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Global economic growth has become stronger, with the short-term outlook broadly balanced; this presents opportunity for sovereign nations to advance policies and reforms.
The synchronized recovery of developed and emerging economies last year, supported by a pickup in trade and investment activity, has led to an expectation of further growth in the near-term with global GDP growth forecast of about 4%.
This cyclical upswing in global demand has been accompanied by fiscal easing, firming inflation and rising oil and commodity prices. Against this backdrop, central banks of developed countries are likely to begin tightening monetary policies following years of accommodation to support growth post the financial crisis. The pace at which central banks normalize monetary policies, however, will be critical as a sharp tightening will adversely affect valuations of risk assets globally, and potentially cause capital flow reversals in growth markets, such as India. Escalating trade protectionism could lead to further downside for emerging countries. What will help buffer these growth economies from these types of headwinds will be the increased resilience of their financial systems.
India continues to benefit from a strong domestic demand with both private consumption and government spending posting strong performance, while investment activity and exports picked up as the year progressed.
The Government of India continues to spend on social services and public investment by mobilizing domestic revenue and increasing spending efficiency. There has been a short-term impact on growth from roll-out of GST and demonetization, which will be far outweighed by higher tax collection and greater ease of doing business in the medium- to long-term. In the near-term, India will also have to contend with higher oil prices and consequent fiscal prudence, which can be managed to a large extent through responsive macroeconomic policies such as funds flow from strategic divestments. Overall, the growth outlook is upward looking with GDP growth forecasts of anywhere from 7.2% - 7.5% in 2018 and 2019.
I am enthused by the Government''s decisive steps to kick-start credit growth to drive investment activity through the recapitalization of public sector banks and the restructuring of overleveraged companies. Digital India, another major initiative of the Government, has become a mass movement touching the lives of the working class and poor - with 300 million ’jan dhan'' bank accounts, 1.2 billion biometric based ’Aadhar'' identification cards, and 1.2 billion mobile phones - that will advance the country to smart banking. The long-awaited recovery in credit growth, along with the push towards financial inclusion and digitization, will reduce barriers-to-entry for enterprises, thus driving employment and prosperity for a vast majority of the population.
In FY2018, the Company refined its business model to emphasize lending solutions for underserved segments of society - the rural and lower middle-class working population. All of our business operations including MSME loans, construction finance and housing finance are focused on this customer base, whose financing needs for business and housing typically lies in the range of Rs,5 lacs to Rs,35 lacs.
Why do we care about them?
About 85% of CGCL customers are first-generation entrepreneurs, who have availed credit to modernize their businesses.
Entrepreneurship thrives when there is access to affordable, adequate and timely support, both financial and non-financial. Entrepreneurship in growth economies is thus found at the critical intersection of human, financial and social capital. India is a young country, gaining its independence only 71 years ago. There are millions of young Indians craving jobs and, moreover, have the potential to be job creators.
The country currently has nearly 63 million business establishments; 96% of these are proprietorships, which are unserved or underserved by the formal banking sector. Credits to these small family- and individually-run entities from NBFCs, like CGCL, can lead to their sustainability, moving them out of poverty and propelling them to a better quality of life. We stand committed to realize the dreams of enterprise-led national development by contributing timely and adequate financing, with sensitivity to the often unique needs of our borrowers.
As per IMF, India''s GDP would increase by 27% if women''s labour participation were increased to match men''s. This very well summarizes the need to promote gender equality for growth and more equal income distributions. Through our lending activities, we intend to empower women by enabling them to become entrepreneurs and home owners in their own right. I am proud that women account for 15% of our business loan and 8% of home loan customers, but we can and must do better.
I am delighted that our subsidiary, Capri Global Housing Finance Limited has delivered impressive performance in its first full year of operation. With a loan book of Rs,24,633 lacs, of which 85% is in the priority sector with average ticket sizes of Rs,11 lacs, the ramp-up in our housing finance business has been exceptional. India is still an underserved economy in terms of affordable housing, with over 25% of the country''s urban population in need of affordable housing - 90% of them have no formal institutional financing. We are encouraged by the visible financial discipline and organized nature of the affordable real estate industry due primarily to RERA and PMAY, which have made affordable housing more buyer-friendly. With higher transparency and regulation, there will be considerable interest from investors and real estate developers to bridge the demand-supply gap.
I am further pleased to report that FY2018 was a year of high performance marked by 43.86% increase in loan book and 51.62% increase in Total Income. The loan portfolio of the Micro and Small Enterprise segment has grown by 28.46% to Rs,1,55,923.35 lacs (compared to Rs,1,21,379.55 lacs in the previous year), while renewed focus on affordable housing projects has led to over a 74% increase in our construction finance loan book. Not surprisingly, there has been a significant increase in the number of our customers across the board, and a decline in the average ticket sizes reflecting our diversified loan portfolio and risk management.
As the Company expands our customer base and geographic reach, there is a shift towards a direct-sourcing model
wherein our branch network and field personnel have become the direct points of contact with customers. CGCL''s on ground personnel are trained to identify the exclusive needs of such customers, measure their income generation capability, and work closely with them from loan origination, to disbursal, to post-disbursal servicing. By constantly staying in touch with our borrowers, we not only track their business but can also advise them on corrective actions if we perceive early signs of business or financial challenges. Our approach is yielding results - direct sourcing accounted for more than half of MSME business and 100% of affordable housing business in FY2018. We believe direct sourcing will lead to a more sustainable order book on which we can build our future growth.
From a largely equity-funded loan book up to FY2016, we have been successful in tapping debt funding from banks and financial institutions to help fuel growth - total debt funding stood at USD225 million (Rs,1,46,442 lacs) in FY2018, up from USD112 million (Rs,72,730 lacs) one year ago. The CompanyRs,s financial health is strong with a net worth of Rs,1,23,160 lacs, while our financial gearing of1.19 is much lower than industry standards, which we will increase gradually over the next 3 - 4 years.
Looking ahead, I expect FY2019 to be a year of operational excellence, where we will seek to take existing branches to their optimal level of performance with respect to loan disbursements and profitability. In addition, we expect to grow construction finance by financing high quality affordable housing projects; strengthen reporting and add a mobility platform to enhance customer service and reduce turnaround time; and tap new sources of funding to improve return to shareholders. With plans to further deepen our reach in tier 3 and 4 cities with additional branches and the use of technology for loan origination and processing, client service and risk profiling, CGCL is poised for active growth over the next several years.
In conclusion, CGCL aspires to become a financier of choice, where we will partner with entrepreneurs on their path to prosperity. Our social mission is to constantly assist urban poor in improving their standard of living and quality of life. Our corporate social responsibility programmes are designed to address key themes for social development in India such as education, health, training and employment.
I take particular pride in mentioning the immense contribution of our dedicated employees, now over 1350 people, whose hard work and faith have been invaluable in helping the Board and senior management build the Company. I would also like to thank all of our stakeholders for placing their trust in us and also our regulators, for their constant support and guidance.
I also extend my gratitude to all of our Directors for their invaluable input and motivation, which has been instrumental to our journey of growth. Finally, I must sincerely thank all shareholders for your continued support of and trust in our vision. I reaffirm our commitment to build a company which is a leader with respect to performance, and a beacon of integrity and responsibility.
Quintin E. Primo III