Retail finance and microfinance enjoy attractive currency on the Indian financial markets today.
There are a number of reasons for this.
One, in a country where formal financial inclusion is nominal, this business represents an attractive multi-year growth opportunity estimated at B1.40 lac crore to B2.50 lac crore at penetration levels of 50-70% and average transaction size of B35,000-40,000 per household.
Two, as India''s economy accelerates, we see a larger capital appetite, which inspires the optimism that the sector has addressed only a fraction of its potential.
Three, much of India''s capital appetite has been addressed at a level where the borrower is considered creditworthy through conventional appraisal filters; there is a considerably larger grassroots opportunity that has been largely unaddressed.
Four, micro-finance companies have, by and large, demonstrated their competence - through business growth and more importantly, through their non-performing assets being considerably lower than the country''s corresponding bank sector average.
Five, there is a growing recognition that by addressing women through micro-finance, the business is not only addressing a financial grassroots need but also addressing a long unmet social gap that can completely redress the inequity of the centuries.
In view of these realities, the big moment for the business of micro-finance has arrived in India.
I am pleased to state that Arman has risen to this occasion, which is reflected in its numbers for 2015-16.
Our disbursements of B247 crore were 47% higher than in the previous year.
Our income from operations grew by 37%, outperforming the NBFC industry average.
Our net profit grew by 30%.
Our Assets Under Management grew by 50%.
Our profitability is one of the highest in the industry, with an ROA of 4.8% and ROE of 18.6%
At Arman, the growth in these numbers means just one thing: that we are making a perceptible difference in the lives of Indians at the grassroots. We are empowering, we are financing, we are enhancing confidence, we are educating and we are graduating. The success of this complement makes it necessary - even mandatory - for Arman to extend into new geographies, touch more lives, widen opportunities and strengthen nation-building.
At Arman, we painstakingly built our micro-finance business in the Gujarat laboratory. This is where we learnt the business, this is where we built systems and processes, this is where we studied diverse consumer needs, this is where we took prudent risks, this is where we created a resilient business model.
The time has come then to grow the learning’s from this model across the other parts of India in our quest to emerge as a successful pan-India micro-finance company. During the last 15 months, we extended our presence from one state to four. We entered Madhya Pradesh towards the close of 2014-15. Towards the close of 201516, we entered Maharashtra and began work to enter Uttar Pradesh. Besides, in our traditional market, we extended deeper into North Gujarat (Kutch) and South Gujarat. In doing so, we expanded our branch network: 29 as on March 31, 2014 to 60 as on March 31, 2016.
A number of our stakeholders are inclined to ask whether a widening of our geographic footprint will translate into a dilution in all the values that we hold dear.
My answer is that Arman has been a ''quality asset'' organization; we have prided on the quality of our business and this reality will remain unchanged.
We will grow our business to the extent that our Balance Sheet integrity will permit; we will walk away from business that could enhance our business throughput but erode out long-term competitiveness.
My optimism on this count has been derived from a number of business-strengthening initiatives that we undertook in the last few years.
We made the branch and village selection criteria more stringent, which ensures that our new branches service only the deserving. We are implementing a new MIS to drill down to brand and individual performance with alerts for deviations. We engaged expert business consultants to undertake business process benchmarking with the best industry standards. In doing so, we expect to improve service quality even as we extend wider and deeper. As we mentioned in previous communications, we will invest significantly in IT and other infrastructure requirements as and when required.
Our asset-financing business grew at a healthy 13% due to growth in the two-wheeler financing segment. To counter competition, we leveraged the micro-finance model in rural two-wheeler financing, which should catalyze growth in the current year.
To address our need for growth capital in the subsidiary Namra, we tapped the Tier-II equity market, issuing Rs.5 crore Redeemable Preference Shares in 2015-16, which will allow us to raise more debt and increase our portfolio. We expect more Tier-II transactions to follow in the coming year.
Message to shareholders
At Arman, we are optimistic that our cautiously aggressive approach will continue to strengthen our asset portfolio and drive best-in-class profitable growth.
This will be made possible by Arman''s dedicated team, whose diligence has made year-on-year growth a reality.
Vice-Chairman & Managing Director