. That is a huge difference,” she says.
According to Parshvi Gupta, a business analyst at UK-based Dunnhumby Analytics, India’s microfinance outreach is very low — just 8% compared to 65% in Bangladesh. Of this, those MFIs focussing on the poor make for a tiny fraction. “Out of more than 800 microfinance institutions across India, only six are currently focusing their attention on the urban poor… Ensure the uniform distribution of micro financing in both rural and urban areas of each state of India,” she recommends in her note Microfinance in India.
Birla says that Svantantra’s focus on rural customers has helped it expand at a fast clip — in 2016-17, Svatantra grew at 324%. Since inception, the company has grown at a compound annual growth rate of 220%.

Being a newbie even in 2012, Svatantra had the benefit of leapfrogging its peers. In its early days, it was run on a software named Omni that was able to digitise most parts of the loan process. “It was a matter of putting both (Omni and Saathi) together,” adds Birla.
Guiding Birla, also a singer who has cut two albums, is her father’s long-term associate Vineet Chattree, who is a director at Svatantra, and president at Aditya Birla Management Corp. Anujeet Varadkar, who earlier worked in rural financing for Mahindra and Mahindra and was in the agricultural loans department of ICICI Bank, is the CEO. The rest of the core team comes with backgrounds in accounting, back office operations, treasury, and funds mobilisation.

For women only

Another reason for Svatantra’s growth is the shift in its focus on women. When Svatantra started, it lent to both men and women.
Not any more. Five years ago and even later, says Birla, about half of Svatantra’s clients were men. But giving loans to men in villages had its own challenges. Most of them migrated in search of work. Those who stayed back squandered the money on alcohol or just plain cash mismanagement.

“What I learnt was you cannot reinvent the wheel. Men migrate so much that it is nearly impossible to collect the money back from them. It was impossible to keep track,” she says. With women, it was different. “They put it in to boost household income, but men, at times, put it to purposes that are not very viable.”
This may work in the medium term, but MFIs will have to expand their loan footprint beyond women, according to analyst Gupta. “It has been observed that microfinance programmes focus a great deal of attention on women. Women may be better and more reliable clients, but in order to increase their outreach, microfinance companies cannot ignore men,” Gupta wrote in her report.

Birla is not ready to change her model yet. Instead, she is putting in a more stringent check on how and where the disbursed loan is being spent. “You have to ensure that the loan that you give — 90% of that goes into business. It should not go into household consumption or beti ki shaadi (daughter’s wedding) or to consume alcohol,” she says. “Our field officers go and check the reason for taking the loan.”
Still, at the end, nothing is foolproof, Birla agrees. She refers to the economic meltdown of 2008 and the crash of the Lehman Brothers. “If such huge banking and mortgage systems all around the world can fail, anything can fail,” she says.
What Svatantra can do is de-risk at every stage and do rigorous internal audits. “It is also important to derisk your portfolio in terms of the occupation these women have. The second thing is to diversify your operations — we are in seven states,” Birla say, adding Svatantra will expand to other states and internationally in the coming years.
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