Future Cap sees opportunity in retail lending

By Vivin Mathew, CNBC-TV18

RBI is trying to fight inflation by reducing money available with consumers. That should be really bad news for retailers. But some retail companies are finding an opportunity in adversity. Retail lending could be an answer. 

Kishore Biyani of Future Group pointed out India's retail potential to the world and he is now discovering opportunity in inflationary India. As fears increase that higher interest rates will slowdown consumer spending, Kishore Biyani's retail lending company Future Capital sees an opportunity to lend to customers.

Dhanpal Jhaveri, Executive Director, Future Capital, said, "While inflation will possibly eat into the Indian consumer's wallet, they possibly are not as interested in postponing lifestyle choices. That is where we as a financial services company come in to offer credit at the point of consumption." 

Over the last ten months, it has lent Rs 200 crore to customers. As interest rates have increased in the last 2-3 months, so too has customer interest in borrowing money from Future Capital.

As a result, his company expects to lend Rs 800 crore over the next six months and customers seem to be lapping it up.

What has also helped Future Capital is that over the last few months, atleast three of its competitors like GE Money, Citi Financial and ICICI have exited this business for various reasons.

With only Bajaj Finance still offering retail loans, retailers lending to customers is not unique to India. Internationally, companies like Walmart and Tesco do it very profitably. In fact, margins in lending are about 4-5% more than double that of retailing.

For example Britain's largest retailer, Tesco earns about 202 million pounds or 10% of its 2 billion pound profit from financial services.

And in inflationary India, lending could not just spur falling sales but also improve bottomlines.