Ujjivan Small Finance Bank Annual Report FY15 Notes

This is the ninth post of the series, where I will share notes taken by me while reading the annual reports of this business. I will be sharing an excel sheet at the end of the series which will capture all the relevant data throughout the years of its operation. Notes will mostly contain intangible non-financial data which will reveal subjective characteristics of the business and management. I have restrained from adding my comments and recommendations on specific subjects as I do not want to introduce my biases in this exercise. Shorthand abbreviations are used from time to time and should be logical. For any clarification, please use the comments section. This is not a buy or sell stock recommendation, just an exercise in researching and understanding the business.

We spent eight years, laying Ujjivan’s foundations. Bringing together the right people. Developing our infrastructure. Building processes and systems. We spent eight years, directing our energies and skill not just towards the present but towards the future we believed in. We spent eight years, for what Ujjivan achieved this year. This year, we doubled our customer base. This year, we doubled the loan portfolio. And we believe, bettered more lives.

As we stride towards our tenth year, we look at the past with satisfaction. And welcome the future with great expectation. Looking back on what made us succeed - it’s our values, commitment in deeds.

So to commemorate the 10-year milestone we put our thoughts together to represent all we are and all that we stand for. Of the hundreds, one stood out. The brainchild of Shijo R of Wadakkanchery, it showed a profound understanding of the idea behind Ujjivan. A recognition that the woman is the heart of the household. The force that unites the family. That nurtures all hopes and dreams. And the hopes and dreams of the woman and her household are realised by our promise of a better life. These values have carried us to this 10-year milestone. And will carry us forward as well. Exciting times are ahead for all of us. Let us all look forward to the journey.

Letter from MD

In 2004, I began preparations to set up Ujjivan which was established in November 2005. This year at Ujjivan, we will be celebrating ten years of providing financial services to those who are excluded from the banking world. I have spent four decades in the financial services industry. What makes me jump out of bed on Monday mornings and head to work?

Customers

 

It is the stories which our customers tell us of their journey with us. It is the Dhokla lady in Surat - who used to prepare Dhoklas at home and sell them on pavements - who took a loan of Rs. 10,000. Three years later when I met her, she had borrowed Rs. 100,000 and had scaled up her business to become a wholesaler of Dhokla in Surat. She was joined in business by her husband and eldest son, and she now employs three karigars. A lady in burkha at our Yelahanka branch who has an Rs. 99,000 loan, has scaled up her one-person tailoring shop to a business powered by ten machines, selling women’s garments. She wants another lakh for the Eid seasonal sale.

Another customer in South Pune used her loans to train her sons in martial arts and has now helped her elder son set up a martial arts school. A whole bunch of our customers take higher-education loans for their children. They firmly believe that it is the long-term way out of poverty. Thirty housewives in Garia over the years have turned into successful micro-entrepreneurs. A host of our women customers have availed loans to buy hybrid cows and buffaloes to supplement their family income. The enterprise of our customers and the varied businesses they are engaged in is mind-boggling. We pride ourselves on being a customer-focused organisation. And the proof of the pudding is our customer retention.

As our customers move up the economic ladder and/or scale up their business, their financial needs vary and increase from the simple Group Loan. Our Individual Loans provide the path for financial growth. We have over 70,000 Individual Loan customers. Our success is attributable to our ability to offer appropriate loan products for every stage of business growth as our customers scale up their business and family needs i.e. higher education, housing, etc. In the first eight years, we acquired a million customers as we scaled up and opened our wings across the country in 24 states and union territories. Last year was a tipping point – we added another million customers! Our active customer base today is 2.2 million.

Employees

It is the stories of our staff and how they have transformed their lives, that gets me to work on Monday mornings. The branch manager of one of our most successful branches joined as a humble field staff. Today she ascribes her branch’s success in monitoring performance using her branch dashboard, planning and teamwork. She will put many of our business school-educated managers to shame. We have a diversified workforce with people from a wide range of backgrounds. A quarter of our field staff is women, while 19% of our total employees are women.

Customer retention and staff retention are highly correlated. Providing the opportunity for staff to grow and develop in the organisation, is not only good for the employee but also for the business. We continue to be among the top-ranked organizations in India under the Economic Times/Great Place to Work ranking in India and Asia. We used to wonder how we can compete with the likes of Google, Intel, and American Express. It is not our compensation level & work environment. We get the highest score in employee survey on job satisfaction. The respect & appreciation our customers have for our staff, make all the hard work in an unpleasant & risky environment worth it.

