Lending in Smaller Cities

India has over 5.94 lakh inhabited villages and about 3984 towns with a population of one lakh or less (source: census 2001). According to the figures of 2001 census, about 82 per cent of our total population resides in villages or small towns. However, funds as well as funding are not available in the same proportions. Due to lack of education and overall awareness, many of these small town populace live in abject poverty; they are unable to acquire resources for their livelihood.

AU identified this need and ventured into funding those who needed it the most. Since the last two decades, AU has empowered and enabled people from lower income groups to realise their dreams and increase their income.

One of the many examples is that of a customer who used to work as a labourer and driver with a local transporter in Jaipur hardly earning Rs 2,500 – Rs 3,000 per month. He came across a promotion stall of AU in the nearby area of his residence and learnt that company can grant him loan for purchasing a loading vehicle despite having only limited documentation. Today he has multiple vehicles and his life is completely changed from a labourer to having his own business. There are many more such stories where AU has helped customers in transforming their lives.

Our 20 year association with multiple category of consumers in smaller towns, provided us immense learning on dealing with customers. Earlier, as an NBFC (AU Financiers) we focused on MSME, SME and vehicle loans for this segment and now, as a bank, we are expanding the umbrella further. Many of our customers from small towns do not have documentary proof of income or credit history which causes impediments in getting loans. Also, many established banks are not offering a complete bouquet of financial products, especially loan products in these markets.

Different from Formal Banks

The formal banking set up is intimidating to these customers due to its sophisticated ambience and excessive dependence on paperwork. Many of these customers are first time borrowers because either they have never approached a bank or even if they tried taking funding from a bank, they were denied it due to lack of documentation. These customers, therefore, are hesitant and are not comfortable visiting them. For some of their unorganised borrowing, they also relied on money lenders or borrowed funds from their friends' circle at a very high interest rate. In rural markets, the customers also assume that they have to pay a service fee for getting the loan approved. They are ambitious and can provide a real boost to our economy, but they struggle to fulfil their dreams.

When we provide them funding, we have our own time tested methods of ensuring credibility of these customers. We have focused on secured lending by majorly concentrating on consumers who want to either start earning or expand their business with our loans. For some of the financial institutions, there might be doubt on dependability of these customers. While dealing with this segment, we have been able to maintain an NPA as low as 1-2 per cent. This speaks volumes on their credibility.

The challenge is to treat each individual case as unique, assess their requirements and provide a tailor made solution for every customer. It requires patience to work with these customers. These customers are not used to banking, so we need to allow them to pay in cash.

For establishing the credit worthiness of these customers, we work on a touch and feel policy. In smaller towns, the society is closely knit and everyone knows everyone. Hence, we rely strongly on market references to understand the customer’s intention. At that level, we have established a strong networking to understand the customer behaviour. It also helps that we have our presence in these markets and employ locals of that area. The customers are served in the language they understand. This helps in gaining a deeper understanding. This provides the customers great comfort as they are at ease during interaction.

For understanding the cash flow of small business owners, we are probably one of the few lenders who rely on their informal business receipts. Considering their shortcomings, we have kept our processing easy and disbursement faster without compromising on the documentary part.

For them, this initial support plays a big role in transforming their lives. In many cases, we have observed that they come back for more funding after they repay their loans because they want to expand their business further on.

We have brought many of them in the formal banking fold and we have created credit history for them. Most of these first time buyers, go on to maintain a decent CIBIL record. Even as a bank, we want to continue with the same spirit which gives them comfort and hope for a better tomorrow.

Sanjay Agarwal

MD & CEO, AU Small Bank

olmdesk@outlookindia.com