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Microfinance institution Arohan Financial Services is planning to hit the primary market next month with initial public offerings (IPO) to raise around Rs 1,800 crore, according to market sources. In an interaction with Money9.com, Manoj Nambiar, managing director of the company, shared his views on the future prospects of the company.

The Aavishkaar Group which focuses on impact investing is Arohan’s promoter. What has the journey been like in these years being a part of the group?

Arohan as a company originally started in 2006. The Aavishkaar Group, which is a global pioneer in taking an entrepreneurship-based approach towards development, acquired Arohan in September 2012 when the company had a Rs 28 crore portfolio and a net worth of Rs 13 crore. Today, we are close to Rs 4,700 crore in terms of portfolio outstanding and Rs 1,000 crore in terms of net worth.

Since becoming a part of the group, the focus for Arohan was on serving our customers at the base of the pyramid by building a digitally advanced NBFC-MFI, with a very robust IT platform supporting the end-to-end customer lifecycle. Arohan is operational in various low-income states of India spread across the central, east and north east parts of the country. We provide low ticket credit services to microfinance customers in the 13 states that we operate in and also offer a very unique product called ‘Bazaar’ for our male customers, both in a group lending format. Additionally, we have an inorganic channel where we work with smaller MFIs, providing them with term loans or partnering with them through sourcing and collection arrangements. These channels of growth have enabled us to achieve a compound annual growth rate (CAGR) of close to around 50% in customer growth and around 70% in portfolio outstanding between FY17 and FY20.

According to you, how important is technology for the financial inclusion industry? What is Arohan’s strategy for use of technology in microfinance?

In an industry that serves the last mile customers representative of the base of the socio-economic pyramid, the role of technology is irreplaceable from scalability, control and quality perspective. We realised this very early in our journey with the motto ‘Cashless at the Front and Paperless at the Back’. Today in 2021, not only our entire customer lifecycle, but various support functions are also completely digitised, which enables us to serve 2 million customers better and faster while optimising quality and reducing operational expenses.

We are not a bank but we operate on a core banking system, which enables us to manage all our customer transactions seamlessly. Along with a completely digital and paperless loan origination system, we have a credit scoring model which helps us take credit underwriting decisions, which is a first in India’s microfinance industry. We have the MeraArohan App for all our field staff, which enables them to serve customers better, for which we have even been awarded a SKOCH Order-of-Merit recognition.

In addition, we recently launched the ApnaArohan App for our customers. Through the app customers can view their loan details in their regional language, make digital payments directly through the app, access our cross-sell offerings and communicate directly with our staff. Essentially, what we have done is to map the entire customer lifecycle process digitally and ensure that at every stage we have adequate technological interventions.

Since the onset of Covid-19 in 2021, the efficient use of technology has helped us manage our operations even better. We were able to transfer all the government and RBI benefits available to eligible customers in time, such as the 6-month moratorium, the MUDRA Shishu Loan interest subsidy, and the ex-gratia relief of compound interest. A significant number of our customers have resorted to cashless repayments from the safety of their homes during the pandemic and we intend to further this trend going forward. 100% of our loans are disbursed in a cashless manner i.e. directly to customers’ bank accounts. Currently, many of our branches have reached 100% cashless repayments, where all customers whom the branches serve are repaying their monthly obligations through cashless modes of repayment.

How has the pandemic impacted Arohan?

With the Covid-19 induced lockdowns starting March 2020 along with an unprecedented RBI loan repayment moratorium of six months for eligible borrowers, floods and cyclones in some operational states and increased infection rates in others, reverse migration of labour from urban centres and several other factors made this a very challenging time. Needless to add, the livelihoods and incomes of our clients were impacted and the same is reflected in their repayment patterns over the last financial year. In contrast, the second wave of Covid-19 only saw localised lockdowns across India. Most of the states that we are operational in had local restrictions, which have mostly been lifted now and economic activities are steadily resuming to pre-Covid levels.

At Arohan, we have effectively used our learnings from the Covid-19 pandemic to come out with innovative products and schemes such as Sahbhaagi – our center reward program for customers which recognizes them for regular repayment and center attendance, and Khaas – a special ‘privilege’ benefit program for used-to-credit customers who interact with us digitally.

Khaas will enable customers to attend virtual center meetings, pay through cashless modes through our ApnaArohan app and other digital payment avenues, access all of Arohan’s services through our centralised call center, including getting her loan renewed, signing her loan agreement electronically in the process. Additionally, we also took responsibility of our customers’ safety by restructuring the format of the center meetings to ensure that they are not sitting closely together and maintaining safety norms. Through our Corporate Social Responsibility initiatives, we distributed masks to our customers and have organized medical camps. This is how we are trying to ensure that each customer gets the support of service and product that suits her best, as we help nurture them back to normalcy and regaining control of her livelihood.

Additionally, it was critical for us to ensure the safety of our own staff across geographies by encouraging them to get vaccinated by reimbursing the cost. We have provided our employees with increased medical coverage for them and their families, and have also announced death in harness package to take care of the families of our employees.

According to sources, your company is trying to go public. what are your plans around this?

We have filed our Draft Red Herring Prospectus on 14th February, 2021 and received approval from SEBI to go ahead earlier with our plans this financial year. We plan to raise funds for our next phase of growth in line with our Mission Statement of empowering under-served households by offering a range of financial services, in a manner sustainable for all stakeholders, and our Vision statement of impacting 20 million lives by 2025.

In the microfinance industry, since the raw material is money, it is imperative to raise capital and leverage that with sufficient debt to fulfil our growth aspirations. We are seeking to raise capital to serve more customers in our current areas of operations, as well as expand our footprint to other states. Our aim is to be able to provide significantly more services and products to customers from the base of the socio-economic pyramid in India.

Is your promoter planning to sell through this fund-raising exercise?

Our promoter, the Aavishkaar Group, represented by the entities of AVMS and I-Cap, collectively hold more than 30% of the issued, subscribed and paid-up share capital of our company. They do not intend to sell a single share during this fund-raising exercise. We have some of our current shareholders who want to sell some shares, but not make a full exit. They continue to see a long term partnership and participation with Arohan.

Your expansion strategy has primarily been focused on the low-income states. With the IPO, how do you see that evolving going forward?

We are based out of West Bengal, which is our biggest and our home state, and following our strategy of expanding to contiguous, low-income states, we cater to customers across 13 states in Central, Eastern and North Eastern parts of the country, spanning some of the most financially excluded states in India. We also have the inorganic channel through which we cater to smaller MFIs, in the remotest geographies in our operational belt. Through this fundraise exercise, we aspire to move ahead on our expansion plan for deeper penetrations in contiguous states in and around the geographies that we operate in.