Investors

Most of our institutional investors have been our partners in progress through their active participation in the board and voluntary support for the various activities we undertake within Ujjivan and Parinaam Foundation. They have actively supported us during periods of industry crisis by bringing in new investors. Investors have been able to generate 20-25% return on their investment in Rupee terms and some of the investors from our first two rounds, who exited in the latest round in the financial year, were able to get a 14.6x return on their original investment. This is unparalleled in the industry.

Funding Partners

 

Our biggest partners are the banks and financial institutions which provide us with funding. Last year, we raised debt of Rs. 2,803 crore from banks and financial institutions. We enjoy the finest pricing in the industry and one of the best ratings for a microfinance institution: CARE rated us ‘A’ on our long-term borrowings. We already have a rating of MfR1 from CRISIL which is the highest grading for an MFI. And, Ujjivan has always sought to diversify sources of funding. In 2010 we pioneered Non-Convertible Debenture from foreign financial institutions, which provided us with much-needed liquidity during the crisis period. Last year, Ujjivan was the first to source funding from the vast mutual fund market. Ujjivan has been a trailblazer in sourcing new avenues of funds because of the excellent lender confidence it enjoys in the market.

Operations & Technology

The key area in this high volume but low margin business is to constantly work on lowering our operating cost and simultaneously continue to improve the quality of service in terms of loan Turnaround Time (TAT), bring error rates close to zero and constantly move towards cashless transactions. Our success in converting customers to cashless loan disbursement using their bank accounts is unique in the industry. In this quest, we have centralized our Operations and Technology Teams at the four regional hubs. We have outsourced our data processing and call centres to partner organisations spread across India and outsourced data centres.

We are constantly working on upgrading our technology to improve efficiency and quality of output. We are moving towards paperless processes through use of a document management system, along with handheld devices (tablets and mobile phones) to capture data for loan processing, repayments and handling enquiries. Our entire loan application processing for Individual Loans is performed through tablets, and Group Loan repayments are in the process of being processed on mobile phones. We work extensively with our technology partners. Our goal is to move more and more towards digital technology. As a part of the digital revolution, we have launched a mobile platform, Trucell, to facilitate repayment transactions processing and provide access to customer information for our field staff using Android mobile phones. This improves efficiency and facilitates better customer service.

Future

The PM realises that real financial inclusion for the poor is likely to take 20 years, as per his speech at the Financial Inclusion Conference on the occasion of the 80th-anniversary celebrations of the Reserve Bank of India. The Reserve Bank of India, under the leadership of Governor Raghuram Rajan, has taken the proactive step of launching two new types of banks to promote financial inclusion: the Small Finance Bank (SFB) and the Payment Bank. In addition, the big elephant amongst the pack is the possible conversion of the Indian Post Office to a bank. The two new commercial banks, Bandhan and IDFC bank, will also be major players in this field. The Reserve Bank of India, based on the good track record set by MFIs after the crisis in 2010, has considerably liberalized the scope of business for MFIs. One thing is for certain – the environment in which we operate and how we operate is going to change completely in the next few years.

RBI’s new guidelines to MFIs, which permits loan sizes up to Rs. 1 lakh will require a different approach and skill set than the traditional group lending, which most of us are used to. Those who make the transition to individual lending will succeed. The path will be littered with carcasses of irresponsible lenders who take this as a license to grow their portfolio at breakneck speed. We hope this does not adversely impact the industry. We have a head start from our competitors by setting up the Individual Loan business three years ago as a separate vertical.

