The plan is to position Ashirwad Microfinance’s rates among the lowest in the industry
I believe it’s a masterstroke by Manappuram.
With this approach the lowest interest rates growth will be high
Will they be able to maintain ROA with such low rates!!
Interest Rates and Risk in Microfinance
High-interest rates for high-risk cases may appear excessive, but most borrowers are low-risk.
Lower rates could lead to growth by attracting more customers.
Although labeled “low rates,” microfinance generally operates with high interest rates.
Manappuram’s View on Asirvad’s Return on Assets
Manappuram does not expect any impact on Asirvad’s return on assets, as better operating expenses and credit costs are likely to balance any effect.
Asirvad
Lenders feel secure due to sufficient liquidity and parent company support.
The focus is now on collections, with advanced tracking systems to improve recovery.
An increase in loan officers each quarter aims to boost collection efforts.
RBI Circular on Gold Loans
The directive aims to create a fair environment for NBFCs in gold loans by standardizing Loan-to-Value (LTV) ratios.
May be little tangential.
Related to RBI concern on high interest rates.
Is the credit market not functioning well with respect to interest rate discovery wrt to risk ? As in if the interest rates are high, can the individual find alternate credit provider ?
I don’t think sir , it is a masterstroke. It will lead to compression in NIM and ultimately will reflect in ROA.
It is RBI action which leads to such action by management. The same concern is raised in QnA in recent concall and management very beautifully diverted to “strategy which is expected to drive growth”. I began to smile after listening management answer and also admire the quality of how to show positiveness in negative things.
Disclosure: Invested from 89 levels. Will love to hear your counter views.
I think what Manappuram will do is stop giving out risky, high-interest loans. If they stop these high-interest loans, it won’t have a huge impact because most of their loans are at average risk with average interest rates, and only a few will be high risk. Earlier, they could charge very high interest on these few risky loans, but now they’ll cut back on those and focus on little safer, average-interest loans. I feel the high-risk loans aren’t a large part of their business, stopping them shouldn’t affect much. Offering the lowest interest rates in the industry could actually drive growth and help balance any impact. It’s complicated in theory, but practically, it won’t make a huge difference on paper. I think within 6 to 12 months, they’ll be back to near similar levels in profitability and NIM , if not exactly the same. Let’s see how things go as the numbers start coming in if and when ban is lifted
At least ban lifting seems pretty easy of they are planning to offer lowest interest rates in industry
Management mostly do what they speak
Last time during ED fiasco management guided well and same thing happened
I don’t think quantum of risk is changing much in MFI, and as far as rates go they don’t have a choice but to lower under RBI enforcement.
Lending is purely risk management, how well you can underwrite the risk, so without that growth is only bane to the organisation, there is the reason why HDFC, is opening branches like there is no tomorrow in this era of UPI (even for micro transaction). Loan are not commodity, if not handled well, this might become another BNPL company(which cease to exists now).
However, If they nail the distribution, I am sure, other big players can also replicate the tech, if this makes trenches in the existing market. India is quite big market, especially the micro segment, but risk management is vital, growth can be slower as long as you are growing while maintaining better asset quality.
Just my two cents on this, not a rebuttal.
Very Well said.
When I read the article, Founders even saying - we plan to apply for NBFC license - means as of now they don’t have it.
When checked on website, there HDFC Bank & Axis Bank are mentioned as their partners. My understanding, Indiagold might be (as of now) operating as of now just as an extended arm (as a lead originator, and getting lead fulfilled from partner bank).
But even in that case, customer’s who don’t want to walk to branch but want loan with ease at the rate of Bank (and not that of NBFC like Manappuram, Muthoot etc.) - can use Indiagold.
With that view only article of Indiagold was shared.
Two things that comes to my mind regarding this business model,
One I think the segment they cater to i.e: banks and nbfc are different - example the loan realisation amount per gram of gold and tenure is different for both guys, so interest rate is inversely proportional to the loan amount per gram.
Two, though I m sure they would have taken insurance and put adequate measure against theft being carried on the transit, still I feel like people would prioritize the safety more . Ex: customer may not be able to tell that the gold returned from loan/locker is original not a counterfeit
Ofcourse people who are in the business will figure out a way to earn the trust eventually
However, Facilitator such as shouldn’t disrupt the business of the likes of muthoot and manapuram, atleast not in near to medium due to stringent regulatory environment we are currently in (Paytm saga).
But they can tie up with the platform such as this (indiegold) once and if they are successful, like after it’s adopted as a norm by the general public
So all in all, I don’t see them or any sort of tech driven player especially in finance as threat to any conservative lenders (with better asset quality), atleast not in the medium term.
Was there any prior info on this? Top management are there to establish systems. Are the systems in MFI now robust to take care of this type of instances? Then branch head instead of MD would be answerable for actions.
Explains why manappuram finance stock price is low compared to muthoot finance. We keep hearing insurances like these where upper management gets into trouble.
in the gold loan, microfinance area, the possibility of collusion to defraud is very high. There were even murders of the collection agent by a group of women where they borrowed and instead of paying back to the agent every week, they colluded and murdered her. Here in the gold loan business, substitution, theft, robbery at every transit stage now mirrors early ATM thefts(insider jobs) when ATMs were being pushed.
As it is, the RBI has warned on the lending practice in this area. I personally feel, this is a high risk investment area purely from a finance POV; high interest rates, higher NPAs. Also culturally, if someone is desperate to pledge their gold, they’re most likely over their head in other loans or issues somewhere else.
This taboo is already broken. Now we see small time business men borrow using real estate, gold for their business expansion and working capital needs. Taking gold loan is still less shaming than taking loans from relatives and local loan sharks. Microfinance is another alternative but interest rate is pretty high. So gold loan is very convenient, hassle free and gives peace of mind for both lender and borrower. And hey free security locker, if you trust the lender. That’s where the manappuram and muthoot will shine. Trust factor.
Agree on the taboo part. I’d like to point out, if you see the newspapers, every 3 months of so, the gold companies publish multipage small font list of gold loan defaulters; spanning multiple pages (like the lost UTI share certificates list of yore). and I believe some of the charts point to lower income people as the largest base of borrowers. which has the highest rate of default(whether gold or normal loans BTW)
It just shows the state of economy. Less lucrative jobs and hence people have to pledge gold to make ends meet. But it doesn’t show gold loan lending as bad.
Out of curiosity, send a loan enquiry to Indiagold platform. and a received a call back today. Key takeaways on their offering vs NBFCs like Muthoot, Manappuram & IIFL:
As players like Indiagold are intermediary (as of now), hence, ROI is marginally higher than Banks but significantly lower than NBFCs like Muthoot, Manappuram & IIFL.
But in long term, it can help Banks to capture much more market and hit market share of NBFCs specially those customers who deals in high ticket and want better rate also.
Like co-lending model, which is the new trend for many nbfc to grow, if players like Indiagold will have a tie-up with many more Banks - it will be an alarming trend to watch for.
Disc: Holding position in Manappuram.
Structurally I have problem to envision for this to happen
Coz gold loans are not commodities, so it’s not like to like comparison
The major difference is in loan realisation amount the customer gets no matter how convenience on the delivery, banks ain’t gonna increase percentage of loan amount per gram meaningfully as long as this doesn’t change so does the consumer preferences.
Convience can’t disrupt here, due to the stringent regulatory measure, such highly regulated instruments like gold loan, until this gets relaxed.
If you ask me, I would say its safer for player like Manapuram, muthoot to enter after the banks enroll in this platform