Second, the SFB license. MFIs have a head start in the race for these licenses, despite 72 contenders in the initial line up. Seventeen NBFC-MFIs have applied. MFIs have an advantage, as they already serve the same market segment. The RBI Governor indicated to us that he would like to see the best MFIs get the license. However, successfully establishing an SFB is like completing a steeplechase race. The first hurdle is to obtain the provisional license. We should learn about that in July/August. MFIs that are successful in the first phase will need to restructure and raise domestic capital in order to be ready to obtain the final license after 18 months. The paucity of domestic capital and legal/ regulatory hoops that the organisation has to go through will pose the second major challenge. Once the SFB starts operations, the biggest challenge will be converting the liability side of the balance sheet to conform to that of a bank and comply with CRR and SLR requirements. Finally, the business the SFB has to undertake – which is characterized by very high volumes, low transaction ticket size and customers requiring ‘high touch’ – will require a radically different business model, which is untested. SFBs will have to innovate using the latest technology and explore uncharted paths in order to succeed. How many of the 72 current contenders will establish and run successful SFBs, in the long run, is a big question. It will have to start with the selection of the best candidates by RBI. SFB is not for the faint-hearted.

The MUDRA Bank is an excellent initiative to accelerate the process of financial inclusion by providing funding channelled to micro-entrepreneurs. Here again, MFIs have a head start. In order to succeed, it is important that the RBI’s regulations for MFIs and Priority Sector work hand-in-hand with the MUDRA initiative. There are challenges of pricing of loans in order to be an economically viable business proposition, and also to ensure that the pricing of loans is politically acceptable. The MUDRA card, which is a good idea to provide working capital for micro-entrepreneurs, will require a high level of coordination between banks, MFIs and MUDRA. This is a game-changing initiative but success will depend on coordination and execution, where all parties have a win-win situation.

The success of Jan Dhan Yojana and the Jan Suraksha insurance programs will depend on the regular commercial banks to be able to service them. Banks are not geared to carry out this type of business in a viable manner. The business will have to shift to the two new commercial banks and SFBs in the future. There are exciting times ahead. Put on your seatbelts and enjoy the ride.

Conclusion

What type of organisation is Ujjivan? Is it just ‘commercial microfinance’? Is it a ‘double bottom line’ organisation? Is it a ‘social enterprise’? None of these completely describe Ujjivan. Last year, while visiting Whole Foods in New York, I came across a book titled ‘Conscious Capitalism’. It describes this new breed of capitalist enterprise of which Whole Foods is a prime example. These are organisations driven by an overarching purpose, rather than the goal of a single stakeholder. The higher purpose could be for doing Good (Amazon, JetBlue, Disney); pursuing Truth (Google, Wikipedia); creating Beauty (Apple, BMW); and pursue a Heroic goal (Grameen Bank, Whole Foods, Ford under the founder, South West Airlines). Our purpose is to provide financial services to the vast number of working poor who are financially excluded.

A purpose-driven organisation has a long-term focus and is not driven by quarterly earnings beholden to the Wall or Dalal Street analysts. The purpose with which the organisation is created must be valued by society. In achieving the purpose of the organisation, interests of all stakeholders are taken care of, not one at the cost of the other. This type of organisation finds resonance in Ujjivan. The all-around success we have achieved so far is because we are an outstanding purpose-driven organisation.

Product & Services

Ujjivan prides itself on being a customer-centric organisation, and on developing products that directly address its customers’ needs. The product development process relies extensively on rigorous market research and product pilots to gather insights from the field. Once a product is launched, regular customer feedback is solicited and products are re-engineered as required, to complete the loop. The range of products that we offer,  from Rs. 2,000 to Rs. 1,000,000, help our customers finance their income generation activities, emergencies and important consumption needs such as housing, education and creation of household assets, which have a pronounced effect on the quality of their lives.

Insurance

Through our partnership with Bajaj Allianz Life Insurance Company, we offer Life Insurance to our customers and their spouses. In the unfortunate event of a natural or accidental death of customer or spouse, the insurance amount helps the beneficiary cover the existing loan and receive the benefits of a life cover. In 2014-15 we insured over 3 million customers and their spouses.

Individual Lending Program

Background

The Group Lending (GL) business has seen robust growth over the past years and will continue to grow in the coming years. However, GL has its limitations as it revolves largely around a single product structure. There are many prospective customers who are not willing to form groups and offer guarantees for each other. They also have very specific needs. These customers usually want to borrow amounts higher than Rs 50,000 and request flexibility in terms of repayment tenure, mode of repayment, disbursement mode, etc. Banks are not willing to cater to the needs of this segment of urban, semi-urban and rural poor with a high concentration of micro-entrepreneurs, tenant farmers, piece-rate workers, organized and unorganized workers who support themselves and their families with monthly household incomes between Rs. 15,000 and Rs. 30,000. And most importantly, MFIs are unable to cater to them.

At each of our branches, we have successfully disbursed group loans and we may be serving 5,000 - 7,000 families. However, in the same urban work-areas, there may be up to 1,00,000 families who are financially excluded. With Group Loans, we have achieved a meagre 5 - 7% penetration. Our objective in the next five years is to increase our penetration to 50%. We can do so by widening the range of our loan products to meet the specific needs of different sub-segments of the financially excluded population. Hence, the need of the hour is to innovate and design need-specific products and processes, to build a viable business on the Individual Lending (IL) platform.

Our focused approach is to cater to the needs of a segment which is excluded by the traditional group lending facilities of MFIs and the paper-intensive processes of commercial banks. One of the major steps taken during the year was breaking out of the captive GL customer base and looking outwards to understand the financial needs of micro-entrepreneurs and small farmers in the catchment areas of our branches.

A major highlight of FY 2014-15 is the introduction of an independent credit methodology into the IL process. Individual Loan proposals undergo field based credit underwriting and verification before being presented to the sanctioning committees. With the help of a team of experts from Women’s World Banking, model sanctioning committees were organized and replicated in all IL hubs.

Understanding the customers

As with any product, the success of IL is largely dependent on meeting the specific needs of our target customers. As a responsive product management initiative, a collective effort was put by marketing and distribution teams to understand customer expectations. Partnerships were made with reputed research agencies to study customer behaviour and their response to our products. Women’s World Banking, IMRB International, Delphi and IFMR are a few firms we worked with. Extensive MSE customer research has been initiated and major occupations of the customers across branches are being studied to understand the scope and viability of existing and future products.

Purpose Linked Product Offering

Last year, we launched the Higher Education Loan to great success. It was designed to meet the credit needs of our customers who find it difficult to finance the higher education of their children. An open market variant of the Livestock Loan, introduced during the year, also met with great success. The Agriculture Loan for small and marginal farmers was tested and piloted in selected locations in FY 2014-15. The product will receive a widespread launch across rural branches in FY 2015-16. Seasonal promotions were conducted to boost the sales of Higher Education and Agriculture loans.

Another huge leap in the IL business was the introduction of the Secured Business Loan. The product was designed after intensive study of the industry and customer need analysis. We piloted the product in select locations to study its acceptability and viability. The Secured Business Loan is backed by strong and sound appraisal mechanisms to ensure the customer’s eligibility and creditworthiness. Post the pilot, the product was revised and fine-tuned, and is now being launched steadily across various locations in India.

Credit and Risk Management

Ujjivan has an independent credit function to handle different product lines, a unique structure in the MFI industry. The structure is centralized and fully technology-enabled. It is controlled and administered at four regional offices at Bangalore, Delhi, Kolkata and Pune. This is complemented by Field Credit Officers, who carry out independent underwriting of each loan proposal at the branch level.

The approach towards appraisals is holistic. Sanctioning Committees review each case meticulously to assess viability from every perspective. The Sales Team is responsible for portfolio quality and collections, which makes the process for loan disbursement compact and comprehensive. Manpower deployed for secured and unsecured loans are independent and have different skill sets.

A robust system is being put in place for portfolio and collection management. The credit performance of each branch is scored independently and trends are monitored. Poor performing branches are reviewed and stringent improvement plans are implemented.

The creation of an ‘IL organisation within the organisation’ meant induction of a different set of people into Ujjivan while keeping the basic DNA of the organisation intact. The strategy has been to keep the mix of internal and external manpower at approximately 30:70 during the year. A large number of fresh graduates, as well as experienced professionals, were recruited. For all fresh recruits as well as internal movements, a comprehensive training program was designed and many batches of the same were run during the year. In the coming years, most of the manpower will come from outside with a strong focus on recruitment and training.

The IL Training Program, which is in place to induct new IL staff, was revamped with the help of Women’s World Banking delegates. An optimum mix of classroom training and field exposure is given to trainees when they first join Ujjivan’s IL team. Subject matter specialists were hired as Project Managers and Technical Advisors. Over the last 2 financial years, over 700 IL staff have been trained and placed in the field. External experts have delivered training on sales, financial analysis and use of technology. Middle and senior managers were sent to reputed financial institutions and institutes in India and abroad for training and exposure.

Looking Ahead

During FY 2015-16, the focus will be on increasing the intake of open market customers while building up on the GL to IL graduation program. Our branches will focus on understanding the top occupations / enterprises in their working areas in order to offer tailor-made solutions to customers. The Secured Business Loan Program and the Rural Lending Program will be gradually expanded. Based on the market study and research findings, products will be revamped, and delivery channels and processes will be adjusted. Credit score cards will be introduced. Marketing will be carried out as a concerted activity, using various media and methods, with evangelical marketing as our primary focus.

Housing Finance

Housing is one of life’s three most basic needs, alongside food and clothing, and is also known to contribute to the social, physical and psychological well-being of a family. Besides providing shelter and security, it also enables easy access to credit by acting as collateral. Overall, good quality housing has a long-term impact on an individual’s productivity, thus contributing to the growth of the economy as a whole. Housing shortage has been a major problem over the years. The total housing shortage in India runs into millions. And 80% of demand is among the lower income and informal sector households spread across urban, semi-urban and rural areas. The government’s focus on affordable housing and increased penetration by Housing Finance Companies (HFCs) in Tier II and Tier III towns are likely to fuel the next leg of growth. Small ticket loans will be the new growth driver and HFCs with rural focus will benefit the most.

Limited competition in the affordable housing segment as compared to regular housing segment, with the government’s thrust on housing for all and financial inclusion, coupled with our expertise in understanding local markets, evaluating the self-employed segment, and semi-urban and rural presence puts Ujjivan in a sweet spot.

The housing shortage in rural/semi-urban is approximately 1.5 times the urban shortage, suggesting that low ticket housing will experience rapid growth. Realty affordability is presently about 5 times the average annual income as compared to 15-20 times the average annual income in the mid-90s.

Recent statistics indicate that around 15% of Group Lending customers use Group Loans (ticket size up to Rs. 50,000) for housing or related activities. But the loan amounts were not enough for the purposes of home improvement. This led us to introduce an unsecured, higher ticket size Home Improvement Loan (up to Rs. 150,000) under our Individual Lending Program. The Home Improvement Loan has been one of our most successful products outside of the group loans and has helped fulfil the dreams of more than 20,000 families by enabling them to have a better place to live. Currently, the outstanding for Home Improvement Loan is more than Rs. 100 crore with a healthy portfolio quality. To address the need for higher loan amounts, for home construction, purchase and incremental housing, a new product ‘Secured Home Loan’ has been introduced. This product provides customers with loans up to Rs. 10 lakhs, with a repayment term of up to 10 years. The loan is secured by the mortgage of the property being funded.

The next year, 2015-16, will be crucial for Ujjivan’s housing business. The Unsecured Home Improvement Loan is running smoothly. The challenge lies in scaling the Secured Home Loan Business, which was piloted in last quarter of FY 2014-15. Getting the right resource at the right place at the right time will be the key success criteria of this business.

• The Secured Home Loan product is operated in Hub and Spoke Model, covering over 100 branches

• Develop technical and legal expertise in the team to build process capability

• Continue to serve the low-income segment and incorporate learnings as a part of product policy

• Developing and executing a comprehensive training program for Secured Home Loans

Customer Retention Program

Ujjivan emphasizes long-term relationships with customers. This is imperative to ensure meaningful impact while helping them alleviate poverty through financial services. We observed 20% to 30% customer dropout rates year on year during 2010-2013. Half of this was attributed to the post-AP crisis period due to selective credit and tight controls on multiple borrowing. Ujjivan was able to get back on track with a healthy customer retention rate in the last 2 years, up by 15% in FY 2013-14 from 70% to 85%, and by 2% in FY 2014-15 from 85% to 87%.

The key drivers of this retention rate were innovative field, credit and back-end process supplemented with strong, comprehensive service quality programs such as:

• Ensuring that customer care representatives met over 120,000 inactive customers. This ensured that 47% of them were retained

• Introducing the Public Ka Champion program, a rewards and recognition program for field staff who retain clients

• Implementing strong, independent credit approval systems to control customer over-indebtedness

• Implementing innovative field and back-end processes i.e. pre-approved loans and reduction in loan turn-around-time through document management system (DMS)

• Setting up a strong customer feedback and grievance redressal mechanism to proactively resolve service issues

• Ensuring greater transparency of our services, terms and conditions which are effectively disseminated to customers through various channels

Outbound Call Center

We instituted the practice of making welcome calls to all customers post loan disbursement. The objectives of this initiative include:

• Welcoming new customers to Ujjivan and thanking repeat customers for their loyalty

• Verifying the accuracy of important data points provided by the customer and cross-verifying the purpose of the loan

• Checking customers’ understanding of fees and charges, EMI amount, repayment dates, etc.

• Seek feedback proactively on our product and services, including customer satisfaction on loan application process

• Checking on grievances, instances of commissions/ bribes being paid by customers and ghost lending

We will expand the outbound call centre program further in the next year, as an alternate channel for customer lead management, service, collection and retention.

Operational Efficiency Program

Ujjivan’s tremendous increase in customers over the last year meant that our Customer Relationship Staff had their hands full. To help our staff manage the load and still give customers the personal touch they expect from Ujjivan, we introduced Truecell – a mobile app to manage repayments and customer service. We have rolled out Truecell across India and more than 65% of our customer relationship staff have been trained to use it.

An added advantage is that the app is expected to reduce paper consumption by 50%, and reduce consumption of printer toner and electricity as well – making this the first step in Ujjivan’s ‘Go Green’ initiative.

Scanners

With 423 branches across India, our need for smooth, swift transmission of information has never been greater. Previously, we relied on courier services to transfer documents between offices. Now, as we expand to increasingly remote locations to better serve our customers, accessing courier facilities is becoming challenging. To overcome this, we installed scanners in the branches that needed them most, efficiently connecting 30% of our offices. Not only have we reduced – and in some cases, even eliminated – the cost of couriers, but we have also dramatically reduced processing time by 4 to 5 days.

Cashless Disbursement

Last year, we took a pan- India leap towards financial inclusion by bringing more customers into the banking system through cashless disbursements. Not only do our customers enjoy the sense of empowerment that comes with performing basic banking transactions independently, but there are benefits for us as well.

Our cash-in-transit risk reduces significantly, and branch staff can spend their time more productively – before, they were counting cash. So from last year, our target has been to scale up to cashless disbursements for 80% of our customers over time. This year, we have moved closer to that goal. We processed a total of 21.73 lakh loans – and 9.76 lakh were cashless. With 44.91% of all disbursements being cashless, we have crossed the halfway mark in just one year.

Cashless Repayment

When we ran our Electronic Clearing System (ECS) pilot across all regions last year, we were in the process of breaking new ground. Although ECS is common in banking, our pilot was a first for the MFI industry. And, it is especially relevant for our customers. Many are small entrepreneurs or belong to the working class, and have trouble visiting the branch to make EMI payments in cash. ECS was also a logical step towards helping our customers manage their finances better. With an overall success rate of 70.38% and a total of 66,319 enrolments, our cashless repayment facility has been well-received indeed.

Processing Time

 

Continuous improvement is an integral part of Ujjivan, and we carry that thought to all aspects of our operations. One focus area for improvement was faster back-office processing – a goal that we achieved, with reductions ranging from 22% for new group loans and more than 50% for individual loans.

Faster processing of individual loans also aligns with our goal of financial inclusion and greater emphasis on individual lending – allowing us to ensure that customers have access to the finances they need as quickly and efficiently as possible.

Awards

9th Best Company to work for in India, 2nd Best in the Financial Services Industry, 16th Best Place to Work in Asia.

The award is a reflection of our effort to build a truly rewarding workplace for our employees, with a focus on trust, pride and camaraderie. But we have no intention of resting on our laurels – having achieved this milestone only means that we need to work harder to sustain and further improve the strengths of our workplace culture.

Inc. India Magazine’s Winner in the ‘Innovator in Responsible Business’ Category & winner of Most Inspiring Workplace in the NBFC Sector.

Management - What they have to say about the company

Jolly Zachariah, Chief Operating Officer - West

“As I look at the future, I see Ujjivan expanding the scope, scale and impact on the lives of people who are financially excluded from the mainstream. The ambition of being a specialized bank could help unleash human potential by addressing the diverse financial needs of individuals and small businesses, which will take India to the next level, much like it did (once before) with the advent of retail banking in India.”

Rajat Singh, Head - Strategy and Planning

“Ujjivan will actively pursue emerging technologies to achieve its objective of reaching out to millions of financially excluded people. I see Ujjivan leading the creative disruption in product development, delivery channels and service quality that will pave way for the last mile delivery in financial inclusion.”

Alagarsamy AP, Head - Audit

“A number of recent developments in the MFI sector like the launch of MUDRA Bank, RBI easing the lending norms for MFIs and the possibility for MFIs to become a Small Finance Bank, point to an exciting future for Ujjivan and its customers. I foresee Ujjivan transforming into a Small Finance Bank offering a wide variety of financial products and significantly expanding its geographical and customer outreach while retaining its core mission of serving the unserved and underserved segments of the society.” 

Deepak Ayare Chief Information Officer

“I think Ujjivan will be the fastest-growing, technology-driven, leading Small Finance Bank of the future, working for the development of society.”

Sunil Kutty Head - Human Resources

“Ujjivan is a purpose-driven organisation where the field force engages with customers to bring financial transformation in their lives. To make our employees succeed is to make our customers succeed immensely. Every business or people practice that we develop is aligned with this mission. That’s what makes Ujjivan a great place to work”.

Premkumar G, Head - Vigilance and Administration

“As Benjamin Franklin said ‘I am for doing good to the poor, but I differ in opinion about the means. I think the best way of doing good to the poor is not making them easy in poverty, but leading or driving them out of it.’ I have seen this quote in practice here at Ujjivan. With the first level of strong groundwork (ear-to-ground) during the last 10 years, pioneering urban microfinance in the country and so many positive changes in the financial sectors, achieving our mission of providing a varied range of financial services does not seem to be an uphill task. But the activities that will be carried out in this space will be very interesting and will have a lot of learnings. In my opinion, we (Ujjivan) will be the forefront and others will follow.”

S.Aryendra Kumar Head - Housing Finance

“Ujjivan’s strength is in understanding the requirements of the segment it caters to – with dedicated people, processes and innovation. In the years to come, Ujjivan will emerge as the financial supermarket for the middle and lower-middle-class segment of India.”

Sneh Thakur, Head - Credit

“I see Ujjivan setting new standards in the financial industry by using contemporary technologies coupled with its expertise in dealing with the informal segment. In the next 10 years, I see Ujjivan as one of the largest and most well-respected institutions, not just in the financial industry but amongst the customer segment as well!”

MD&A

73 new branches were added to the network, taking the branch count to 423. We also established footprints in the states of Tripura and Chhatisgarh, becoming one of the most diversified MFIs, with a presence in 24 states and union territories. We achieved 100% growth in business volumes and 148% growth in new customer acquisition. Two product-level initiatives - Rishta Loans and Akarshan Loans - enabled significant additions to both customer outreach and business. A record 10 lakh new customers were added to the Ujjivan family, triggered by Akarshan Loans and special campaigns. The Rishta Loans, a short-term offering to repeat customers with good credit history, to help address their needs for funds during the festive season, added an impressive Rs. 300 crore to the portfolio.

Our Individual Lending business witnessed a significant 200%+ growth over the previous year with product rationalization, new branch additions, new product launches (Agri and Higher Education Loans) and a foray into the secured lending arena with the launch of Secured Business loans and Secured Housing loans in a pilot phase. The graduation of GL customers to IL continued to be the main engine of IL business growth.

Ujjivan outsourced its data centre management and payroll processing for better efficiencies. For faster and more accurate processing of IL applications, Ujjivan has rolled out handheld devices/touchscreen tablets for field staff. With a view to maintaining a continuous relationship with customers and seeking their feedback proactively, Ujjivan launched outbound calls to clients by partnering with professional call centre service providers across regions. Focus on marketing and promotional activities was a key highlight of the year. Evangelical marketing campaigns and fairs helped create product awareness and boosted our volumes. We launched several rewards and recognition schemes (Public ka Champion, IL referral campaigns, etc.) to reward the efforts of excellent performers. Additionally, sales training, sales contests and a good MIS galvanized the field staff towards stellar performance.

Business Growth

Ujjivan’s growth story started in July-14 with the launch of Rishta Loans (Loyalty Loans), a product designed specifically for existing customers with good credit track record, to enable micro-trade facilitation during the festive period. The product was a great success, adding around Rs. 300 crores to Ujjivan’s business. Our portfolio has grown by a massive 100% over a period of one year from March 2014 and closed at Rs. 3,218 crores.

Ujjivan also launched Aakarshan loans, a first-of-its-kind in the industry, whereby ticket sizes of the first cycle loans were decided based on the customer’s credit history with other MFIs. The product helped Ujjivan acquire new customers in highly competitive areas, leading to a 148% increase in new customers over a period of one year while the borrower base crossed the important milestone of 2 million borrowers.

Despite steep growth in volumes, Ujjivan’s portfolio continued to report robust performance with a Repayment Rate of 99.89% and PAR% of 0.18% as on 31st March 2015.

CRISIL has re-affirmed Ujjivan’s grading at mfR1 in September 2014. CARE upgraded Ujjivan’s Bank Loan rating to ‘A’ from ‘A-’ for its bank loan facilities of Rs. 3000 crore. The revision in the rating factors in the significant fresh equity infusion to the tune of Rs. 300 crore during FY 2014-15 which reiterates Ujjivan’s excellent investor confidence for further business expansion and portfolio growth.

Vigilance

With the evolution in our Secured Lending business and the continuing growth trajectory of Individual Lending (unsecured), the need was to continue to focus on Preventive Vigilance – our focus area for the previous year as well. We successfully instituted our Fraud Control Unit (FCU), and a process to identify potential fraud at the customer acquisition stage. The FCU’s learnings helped us develop a well-structured framework to prevent fraud in Individual Lending segments and help stave off the effects of identity theft, an ever-present danger to all lending institutions.

Within our Vigilance Department, we formed a Collections Unit with an integrated framework in Credit Collection to manage the loan default portfolio. A dedicated team of resources underwent their induction into the unit and is responsible for tracking loan defaults in the Critical and NPA categories. We intend to use the learnings from the Collections Unit to further our development of Preventive Vigilance. In the previous year, we began the practice of conducting operational loss analyses and scenario analyses. The practice continued this financial year as well, helping us anticipate the possibility of losses in different branches. The result of the analyses was used for Risk Management across branches especially in Punjab, Mumbai and Gujarat. We studied the effectiveness of the Cash Collection Executives (CCEs) concept and replicated the system in high-risk collection areas, largely in Uttar Pradesh.

We plan to continue our focus on Preventive Vigilance in the Individual Lending business and move on to Predictive Vigilance in Group Lending. The Key Risk Indicators, with set thresholds, will be put to good use going forward. Strengthening the department and ensuring that it keeps pace with the development of the organisation and the NBFC-MFI/Banking Industry as a whole, are part of our goals for FY 2015-16.

We deployed dedicated Credit Officers across Individual Lending hubs, thereby ensuring prudent and independent underwriting on the field. Some of the other key enablers for this excellent portfolio quality were the integration of the Fraud Control Unit (FCU) process with the Credit process, a well-defined Loan Approval Matrix, loan sanctioning by certified staff, and stringent end-use monitoring (of loan amount by the customers). Another key development in the MFI sector has been the implementation of 2 KYC norms for all clients, which has resulted in incremental bureau matches thus enabling responsible lending.

As we grow, we plan to focus on capacity building and increased efficiencies through enhanced technological interventions such as E-KYC authentication with UID, online training for staff and handheld device-enabled underwriting processes. Implementation of credit scoring and customer segmentation for Individual Loan clients will play an important role in managing our IL portfolio. We are evaluating the introduction of Business Intelligence tools and Collections software in the coming financial year to get deeper insights into customers’ credit behaviour.

Sector Outlook

The progressive government in the centre has put financial inclusion as a top priority with the launch of the Prime Minister’s Jan Dhan Yojana (PMJDY) and various insurance programs targeted at the financially excluded. In addition, the government has also set up Micro Units Development and Refinance Agency (MUDRA) with a corpus of Rs. 20,000 crore and a credit line of Rs. 3000 crore, with the intention of funding small businesses and entrepreneurs who do not have access to formal credit. The funds will be routed primarily through MFIs for last mile delivery. These measures by the government have created a positive environment in the financial inclusion space and have provided much-needed impetus to MFIs.

No tier 1 B-school in partnership for management development program. Could change in a few years as the company gain recognition and reputation.